Wednesday, January 30, 2002
Part II
Federal Trade Commission 16 CFR Part 310 Telemarketing Sales Rule; Proposed Rule
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FEDERAL TRADE COMMISSION need not submit multiple copies or 1990’s to protect consumers against comments in electronic form. telemarketing fraud.2 The purpose of the 16 CFR Part 310 Alternatively, the Commission will Act was to combat telemarketing fraud accept papers and comments submitted by providing law enforcement agencies Telemarketing Sales Rule to the following email address: with powerful new tools, and to give [email protected], provided the content of any AGENCY: Federal Trade Commission. consumers new protections. The Act papers or comments submitted by email directed the Commission, within 365 ACTION: Notice of Proposed Rulemaking. is organized in sequentially numbered days of enactment of the Act, to issue paragraphs. All comments and any SUMMARY: In this document, the Federal a rule prohibiting deceptive and abusive electronic versions (i.e., computer disks) telemarketing acts or practices. Trade Commission (the ‘‘Commission’’ should be identified as ‘‘Telemarketing or ‘‘FTC’’) issues a Notice of Proposed Rulemaking—Comment. FTC File No. The Telemarketing Act specified, Rulemaking to amend the FTC’s R411001.’’ The Commission will make among other things, certain acts or Telemarketing Sales Rule, and requests this document and, to the extent practices the FTC’s rule must address. public comment on the proposed possible, all papers and comments The Act also required the Commission changes. The Telemarketing Sales Rule received in electronic form in response to include provisions relating to three prohibits specific deceptive and abusive to this document available to the public specific ‘‘abusive telemarketing acts or telemarketing acts or practices, requires through the Internet at the following practices:’’ (1) A requirement that disclosure of certain material address: www.ftc.gov. telemarketers may not undertake a information, requires express verifiable Notification of interest in pattern of ‘‘unsolicited telephone calls authorization for certain payment participating in the public forum should which the reasonable consumer would mechanisms, sets recordkeeping be submitted in writing, but separate consider coercive or abusive of such requirements, and specifies those from written comments, to Carole transactions that are exempt from the consumer’s right to privacy;’’ (2) Danielson, Division of Marketing restrictions on the time of day Telemarketing Sales Rule. Practices, Bureau of Consumer This document invites written telemarketers may make unsolicited Protection, Federal Trade Commission, calls to consumers; and (3) a comments on all issues raised by the 600 Pennsylvania Avenue, NW., proposed changes and seeks answers to requirement that telemarketers promptly Washington, DC 20580. The public and clearly disclose in all sales calls to the specific questions set forth in forum will be held at the Federal Trade consumers that the purpose of the call Section IX of this document. This Commission, 600 Pennsylvania Avenue, is to sell goods or services, and make document also contains an invitation to NW., Washington, DC 20580. participate in a public forum, to be held Comments on proposed revisions other disclosures deemed appropriate following the close of the comment bearing on the Paperwork Reduction Act by the Commission, including the period, to afford Commission staff and should additionally be submitted to: nature and price of the goods or services 3 interested parties an opportunity to Office of Information and Regulatory sold. Section 6102(a) of the Act not explore and discuss issues raised during Affairs, Office of Management and only required the Commission to define the comment period. Budget, New Executive Office Building, and prohibit deceptive telemarketing DATES: Written comments will be Room 10102, Washington, DC 20503, acts or practices, but also authorized the accepted until March 29, 2002. ATTN.: Desk Officer for the Federal FTC to define and prohibit acts or Notification of interest in participating Trade Commission, as well as to the practices that ‘‘assist or facilitate’’ in the public forum also must be FTC Secretary at the address above. deceptive telemarketing.4 The Act submitted on or before March 29, 2002. FOR FURTHER INFORMATION CONTACT: further directed the Commission to The public forum will be held at the Catherine Harrington-McBride, (202) consider including recordkeeping Federal Trade Commission, 600 326–2452 (email: [email protected]), requirements in the rule.5 Finally, the Pennsylvania Avenue, NW., Karen Leonard, (202) 326–3597 (email: Act authorized State attorneys general, Washington, DC 20580, on June 5, 6, [email protected]), Michael Goodman, other appropriate State officials, and and 7, 2002, from 9:00 a.m. until 5:00 (202) 326–3071 (email: private persons to bring civil actions in p.m. [email protected]), or Carole federal district court to enforce 6 ADDRESSES: Six paper copies of each Danielson, (202) 326–3115 (email: compliance with the FTC’s rule. written comment should be submitted [email protected]), Division of to the Office of the Secretary, Room 159, Marketing Practices, Bureau of 2 Other statutes enacted by Congress to address Federal Trade Commission, 600 Consumer Protection, Federal Trade telemarketing fraud during the early 1990’s include Commission, 600 Pennsylvania Avenue, the Telephone Consumer Protection Act of 1991 Pennsylvania Avenue, NW., (‘‘TCPA’’), 47 U.S.C. 227 et seq., which restricts the Washington, DC 20580. To encourage NW., Washington, DC 20580. use of automatic dialers, bans the sending of prompt and efficient review and SUPPLEMENTARY INFORMATION: unsolicited commercial facsimile transmissions, dissemination of the comments to the and directs the Federal Communications I. Background Commission (‘‘FCC’’) to explore ways to protect public, all comments should also be residential telephone subscribers’ privacy rights; submitted, if possible, in electronic A. Telemarketing Consumer Fraud and and the Senior Citizens Against Marketing Scams 1 1 Abuse Prevention Act form, on either a 5 ⁄4 or a 3 ⁄2 inch Act of 1994, 18 U.S.C. 2325 et seq., which provides for enhanced prison sentences for certain computer disk, with a label on the disk On August 16, 1994, President telemarketing-related crimes. stating the name of the commenter and Clinton signed into law the 3 15 U.S.C. 6102(a)(3)(A)–(C). the name and version of the word Telemarketing Consumer Fraud and 4 Examples of practices that would ‘‘assist or processing program used to create the Abuse Prevention Act (‘‘Telemarketing facilitate’’ deceptive telemarketing under the Rule document. (Programs based on DOS are Act’’ or ‘‘the Act’’).1 The Telemarketing include credit card laundering and providing contact lists or promotional materials to fraudulent preferred. Files from other operating Act was the culmination of sellers or telemarketers. See, 60 FR 43843, 43853 systems should be submitted in ASCII Congressional efforts during the early (Aug. 23, 1995) (codified at 16 CFR part 310 (1995)). text format to be accepted.) Individual 5 15 U.S.C. 6102(a)(3). members of the public filing comments 1 15 U.S.C. 6101–6108. 6 15 U.S.C. 6103.
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B. Telemarketing Sales Rule television.16 Lastly, catalog sales are 1011(b)(1) amends the ‘‘deceptive Pursuant to the Telemarketing Act, exempt, as are most business-to- telemarketing acts or practices’’ the FTC adopted the Telemarketing business calls, except those involving provision of the Telemarketing Act, 15 17 Sales Rule, 16 CFR part 310, the sale of office or cleaning supplies. U.S.C. 6102(a)(2), by specifying that (‘‘Telemarketing Rule,’’ ‘‘the Rule,’’ C. The USA PATRIOT Act of 2001 ‘‘fraudulent charitable solicitation’’ is to ‘‘TSR,’’ or ‘‘original Rule’’) on August On Thursday, October 25, 2001, be included as a deceptive practice 16, 1995.7 The Rule, which became President Bush signed into law the under the TSR. effective on December 31, 1995, requires Uniting and Strengthening America by The impact of the USA PATRIOT that telemarketers promptly tell each Providing Appropriate Tools Required amendments to the Telemarketing Act is consumer they call several key pieces of to Intercept and Obstruct Terrorism Act discussed more fully in the part of this information: (1) the identity of the (‘‘USA PATRIOT Act’’) of 2001, Pub. L. notice that analyzes § 310.1 of the Rule, seller; (2) the fact that the purpose of the 107–56 (Oct. 25, 2001). This legislation which deals with the scope of the Rule’s call is to sell goods or services; (3) the contains provisions that have significant coverage. This notice sets forth a nature of the goods or services being impact on the TSR. Specifically, section number of proposed changes throughout offered; and (4) in the case of prize 1011 of that Act amends the the text of the TSR to implement the promotions, that no purchase or Telemarketing Act to extend the USA PATRIOT amendments. Also, in 8 payment is necessary to win. coverage of the TSR to reach not just section IX of this notice, the Telemarketers must, in any telephone telemarketing to induce the purchase of Commission specifically seeks comment sales call, also disclose cost and other goods or services, but also charitable and information about its proposals to material information before consumers fund raising conducted by for-profit conform the TSR to section 1011 of the 9 pay. In addition, telemarketers must telemarketers for or on behalf of USA PATRIOT Act. have consumers’ express verifiable charitable organizations. Because authorization before using a demand enactment of the USA PATRIOT Act D. Rule Review and Request for Comment draft (or ‘‘phone check’’) to debit took place after the comment period for consumers’’ bank accounts.10 The Rule the Rule review (described below) The Telemarketing Act required that prohibits telemarketers from calling closed, the Commission did not address the Commission initiate a Rule review before 8:00 a.m. or after 9:00 p.m. (in the issues relating to charitable fundraising proceeding to evaluate the Rule’s time zone where the consumer is by telemarketers in the Rule review. operation no later than five years after located), and from calling consumers Section 1011(b)(3) of the USA its effective date of December 31, 1995, who have said they do not want to be PATRIOT Act amends the definition of and report the results of the review to called by or on behalf of a particular ‘‘telemarketing’’ that appears in the Congress.19 Accordingly, on November seller.11 The Rule also prohibits Telemarketing Act, 15 U.S.C. 6106(4), 24, 1999, the Commission commenced misrepresentations about the cost, expanding it to cover any ‘‘plan, the mandatory review with publication quantity, and other material aspects of program, or campaign which is of a Federal Register notice announcing the offered goods or services, and the conducted to induce * * * a charitable that Commission staff would conduct a terms and conditions of the offer.12 contribution, donation, or gift of money forum on January 11, 2000, limited to Finally, the Rule bans telemarketers or any other thing of value, by use of examination of issues relating to the who offer to arrange loans, provide one or more telephones and which ‘‘do-not-call’’ provision of the Rule, and credit repair services, or recover money involves more than one interstate soliciting applications to participate in lost by a consumer in a prior telephone call * * *’’ the forum.20 Seventeen associations, telemarketing scam from seeking In addition, section 1011(b)(2) adds a individual businesses, consumer payment before rendering the promised new section to the Telemarketing Act organizations, and law enforcement services,13 and prohibits credit card directing the Commission to include agencies, each with an affected interest laundering and other forms of assisting new requirements in the ‘‘abusive and an ability to represent others with and facilitating deceptive telemarketing acts or practices’’ similar interests, were selected to telemarketers.14 provisions of the TSR.18 Section engage in the Forum’s roundtable The Rule expressly exempts from its discussion (‘‘Do-Not-Call’’ Forum), coverage several types of calls, 16 16 CFR 310.6(d)–(f). which was held on January 11, 2000, at including calls where the transaction is 17 16 CFR 310.2(u) (pursuant to 15 U.S.C. 6106(4) the FTC offices in Washington, DC.21 completed after a face-to-face sales (catalog sales)); 16 CFR 310.6(g) (business-to- business sales). In addition to these exemptions, contributions, donations, or gifts, and make such presentation, calls subject to regulation certain entities including banks, credit unions, other disclosures as the Commission considers under other FTC rules (e.g., the Pay-Per- savings and loans, companies engaged in common appropriate, including the name and mailing Call Rule, or the Franchise Rule),15 calls carrier activity, non-profit organizations, and address of the charitable organization on behalf of that are not in response to any companies engaged in the business of insurance are which the solicitation is made.’’ Pub. L. 107–56 not covered by the Rule because they are (Oct. 25, 2001). solicitation, calls initiated in response specifically exempt from coverage under the FTC 19 15 U.S.C. 6108. to direct mail, provided certain Act. 15 U.S.C. 45(a)(2); but see, discussion 20 immediately following concerning the USA 64 FR 66124 (Nov. 24, 1999). Comments disclosures are made, and calls initiated regarding the Rule’s ‘‘do-not-call’’ provision, in response to advertisements in general PATRIOT Act amendments to the Telemarketing Act. Finally, a number of entities and individuals § 310.4(b)(1)(ii), as well as the other provisions of media, such as newspapers or associated with them that sell investments and are the Rule, were solicited in a later Federal Register subject to the jurisdiction of the Securities and notice on February 28, 2000. See 65 FR 10428 (Feb. 7 60 FR 43843. Exchange Commission or the Commodity Futures 28, 2000). 21 8 16 CFR 310.4(d). Trading Commission are exempt from the Rule. 15 The selected participants were: AARP, 9 16 CFR 310.3(a)(1). U.S.C. 6102(d)(2)(A); 6102(e)(1). American Teleservices Association, 18 Callcompliance.com, Consumer.net, Direct 10 16 CFR 310.3(a)(3). Specifically, section 1011(b)(2)(d) mandates that the TSR include ‘‘a requirement that any Marketing Association, Junkbusters, KTW 11 16 CFR 310.4(c), and 310.4(b)(1)(ii). person engaged in telemarketing for the solicitation Consulting Techniques, Magazine Publishers 12 16 CFR 310.3(a)(2). of charitable contributions, donations, or gifts of Association, National Association of Attonerys 13 16 CFR 310.4(a)(2)-(4). money or any other thing of value, shall promptly General, National Association of Consumer Agency 14 16 CFR 310.3(b) and (c). and clearly disclose to the person receiving the call Administrators, National Association of Regulatory 15 16 CFR 310.6(a)–(c). that the purpose of the call is to solicit charitable Continued
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On February 28, 2000, the became effective.25 Commenters At both the ‘‘Do-Not-Call’’ Forum and Commission published a second notice credited the TSR with these positive the July Forum, the participants were in the Federal Register, broadening the developments.26 Commenters generally encouraged to address each other’s scope of the inquiry to encompass the agreed that the Rule has been effective comments and questions, and were effectiveness of all the Rule’s in protecting consumers, without asked to respond to questions from provisions. This notice invited unnecessarily burdening the legitimate Commission staff. The forums were comments on the Rule as a whole and telemarketing industry.27 Commenters open to the public, and time was announced a second public forum to also agreed that the Rule has been an reserved to receive oral comments from discuss the provisions of the Rule other effective tool for law enforcement, members of the public in attendance. than the ‘‘do-not-call’’ provision.22 In especially because it allows individual Several members of the public spoke at response to this notice, the Commission States to obtain nationwide injunctive each of the forums. Both proceedings received 92 comments from relief, or to collectively file a common were transcribed and placed on the representatives of industry, law federal action against a single public record. The public record to date, enforcement, and consumer groups, as telemarketer, thereby creating including the comments and the forum well as from individual consumers.23 enforcement avenues not available transcripts, has been placed on the under State law.28 Commenters The commenters uniformly praised the Commission’s website on the Internet.32 uniformly stressed that it is important to effectiveness of the TSR in combating Based on the record developed during retain the Rule.29 the fraudulent practices that had the Rule review proceeding, as well as plagued the telemarketing industry Commenters report that, despite the success of the Rule in correcting many the Commission’s law enforcement before the Rule was promulgated. They experience, the Commission has also strongly supported the Rule’s of the abuses in the telemarketing industry, complaints about deceptive determined to retain the Rule, but continuing role as the centerpiece of proposes to amend it. federal and State efforts to protect and abusive telemarketing practices consumers from interstate telemarketing continue to flow into the offices of D. Notice of Proposed Rulemaking fraud. However, commenters were less consumer groups and law enforcement 30 sanguine about the effectiveness of the agencies. As will be discussed in By this document, the Commission is Rule’s provisions dealing with greater detail below, many of these proposing revisions to the TSR in order consumers’ right to privacy, such as the complaints suggest that some of the to ensure that consumers receive the ‘‘do-not-call’’ provision and the TSR’s provisions need to be amended to protections that the Telemarketing Act, provision restricting calling times. They better address recurring abuses and to as amended, mandated. The proposed also identified a number of areas of reach emerging problem areas. changes to the Rule are made pursuant continuing or developing fraud and Following the receipt of public to the rule review requirements of the comments, the Commission held a abuse, as well as the emergence of new Telemarketing Act,33 and pursuant to second forum on July 27 and 28, 2000 technologies that affect telemarketing the rulemaking authority granted to the (‘‘July Forum’’), to discuss provisions of for industry members and consumers Commission by that Act to protect the Rule other than the ‘‘do-not-call’’ alike. consumers from deceptive and abusive provision. At this forum, which was practices,34 including practices that may Specifically, commenters opined that held at the FTC offices in Washington, the TSR has been successful in reducing be coercive or abusive of the consumer’s DC, sixteen participants representing interest in protecting his or her many of the abuses that led to the associations, individual businesses, 24 privacy.35 As discussed in detail below, passage of the Telemarketing Act, and consumer organizations, and law the Commission believes the proposed that consumer confidence in the enforcement agencies engaged in a modifications are necessary to ensure industry has increased and complaints roundtable discussion of the that the Rule fulfills this statutory about telemarketing practices have effectiveness of the Rule.31 decreased dramatically since the Rule mandate. As noted, the Commission has 25 ATA at 6 (consumers now have increased proposed changes throughout the Rule Utility Commissioners, North American Securities comfort with the telemarketing industry because of pursuant to section 1011 of the USA Administrators Association, National Consumers the TSR); ATA at 4–5 (according to NAAG, PATRIOT Act. The Commission invites League, National Federation of Nonprofits, National telemarketing complaints declined from the top written comment on the questions in consumer complaint in 1995 to number 10 in the Retail Federation, Private Citizen, and Promotion Section IX to assist the Commission in Marketing Association. References to the ‘‘Do-Not- first year that the Rule was in effect); KTW at 3 (TSR Call’’ Forum transcript are cited as ‘‘DNC Tr.’’ has added value, respect, and credibility to determining whether the proposed followed by the appropriate page designation. industry); MPA at 5–7 (complaints about magazine modifications strike the appropriate 22 65 FR 10428 (Feb. 28, 2000). The Commission sales have decreased); NAA at 2; NCL at 2–3 balance, maximizing consumer (reports to NFIC of telemarketing fraud have extended the comment period from April 27, 2000, protections while avoiding the to May 30, 2000. 65 FR 26161 (May 5, 2000). decreased over the last five years from 15,738 in 23 1995 to 4,680 in 1999). imposition of unnecessary compliance A list of the commentes, and the acronyms 26 used to identify each commenter in this Notice, is ATA at 4–5; MPA at 5–7; NAA at 2. burdens on the legitimate telemarketing 27 attached as Appendix A. References to comments AARP at 2; ARDA at 2; ATA at 3–5; Bell industry. are cited by the commenter’s acronym followed by Atlantic at 2; DMA at 2; ERA at 2, 6; Gardner at the appropriate page designation. 1; ICFA at 1; KTW at 1; LSAP at 1; MPA at 4–6; NACAA, NACHA, NCL, NRF, PLP, Private Citizen, NAA at 1–2; NASAA at 1; NACAA at 1; NCL at 2, 24 For example, complaints about ‘‘recovery’’ Promotion Marketing Association, and Verizon. 17 PLP at 1; Texas at 1; Verizon at 1. schemes declined dramatically, from a number 3 References to the July Forum are cited as ‘‘Rule Tr.’’ 28 ranking in 1995 to a number 25 ranking in 1999, AARP at 2; MPA at 4, 6; NAAG at 1; NACAA followed by the appropriate page designation. at 1; NASAA at 1; NCL at 2; Texas at 1. while complaints about credit repair have remained 32 The electronic portions of the public record can 29 AARP at 2; ARDA at 2; ATA at 3–5; Bell at a relatively low level since 1995 (steadily ranking be found at www.ftc.gov/bcp/rulemaking/tsr/tsr- Atlantic at 2; DMA at 2; ERA at 2, 6; Gardner at about number 23 or 24 in terms of number of review.htm. The full paper record is available in complaints received by the National Fraud 1; ICFA at 1; KTW at 1; LSAP at 1; MPA at 4–6; NAA at 1–2; NACAA at 1; NASAA at 1; NCL at 2, Room 130 at the FTC, 600 Pennsylvania Avenue, Information Center (‘‘NFIC’’)). NCL at 11. N.W., Washington, DC 20580, telephone number: 1– Unfortunately, complaints about advance fee loan 17; PLP at 1; Texas at 1; Verizon at 1. 877–FTC–HELP (1–877–382–4357). schemes rose from a number 15 ranking in 1995 to 30 See, e.g., LSAP at 2; NAAG at 4, 10–11; NCL 33 the number 2 ranking in 1998, with about 80% of at 5–6, 10, 15–16. 15 U.S.C. 6108. the advance fee loan companies reported to NFIC 31 The selected participants were: AARP, ATA, 34 15 U.S.C. 6102(a)(1) and (a)(3). located in Canada. NCL at 12. DMA, DSA, ERA, Junkbusters, MPA, NAAG, 35 15 U.S.C. 6102(a)(3)(A).
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II. Overview issue is the proliferation of technologies, available payment methods in many A. Changes in the Marketplace such as caller identification service, that instances are relatively untested, and assist consumers in managing incoming may not provide protections for Since the Rule was promulgated, the calls to their homes.39 Similarly, privacy consumers from unauthorized charges, marketplace for telemarketing has advocates have raised concerns about consumers may need additional changed in significant ways that impact technologies used by telemarketers protections—and vendors heightened the effectiveness of the TSR. The (such as predictive dialers and scrutiny—when using these new proposed amendments to the TSR, deliberate blocking of Caller ID payment methods. therefore, attempt to respond to and information) that hinder consumers’ Finally, over the past five years, the reflect these changes in the marketplace. attempts to screen calls or make practice of preacquired account One of the changes in the way requests to be placed on a ‘‘do-not-call’’ telemarketing—where a telemarketer telemarketing is conducted relates to list. acquires the customer’s billing refinements in data collection and target A second change in the marketplace information prior to initiating a marketing techniques that allow sellers involves payment methods available to telemarketing call or transaction—has to pinpoint with greater precision which consumers and businesses. The growth increasingly resulted in complaints from consumers are most likely to be of electronic commerce and payment potential customers.36 These consumers about unauthorized charges. systems technology has led, and likely developments offer the obvious benefit Billing information can be preacquired will continue to lead, to new forms of of making telemarketing more effective in a variety of ways, including from a payment and further changes in the way and efficient for sellers. However, consumer’s financial institution or consumers pay for goods and services enhanced data collection and target utility company, from the consumer in marketing also have led to increasing they purchase through telemarketing. a previous transaction, or from another 43 public concern about what is perceived Examples of emerging payment devices source. In many instances, the include stored value cards and a host of consumer is not involved in the transfer to be increasing encroachment on 40 consumers’ privacy. These privacy Internet-based payment systems. In of the billing information and is concerns initially focused on the addition, billing and collection systems unaware that the seller possesses it 44 Internet. However, the privacy debate of telephone companies, utilities, and during the telemarketing call. has expanded to include all forms of mortgage lenders are becoming The related practice of ‘‘up-selling’’ direct marketing. Consumers have increasingly available to a wide variety has also become more prevalent in 45 demanded more power to determine of vendors of all types of goods and telemarketing. Through this 41 who will have access to their time and services. technique, customers are offered attention while they are in their The type of payment device used by additional items for purchase after the homes.37 Indeed, a majority of the a consumer to pay for goods and completion of an initial sale. In the comments received during the Rule services purchased through majority of up-selling scenarios, the review focused on issues relating to telemarketing determines the level of consumer privacy and consumer protection that a consumer has in by federal law; however, Visa offers ‘‘‘$0 liability’ sovereignty, rather than on fraudulent contesting unauthorized charges and, in protection in cases of fraud, theft or unauthorized some instances, the kinds of dispute card usage if reported within two business days of telemarketing practices. discovery,’’ capping liability at $50 after that. See One result of the call for greater resolution proceedings available to the www.visa.com/ct/debit/main.html. Similarly, consumer empowerment on issues of consumer should the goods or services Mastercard offers a zero liability policy when loss, privacy has been a greater public and be unsatisfactory. Of all the payment theft, or unauthorized use is reported within 24 devices available to consumers to pay hours of discovery, and otherwise caps liability at governmental focus on the ‘‘do-not-call’’ $50 ‘‘in most circumstances.’’ See 38 issue. Related to the ‘‘do-not-call’’ for telemarketing transactions, only www.mastercard.com/general/zerolliability.html. credit cards afford limited liability for In addition, the Commission’s 900-Number Rule 36 See, e.g., DNC Tr. at 35–36; Rule Tr. at 70–81; unauthorized charges and dispute specifies dispute resolution procedures for disputes ATA at 9 (industry goes to great lengths to identify resolution procedures pursuant to involving pay-per-call transactions. 16 CFR 308.7. only those consumers who are likely purchasers of federal law.42 Therefore, because newly 43 See NAAG at 10. The review of the TSR was their products). See also Robert O’Harrow, A completed before the implementation of the FTC’s Hidden Toll on Free Calls: Lost Privacy—Not even Privacy Rule, 16 CFR Part 313, mandated by the unlisted numbers protected from marketers. Telemarketing, The San Francisco Examiner, p.B– Gramm-Leach-Bliley Act. 15 USC 6801–6810. The Washington Post, p. A1 (Dec. 19, 1999); Robert 1 (Dec. 21, 1999). See also the discussion below of Privacy Rule prohibits financial institutions from O’Harrow, Horning In On Privacy: As Databases the proposed revision to the ‘‘do-not-call’’ disclosing, other than to a consumer reporting Collect Personal Details Well Beyond Credit Card provision, § 310.4(b)(1)(iii). agency, customer account numbers or similar forms Numbers, It’s Time to Guard Yourself, Washington 39 See, e.g., DNC Tr. at 83–130. See also, Donna of access to any non-affiliated third party for use in Post, p. H1 (Jan. 2, 2002); Dialing for Dollars: How Halvorsen, Home defense against telemarketing: direct marketing, including telemarketing. 16 CFR to be Rid of Telemarketers, Orlando Sentinel (Sept. Consumers reaching out to services that screen 313.12(a). 29, 1999), p. E2 (describing process of data mining telemarketers, Star Tribune (Minneapolis), p. 1A 44 Id. and types of information gleaned by list brokers for (July 17, 1999); Stephanie N. Mehta, Playing Hide- 45 See generally Rule Tr. at 95–99, 107–111, 176– sale to telemarketing firms): Carol Pickering, and-Seek by Telephone, Wall Street Journal, p. B– 177. For the purposes of this Notice, the They’re Watching You: Data-Mining firms are 1 (Dec. 13, 1999); Stanley A. Miller II, Privacy Commission intends the term ‘‘up-selling’’ to mean watching your every move—and predicting the next Manager Thwarts Telemarketers. Ameritech says 7 any instance when, after a company captures credit one, Business 2.0 (Feb. 2000), p. 135; and, Selling out of 10 ‘‘junk’’ calls do not get through to card, or other similar account, data to close a sale, is Getting Personal, Consumer Reports, p. 16 (Nov. customers, Milwaukee Journal, p. 1 (Aug. 10, 1999); it offers the customer a second product or service. 2000). and Ed Russo, Phone Devices Put Chill on Cold For example, a consumer might initiate an inbound 37 See, e.g., Bennett at 1; Biagiotti at 1; Card at 1; Calls Screening, ID Altering Telemarketing, Omaha telemarketing call in response to a direct mail Conway at 1; Gilchrist at 1; Gindin at 1; Heagy at World-Herald, p. 1a (Sept. 26, 1999). solicitation for a given product, and, after making 1; Holloway at 1; Kelly at 1; Lee at 1; Runnels at 40 See NCL at 5. A more complete discussion of a purchase, be asked if he or she would be 1; Ver Steegt at 1; and DNC Tr. at 83–130. See also these new payment methods is included below in interested in another product or service offered by O’Harrow, ‘‘A Hidden Toll’’ at A1 and ‘‘Horning In’’ the section discussing express verifiable the same or another seller. Sometimes the further at H1; and Gene Gray, The Future of the authorization, § 310.3(a)(3). solicitation is made by the same telemarketer, and Teleservices Industry—Are You Aware?, 17 Call Ctr. 41 Id.; NAAG at 10; Rule Tr. 111; 254–257. sometimes the call is transferred to a different Solutions (Jan. 1999) p. 90. 42 The Fair Credit Billing Act, 15 U.S.C. 1666 et telemarketer. When the product or service is offered 38 See generally DNC Tr. See also George Raine, seq. provides customers with dispute resolution by the same seller, the practice is called internal up- Drive to Ban Unsolicited Sales Calls; Consumer rights when they believe a credit card charge is selling; when a second seller is involved, the Activist’s Initiative Would Bar Unwanted E-mail, inaccurate. Debit cards are not similarly protected practice is termed external up-selling.
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seller or telemarketer already has services in order to receive protections the USA PATRIOT Act amendments on received the consumer’s billing he or she already has under 15 U.S.C. the scope of coverage of the TSR, the information, either from the consumer 1643 (limiting a cardholder’s liability commenters’ proposals, and the or from another source. When the for unauthorized charges on a credit Commission’s reasoning in accepting or consumer is unaware that the seller or card account); rejecting the commenters’ proposals, are telemarketer already has his or her • To mandate, explicitly, that all discussed below. billing information, or that this billing required disclosures in § 310.3(a)(1) and Effect of the USA PATRIOT Act. As information will be used to process a § 310.4(d) be made truthfully; noted above, section 1011(b)(3) of the charge for goods or services offered in • To expand upon the current prize USA PATRIOT Act amends the an ‘‘up-sell,’’ the most fundamental tool promotion disclosures to include a definition of ‘‘telemarketing’’ that consumers have for controlling statement that any purchase or payment appears in the Telemarketing Act, 15 commercial transactions—i.e., will not increase a consumer’s chances U.S.C. 6306(4), by inserting the withholding the information necessary of winning; underscored language: • To prohibit the practices of to effect payment unless and until they The term ’’telemarketing’’ means a plan, have consented to buy—is ceded, receiving any consumer’s billing program, or campaign which is conducted to without the consumers’ knowledge, to information from any third party for use induce purchases of goods or services or a the seller before the sales pitch ever in telemarketing, or disclosing any charitable contribution, donation, or gift of begins. consumer’s billing information to any money or any other thing of value, by use of Cognizant of these changes to the third party for use in telemarketing; one or more telephones and which involves marketplace, and their potentially • To prohibit additional practices: more than one interstate telephone call * * deleterious effect on consumers, the blocking or otherwise subverting the In addition, Section 1011(b)(2) adds a Commission proposes to amend the transmission of the name and/or new section to the Telemarketing Act TSR. telephone number of the calling party requiring the Commission to include in B. Summary of Proposed Changes to the for caller identification service the ‘‘abusive telemarketing acts or Rule purposes; and denying or interfering in practices’’ provisions of the TSR: any way with a consumer’s right to be The highlights of the Commission’s placed on a ‘‘do-not-call’’ list; a requirement that any person engaged in proposal to amend the TSR are • To narrow certain of the Rule’s telemarketing for the solicitation of charitable summarized below. In brief, the contributions, donations, or gifts of money or exemptions; any other thing of value, shall promptly and Commission proposes: • To clarify that facsimile • clearly disclose to the person receiving the To supplement the current transmissions, electronic mail, and call that the purpose of the call is to solicit company-specific ‘‘do-not-call’’ other similar methods of delivery are charitable contributions, donations, or gifts, provision with an additional provision direct mail for purposes of the direct and make such other disclosures as the that will empower a consumer to stop mail exemption; and Commission considers appropriate, including calls from all companies within the • To modify various provisions the name and mailing address of the FTC’s jurisdiction by placing his or her throughout the Rule to effectuate charitable organization on behalf of which telephone number on a central ‘‘do-not- expansion of the Rule’s coverage to the solicitation is made. call’’ registry maintained by the FTC; include charitable solicitations, Finally, section 1011(b)(1) amends the • To permit a consumer who places pursuant to Section 1011 of the USA ‘‘deceptive telemarketing acts or his or her telephone number on the PATRIOT Act. practices’’ provision of the central ‘‘do-not-call’’ registry to receive III. Analysis of Comments and Telemarketing Act, 15 U.S.C. 6102(a)(2), telemarketing sales calls from an by inserting the underscored language: individual company to whom the Discussion of Proposed Revisions consumer has provided his or her The Commission shall include in such The proposed amendments to the rules respecting deceptive telemarketing acts express verifiable authorization to make Rule do not alter § 310.7 (Actions by or practices a definition of deceptive telemarketing calls to his or her States and Private Persons), or § 310.8 telemarketing acts or practices which shall telephone. (Severability). include fraudulent charitable solicitations • To modify § 310.3(a)(3) to require A. Section 310.1—Scope of Regulations in and which may include acts or practices of express verifiable authorization for all This Part entities or individuals that assist or facilitate transactions in which the payment deceptive telemarketing, including credit method lacks dispute resolution The amendment of the Telemarketing card laundering. protection or protection against Act by section 1011 of the USA Notwithstanding its amendment of unauthorized charges similar or PATRIOT Act is reflected in this section these provisions of the Telemarketing comparable to those available under the of the TSR. Section 310.1 of the Act, neither the text of section 1011 nor Fair Credit Billing Act and the Truth in proposed Rule states that ‘‘this part of its legislative history suggest that it Lending Act. the CFR implements the Telemarketing amends Sections 6105(a) of the • 46 To delete § 310.3(a)(3)(iii), the Act, as amended by the USA Telemarketing Act—the provision provision allowing a telemarketer to PATRIOT Act.’’ which incorporates the jurisdictional obtain express verifiable authorization During the comment period that limitations of the FTC Act into the by sending written confirmation of the occurred prior to enactment of the USA Telemarketing Act and, accordingly, the transaction to the consumer prior to PATRIOT Act, several commenters TSR. Section 6105(a) states: submitting the consumer’s billing recommended that the Rule’s reach be information for payment; expanded or clarified.47 The impact of Except as otherwise provided in sections • To require, in the sale of credit card 6102(d) (with respect to the SEC), 6102(e) (Commodity Futures Trading Commission), 46 15 U.S.C. 6101–6108. The Telemarketing Act protection, the disclosure of the legal 6103 (state attorney general actions), and limits on a cardholder’s liability for was amended by the USA PATRIOT Act on October 25, 2001. Pub. L. 107–56 (Oct. 25, 2001). 6104 (private consumer actions) of this title, unauthorized charges; 47 this chapter shall be enforced by the • See, e.g., DMA at 4; KTW at 4; LSAP at 1; To prohibit misrepresenting that a NAAG at 19; NACAA at 2; NCL at 5, 7, 10; Commission under the Federal Trade consumer needs offered goods or Telesource at 4. Commission Act (15 U.S.C. § 41 et seq.).
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Consequently, no activity which is outside of expanding the Rule’s coverage to entities.55 As explained above, although the jurisdiction of that Act shall be affected include not only the sale of goods or section 1011 of the USA PATRIOT Act by this chapter. (Emphasis added.) 48 services but also charitable solicitations expanded the reach of the TSR by One type of ‘‘activity which is outside by for-profit entities on behalf of enlarging the definition of the jurisdiction’’ of the FTC Act, as nonprofit organizations.51 ‘‘telemarketing’’ to encompass not only interpreted by the Commission and Commenters’ Proposals. A number of calls made to induce purchases of goods federal court decisions, is that of non- commenters urged the expansion of the or services, but also those to solicit profit entities. Sections 4 and 5 of the Rule’s scope beyond its current charitable contributions, it did not FTC Act, by their terms, provide the boundaries. For example, LSAP strongly change the fact that the Telemarketing Commission with jurisdiction only over suggested that the Commission amend Act and the TSR do not apply to persons, partnerships or ‘‘corporations the Rule to provide additional activities excluded from the FTC’s reach organized to carry on business for their protection for consumers in light of the by the FTC Act. own profit or that of their members.’’ 49 It should be noted, however, that Reading the amendments to the convergence of the banking, insurance, and securities industries, noting that although the Commission’s jurisdiction Telemarketing Act effectuated by is limited with respect to the entities section 1011 of the USA PATRIOT Act this phenomenon has resulted in increased sharing of information exempted by the FTC Act, the together with the unchanged sections of Commission has made clear that the the Telemarketing Act compels the between these entities, including customers’ billing information.52 Rule does apply to any third-party conclusion that for-profit entities that telemarketers those entities might use to solicit charitable donations now must Similarly, NCL noted that distinctions between common carriers and other conduct telemarketing activities on their comply with the TSR, although the 56 vendors are becoming less relevant as behalf. As the Commission stated Rule’s applicability to charitable when it promulgated the Rule, ‘‘[t]he organizations themselves is deregulation, detariffing, and mergers have led to increased competition Final Rule does not include special unaffected.50 The USA PATRIOT Act provisions regarding exemptions of brings the Telemarketing Act’s among all types of entities to provide similar products and services.53 NCL parties acting on behalf of exempt jurisdiction over charitable solicitations organizations; where such a company in line with the jurisdiction of the urged that consumers receive the same protections in all commercial would be subject to the FTC Act, it Commission under the FTC Act, by would be subject to the Final Rule as telemarketing, regardless of the type of 57 entity involved.54 well.’’ 48 Section 6105(b) reinforces the point made in NACAA suggested that the Section 6105(a), as follows: The jurisdictional reach of the Rule is Commission clarify that the Rule The Commission shall prevent any person from set by statute, and the Commission has applies to international calls made by violating a rule of the Commission under section no authority to expand the Rule beyond 6102 of this title in the same manner, by the same telemarketers located outside the United means, and with the same jurisdiction, powers, and those statutory limits. Thus, absent States who call consumers within the duties as though all applicable terms and provisions amendments to the FTC Act, the United States. The Commission believes of the Federal Trade Commission Act (15 U.S.C. 41 Commission is limited with regard to that its enforcement record leaves no et seq. were incorporated into and made a part of any additional protections it might this chapter. Any person who violates such rule doubt that sellers or telemarketers shall be subject to the penalties and entitled to the provide in response to acts and located outside the United States are same privileges and immunities provided in the practices resulting from the convergence subject to the Rule if they telemarket Federal Trade Commission Act in the same manner, of entities that are otherwise exempt by the same means, and with the same jurisdiction, their goods or services to U.S. from the Commission’s jurisdiction. 58 power, and duties as though all applicable terms consumers. and provisions of the Federal Trade Commission In a similar vein, some commenters NCL and KTW suggested that the Act were incorporated into and made a part of this urged the Commission to clarify the complementary use of the Internet and chapter. (Emphasis added.) Rule’s applicability to non-profit telephone technologies necessitates 49 Section 5(a)(2) of the FTC Act states: ‘‘The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations 51 While First Amendment protection for charities 55 NAAG at 19; NACAA at 2; NFN at 1. * * * from using unfair or deceptive acts or extend to their for-profit solicitors, e.g., Riley v. 56 For example, although the Rule does not apply practices in or affecting commerce.’’ 15 U.S.C. Nat’l Fed. of the Blind, 487 U.S. 781 (1988), this to the activities of banks, savings and loan 45(a)(2). Section 4 of the Act defines ‘‘corporation’’ narrowly tailored proposed rule furthers institutions, certain federal credit unions, or to the to include: ‘‘any company, trust, so-called government interests that justify the regulation. One business of insurance to the extent that such Massachusetts trust, or association, incorporated or such interest is prevention of fraud. E.g., Sec. of business is regulated by State law, any non-exempt unincorporated, which is organized to carry on State of Maryland v. Joseph H. Munson Co., 467 telemarketer calling on behalf of one of these business for its own profit or that of its members U.S. 947, 969 n.16 (1984); Telco Communications, entities would be covered by the Rule. See 60 FR ***’’ 15 U.S.C. 44 (emphasis added). Inc. v. Carbaugh, 885 F.2d 1231,1232 (4th Cir. at 43843; FTC/Direct Mktg. Ass’n., Complying with 50 A fundamental tenet of statutory construction 1989), cert. denied, 495 U.S. 904 (1990). Another is the Telemarketing Sales Rule (Apr. 1996), p. 12. is that ‘‘a statute should be read as a whole, * * * protection of home privacy. See, e.g., Frisby v. 57 60 FR at 43843. This discussion also addresses and that provisions introduced by the amendatory Schultz, 487 U.S. 474, 484 (1988) (targeted NACAA’s request that the Commission clarify that Act should be read together with the provisions of picketing around a home); Watchtower Bible and it has jurisdiction over telemarketing activities the original section that were * * * left unchanged Tract Society of New York, Inc. v. Village of involving the switching of consumers’ long-distance * * * as if they had been originally enacted as one Stratton, Ohio, 240 F.3d 553 (6th Cir.), cert. granted service. NACAA at 2. The TSR covers the section.’’ Sutherland Stat. Constr. § 22.34, p. 297 on other grounds, lU.S.l (2001) (upholding law, telemarketing of long-distance service to the extent (5th ed)., citing, inter alia, Brothers v. First Leasing, based on both privacy and fraud grounds, that the telemarketing is conducted by entities that 724 F.2d 789 (9th Cir. 1984); Republic Steel Corp. forbidding canvassing of residents who filed a No are subject to the FTC Act. v. Costle, 581 F.2d 1228 (6th Cir. 1978); American Solicitation Form with mayor’s office). 58 See, e.g., FTC v. Win USA, No. C98–1614Z Airlines, Inc., v. Remis Indus., Inc., 494 F.2d 196 52 See LSAP at 1. (W.D. Wash. filed Nov. 13, 1998); FTC v. Pacific (2d Cir. 1974); Kirchner v. Kansas Turnpike Auth., 53 See NCL at 4–5, 7, 15. Rim Pools Int’l, No. C97–1748, (W.D. Wash. filed 336 F.2d 222 (10th Cir. 1964); National Center for 54 Id. at 5, 15. NCL also raised concerns about Nov. 7, 1997) (Order for Permanent Injunction and Preservation Law v. Landrieu, 496 F. Supp. 716 (D. ‘‘cramming,’’ which refers to the practice of placing Final Judgment entered on Jan. 12, 1999); FTC v. SC. 1980); Conoco, Inc. v. Hodel, 626 F. Supp. 287 unauthorized charges on a telephone subscriber’s The Tracker Corp. of America, No. 1:97–CV–2654– (D. Del. 1986); Palardy v. Horner, 711 F. Supp. 667 telephone bill. Id. at 7. This practice is being JEC (N.D. Ga. filed Sept. 11, 1997); FTC v. 9013– (D. Mass. 1989). Thus, in constructing a statute and considered in connection with the review of the 0980 Quebec, Inc., No. 1:96 CV 1567 (N.D. Ohio its amendments, ‘‘[e]ffect is to be given to each part, Commission’s Pay-Per-Call Rule, see, 63 FR 58524, filed July 18, 1996); and FTC v. Ideal Credit Referral and they are to be interpreted so that they do not (Oct. 30, 1998); thus, it need not be treated in the Svcs., Ltd., No. C96–0874, (W.D. Wash. filed June conflict.’’ Id. context of the TSR. 5, 1996).
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broadening the scope of the Rule to materials 63 for online advertising new proposed definitions, ‘‘billing cover online solicitations.59 In the disclosures, provide a developing information,’’ and ‘‘express verifiable original rulemaking, the Commission source of guidance for promoting and authorization,’’ the analogous phrase stated that it lacked sufficient marketing on the Internet. ‘‘or donor’’ has also been included information to support coverage of B. Section 310.2—Definitions following each appearance of the terms online services under the Rule,60 but ‘‘customer’’ or ‘‘consumer.’’ The Commission received comments noted that such media were subject to Another proposed global change on several of the Rule’s definitions. the Commission’s jurisdiction under the necessitated by the USA PATRIOT Act Each suggested change and the is the modification of several of the FTC Act. Indeed, since 1995, the Commission’s reasoning in accepting or Commission has brought more than 200 Rule’s existing definitions to reflect the rejecting that change is discussed below. expansion of the Rule’s coverage to actions against entities who have used The proposed Rule retains the include the solicitation via the Internet to defraud consumers.61 following definitions from the original telemarketing of ‘‘charitable The Commission believes that the Rule unchanged, apart from contributions.’’ The affected definitions, issue of whether there is a need for renumbering: ‘‘acquirer,’’ ‘‘attorney ‘‘material,’’ ‘‘merchant,’’ ‘‘merchant standards for Internet or online general,’’ ‘‘cardholder,’’ ‘‘Commission,’’ agreement,’’ and ‘‘outbound telephone advertising and marketing is distinct ‘‘credit,’’ ‘‘credit card,’’ ‘‘credit card call,’’ now include the analogous phrase from the issues relevant to sales draft,’’ ‘‘credit card system,’’ ‘‘or charitable contributions’’ following telemarketing. E-commerce issues are ‘‘customer,’’ ‘‘investment opportunity,’’ each occurrence of the phrase ‘‘goods or best considered within the specific ‘‘person,’’ ‘‘prize,’’ ‘‘prize promotion,’’ services.’’ context of business practices in the ‘‘seller,’’ and ‘‘State.’’ Section 310.2(c)—‘‘Billing information’’ realm of electronic commerce. In fact, In addition, as discussed in detail the Commission has begun considering below, the Commission proposes The Commission proposes adding a these issues by conducting an inquiry modifying the definition of ‘‘outbound definition of ‘‘billing information.’’ This on how to apply its rules and guides to telephone call,’’ and also proposes term comes into play in proposed online activities, and issuing a staff adding several new definitions: ‘‘billing § 310.3(a)(3), which would add ‘‘billing working paper that provides guidelines information,’’ ‘‘caller identification information’’ to the items that must be for appropriate disclosures when service,’’ ‘‘express verifiable recited in obtaining a consumer’s marketing online.62 The Commission authorization,’’ ‘‘Internet services,’’ and express verifiable authorization. It is also implicated in proposed believes that the body of case law that ‘‘Web services.’’ Further, in order to implement the § 310.4(a)(5), which would prohibit the has been developed on Internet fraud amendments to the Telemarketing Act abusive practices of receiving any and deception, coupled with its made by section 1011 of the USA consumer’s billing information from any published business education PATRIOT Act, the Commission third party for use in telemarketing, or proposes adding certain definitions to disclosing any consumer’s billing 59 See KTW at 4; NCL at 7. information to any third party for use in 60 the Rule, and modifying others. Section 60 FR at 30411. telemarketing. 61 Included among the FTC’s enforcement actions 1011(b)(3) of the USA PATRIOT Act against Internet fraud and deception are cases amends the definition of As explained further below, in the attacking unfair and deceptive use of ‘‘dialer ‘‘telemarketing’’ in the Telemarketing section discussing proposed changes to programs.’’ NCL expressed concern about these Act, 15 U.S.C. 6306(4), by inserting the § 310.3(a)(3), the Commission proposes programs, which are downloadable software underscored language: to require that ‘‘billing information’’ be programs that consumers access via the Internet. recited as part of the process of Once a dialer program is downloaded, it The term ‘‘telemarketing’’ means a plan, obtaining a consumer’s or donor’s disconnects a consumer’s computer modem from program, or campaign which is conducted to the consumer’s usual Internet service provider, induce purchases of goods or services or a express verifiable authorization. Under dials an international phone number in a country charitable contribution, donation, or gift of the original Rule, if the telemarketer with a high per-minute telephone rate, and opted to seek oral authorization for a reconnects the consumer’s modem to the Internet money or any other thing of value, by use of from some overseas location, typically opening at one or more telephones and which involves demand draft, the Rule required that the an adult website. Line subscribers—the consumers more than one interstate telephone call * * * telemarketer tape record the customer’s responsible for paying phone charges on the (emphasis added). oral authorization, as well as the telephone lines—then begin incurring charges on provision of the following information: their phone lines for the remote connection to the The proposed Rule’s definition of Internet, typically at the rate of about $4.00 per ‘‘telemarketing’’ incorporates this the number, date(s) and amount(s) of minute. The charges for the Internet-based adult change. To fully implement this payments to be made, the date of entertainment are represented on the consumer’s definitional change, the proposed Rule authorization, and a telephone number phone bill as international telephone calls. Under for customer inquiry that is answered its Section 5 authority, the Commission has brought adds definitions of the terms ‘‘charitable cases against videotext providers who use these contribution’’ and ‘‘donor,’’ discussed during normal business hours. The dialer programs in an unfair or deceptive manner. below. In addition, the existing proposed Rule would expand the See, e.g., FTC v. Hillary Sheinkin, No. 2–00–3636– definition of ‘‘telemarketer’’ requires express verifiable authorization 18 (D.S.C. filed Nov. 18, 2000); FTC v.Ty Anderson, requirement to other payment methods, No. C00–1843P (W.D. Wash. filed Oct. 27, 2000); modification to reflect the expanded FTC v. Verity Int’l, Ltd., No. 7422 (S.D.N.Y. filed reach of the Rule to cover telephone and would add to this list of disclosures Oct. 2, 2000); FTC v. Audiotex Connection, Inc., No. solicitations of charitable contributions ‘‘billing information,’’ i.e., the 97–0726 (E.D.N.Y filed Feb. 13, 1997). pursuant to the USA PATRIOT Act. identification of the consumer’s or 62 63 FR 24996 (May 6, 1998) (public comments donor’s specific account and account and the workshop transcript for the proceeding are Accordingly, the definition of available at www.ftc.gov/bcp/rulemaking/ ‘‘telemarketer’’ now includes the number to be charged in the particular elecmedia/index.htm); FTC, Dot Com Disclosures: analogous phrase ‘‘or donor’’ following transaction, to ensure that consumers Information About Online Advertising (Staff each appearance of the term ‘‘customer’’ and donors know which of their Working Paper, May, 2000). See also, FTC, accounts will be billed. A definition of Advertising and Marketing on the Internet: Rules of or ‘‘consumer.’’ Similarly, in two of the the Road (September, 2000), a guide to comlying ‘‘billing information’’ would clarify with FTC rules and guides when advertising and 63 See FTC, Dot Com Disclosures; FTC, sellers’ and telemarketers’ obligations marketing on the Internet. Advertising and Marketing on the Internet. under this proposed revision.
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As explained in the section discussing Section 310.2(f)—‘‘Charitable Section 310.2(m)—‘‘Donor’’ proposed § 310.4(a)(5)—which would Contribution’’ prohibit receiving from any person other As part of its implementation of than the consumer or donor for use in The Commission proposes adding a section 1011 of the USA PATRIOT Act, telemarketing any consumer’s or donor’s definition of ‘‘charitable contribution.’’ the Commission proposes adding a ‘‘billing information,’’ or disclosing any Section 1011 of the USA PATRIOT Act definition of ‘‘donor.’’ This Act’s such ‘‘billing information’’ to any amends the Telemarketing Act to expansion of the TSR’s coverage to person for use in telemarketing—the specify as an abusive practice the failure encompass charitable solicitations of ‘‘any person engaged in telemarketing inclusion of this provision banning necessitates the inclusion of a term in for the solicitation of charitable trafficking in ‘‘billing information’’ the Rule to denote a person solicited to contributions, donations, or gifts of makes it necessary to provide in the make a charitable contribution. money or any other thing of value’’ to Rule a definition of that term. The Throughout the original Rule, the terms make certain prompt and clear proposed Rule defines ‘‘billing ‘‘customer’’ and ‘‘consumer’’ are used to disclosures. The Commission has refer to those subject to a solicitation to information’’ as any data that provides determined that the single term purchase goods or services by a seller or access to a consumer’s or donor’s ‘‘charitable contribution,’’ defined for telemarketer. The meaning of these account, such as a credit card, checking, the purposes of the Rule to mean ‘‘any savings, share or similar account, utility donation or gift of money or any other terms cannot reasonably be stretched to bill, mortgage loan account, or debit thing of value’’ succinctly captures the include persons being asked to make a card. The Commission intends this term meaning intended by Congress. charitable contribution. Therefore, the to include information such as a credit Therefore, the Commission proposes to Commission proposes adding to the or debit card number and expiration add this definition to the Rule. Rule an analogous term—‘‘donor’’—for date, bank account number, utility use in the context of charitable The Commission has also determined account number, mortgage loan account solicitations. Under the proposed that this definition should explicitly number, customer’s or donor’s date of clarify that the definition and, definition, a person need not actually birth or mother’s maiden name, and any accordingly, the entire Rule, is make a donation or contribution to be a other information used as proof of inapplicable to political contributions, ‘‘donor.’’ He or she need only be authorization to effect a charge against including contributions to political solicited to make a charitable a person’s account. parties and candidates. Calls to solicit contribution. (In this respect, the Section 310.2(d)—‘‘Caller Identification such contributions are outside the scope definition tracks the definition of Service’’ of the Rule because they involve neither ‘‘customer’’—‘‘any person who is or purchases of goods or services nor may be required to pay for goods or The Commission proposes adding a solicitations of charitable contributions, services * * *.’’) definition of ‘‘caller identification donations or gifts, and thus fall outside Section 310.2(n)—‘‘Express Verifiable service.’’ As described, below, in the the statutory definition of Authorization’’ discussion of § 310.4(a)(6), the ‘‘telemarketing.’’ 15 U.S.C. 6106(4). Commission proposes specifying that it Thus, the Commission proposes to The Commission proposes adding a is an abusive practice to block, exclude from the definition of definition of ‘‘express verifiable circumvent, or alter the transmission of, ‘‘charitable contribution’’ any authorization’’ because the proposed or direct another person to block, contributions to ‘‘political clubs, Rule expands the use of the term circumvent, or alter the transmission of, 64 committees, or parties.’’ Additionally, beyond its meaning in the original Rule. the name and/or telephone number of as a matter of policy, and following the The term ‘‘express verifiable the calling party for caller identification example of many state laws, the authorization’’ comes into play in the service purposes, provided that it shall Commission also proposes to exclude proposed Rule in two distinct not be a violation to substitute the from the definition contributions to provisions: § 310.3(a)(3), requiring the actual name of the seller and the seller’s constituted religious organizations or customer service number, which is groups affiliated with and forming an express verifiable authorization of a answered during regular business hours, integral part of the organization where customer or donor to a charge when for the phone number used in making no part of the net income inures to the certain payment methods are used; and the call. In order to clarify what is direct benefit of any individual, and § 310.4(b)(1)(iii)(b), which makes it a prohibited under this proposed which has received a declaration of violation of the Rule to call any provision, the Commission has defined current tax exempt status from the consumer or donor who has placed ‘‘caller identification service’’ as ‘‘a United States government.’’ 65 The himself or herself on the national ‘‘do- service that allows a telephone Commission believes that the risk of not-call’’ list absent that consumer’s or subscriber to have the telephone actual or perceived infringement on a donor’s express verifiable authorization. number and, where available, name of paramount societal value—free and In order to ensure clarity, the term the calling party transmitted unfettered religious discourse—likely ‘‘express verifiable authorization’’ has contemporaneously with the telephone outweighs the benefits of protection been defined to mean ‘‘the informed, call, and displayed on a device in or from fraud and abuse that might result explicit consent of a consumer or donor, connected to the subscriber’s from including contributions to such which is capable of substantiation.’’ The telephone.’’ The Commission intends organizations within the scope of the specific means of obtaining express the proposed definition of ‘‘caller definition. verifiable authorization for a charge are identification service’’ to be sufficiently listed in § 310.3(a)(3)(i)–(ii) and the broad to encompass any existing or 64 Similarly, a number of state statutes regulating specific means of obtaining express emerging technology that provides for charitable solicitations exempt political verifiable authorization to place a call to organizations. E.g., Fla. Stat. ch. 496.403 (2000). Ill. the transmission of calling party Rev. Stat. ch. 23 para. 5103(2000). a consumer or donor who is on the information during the course of a 65 See, e.g., Ga. Code Ann. Sec. 43–17–2(2); Ill. national ‘‘do-not-call’’ list is found in telephone call. Rev. Stat. ch. 14 para. 54 (2000). § 310.4(b)(1)(iii)(B)(1)–(2).
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Section 310.2(m)—‘‘Internet Services’’ that in external up-selling, when calls In addition, the Commission wishes The Commission also proposes are transferred from one seller or to clarify that a transferred call or a adding a definition of ‘‘Internet telemarketer to another, or when a solicitation by a single telemarketer on services’’ because of the proposed single telemarketer solicits on behalf of behalf of a separate seller or charitable modification of the business-to-business two distinct sellers, it is crucial that organization is, for the purposes of the exemption, § 310.6(g), to make the consumers or donors clearly understand Rule, a separate transaction. Because it exemption unavailable to telemarketers that they are dealing with separate is a separate transaction, it will be of Internet services, a line of business entities. In the original Rule, the covered by the Rule if the separate seller that is increasingly pursued by Commission determined that a or charitable organization is subject to disclosure of the seller’s identity was fraudulent telemarketers. Thus, the the Commission’s jurisdiction. Thus, if necessary in every outbound call to Commission proposes that the term an initial inbound call is exempt from ‘‘Internet services’’ be defined as ‘‘the enable the customer to make a fully- 69 the Rule’s coverage—for example, under provision, by an Internet Service informed purchasing decision. In the case of a call transferred by one the § 310.6(e) exemption for calls in Provider, or another, of access to the response to general media advertising— Internet.’’ The Commission intends for telemarketer to another to induce the purchase of goods or services, or one in but the consumer or donor is transferred this term to encompass the provision of to another seller or telemarketer, or if a whatever is necessary to gain access to which a single telemarketer offers the second (or subsequent) seller’s or the Internet, including software and goods or services of two separate sellers, charitable organization’s solicitation is telephone or cable connection, as well it is equally important that the as other goods or services providing consumer know the identity of the made by a single telemarketer, the access to the Internet. Specifically, the second seller, and that the purpose of transaction with the second solicitation term includes provision of access to the the second call is to sell goods or will not be exempt under the general Internet, or any component thereof, services. Such information is equally media exemption. On the contrary, the such as electronic mail, the World Wide material to a donor’s decision in the Commission will consider this to be a Web, websites, newsgroups, Internet context of solicitations for charitable separate transaction and will make a Relay Chat or file transfers. contributions. The Commission has separate determination whether that determined that treating the transferred second seller or telemarketer falls Section 310.2(r)—‘‘Outbound Telephone call as a separate outbound call will within the FTC’s jurisdiction and thus Call’’ ensure that consumers receive the is subject to all of the Rule’s The Commission proposes modifying disclosures required by § 310.4(d) and requirements. the Rule’s definition of ‘‘outbound that donors receive the disclosures telephone call’’66 to clarify the Rule’s proposed by § 310.4(e),70 thereby Section 310.2(aa)—‘‘Telemarketing’’ coverage in two situations: (1) When, in clarifying the nature of the transaction the course of a single call, a consumer for the consumer or donor, and As explained above, the USA or donor is transferred from one providing him or her with material PATRIOT Act’s amended definition of telemarketer soliciting one purchase or information necessary to make an ‘‘telemarketing’’ has been incorporated charitable contribution to a different informed decision about the into the definition of ‘‘telemarketing’’ in telemarketer soliciting a different solicitation(s) being made.71 the Rule. purchase or contribution, such as in the Section 310.2(bb)—‘‘Web Services’’ case of ‘‘up-selling;’’67 and (2) when a 69 The Act specified that the Commission include in the Rule a requirement that the telemarketer single telemarketer solicits purchases or ‘‘promptly and clearly disclose to the person The Commission proposes adding a contributions on behalf of two separate receiving the call that the purpose of the call is to definition of ‘‘Web services’’ because of sellers or charitable organizations (or sell goods and services and make such other the proposed amendment to the some combination of the two). Under disclosures as the Commission deems appropriate, including the nature and price of the goods and business-to-business exemption, the proposed definition, when a call, services.’’ 15 U.S.C. 6102(a)(3)(c). In the original § 310.6(g), to make it unavailable to whether originally initiated by a rulemaking, the Commission determined that two sellers and telemarketers of Web consumer/donor or by a telemarketer, is additional disclosures were necessary: (1) The identity of the seller, and (2) that no purchase or services, a line of business transferred to a separate telemarketer or demonstrated by the Commission’s seller for the purpose of inducing a payment is necessary to be able to win a prize or participate in a prize promotion if a prize recent law enforcement experience to be purchase or charitable contribution, the promotion is offered. 16 CFR 310.4(d)(1) and (4). an area of particular abuse by fraudulent transferred call shall be considered an Section 310.4(e)(1) of the proposed Rule imposes an ‘‘outbound telephone call’’ under the analogous requirement to disclose the identity of telemarketers. The Commission the charitable organization on behalf of whom an Rule. Similarly, if a single telemarketer proposes that the term ‘‘Web services’’ outbound telemarketing call is being made to solicit be defined as ‘‘designing, building, solicits for two or more distinct sellers charitable contributions. or charitable organizations in a single 70 In particular, consumers and donors need to creating, publishing, maintaining, call, the second (and any subsequent) understand that they are dealing with more than providing, or hosting a website on the one seller or charitable organization, and the Internet.’’ The Commission intends for solicitation shall be considered an identity of each. It is also important that consumers ‘‘outbound telephone call’’ under the understand that the purpose of the second this term to encompass any and all Rule. transaction is to solicit sales goods or services, or services related to the World Wide Web. The Commission proposes this change charitable contributions (whichever is applicable). in response to evidence in the Rule 71 Additionally, the disclosures in § 310.3(a)(1) (or of proposed § 310.3(a)(4) as to charitable customer/donor is provided with the necessary review record that the practice of ‘‘up- solicitations) would, of course, also have to be made disclosures for the primary solicitation, as well as selling’’ is becoming increasingly by each telemarketer. In fact, as discussed, below, any further solicitation. Similarly, express verifiable common.68 The Commission believes in the discussion of § 310.3, the Commission authorization for each solicitation, when required, believes that even when a single telemarketer acts would be necessary. Of course, even absent the on behalf of two sellers or charitable organizations, 66 The definition of ‘‘outbound telephone call’’ is it is necessary for these transactions to be treated Rule’s requirement to obtain express verifiable in § 310.2(n) of the original Rule. as separate for the purposes of complying with the authorization, telemarketers must always take care 67 See n.45 for an explanation of this term. TSR. Therefore, in such an instance, the to ensure that consumers’ or donors’ explicit 68 See Rule Tr. at 95–99, 107–111, 176–177. telemarketer should take care to ensure that the consent to the purchase or contribution is obtained.
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Other Recommendations by account telemarketing.77 The As noted by NAAG, in many Commenters Regarding Proposed Commission agrees that a definition of preacquired account telemarketing Definitions something like ‘‘account’’ would be solicitations, products and services Credit terms. NCL recommended that helpful in clarifying the Rule’s coverage, (often buyers’ clubs) are marketed changes in the way consumers pay for but has determined that the broader through the use of free trial offers, goods and services they purchase via term ‘‘billing information’’ better serves which are presented to consumers as telemarketing may necessitate changes the purpose. As set forth above, the ‘‘low involvement marketing 81 in the Rule.72 NCL further suggested definition of ‘‘billing information’’ is decisions.’’ Consumers are asked that, if the Rule were amended to designed to ensure that sellers and merely to consent to the mailing of address telephone billing and other new telemarketers understand their new materials about the offer. Consumers forms of electronic payment, the obligations under proposed frequently do not realize that the seller definitions of ‘‘credit card,’’ § 310.4(a)(5), which prohibits as an or telemarketer already has their billing ‘‘merchant,’’ and ‘‘merchant agreement’’ abusive practice the receipt for use in information in hand and, instead, might need to be changed to ensure telemarketing from any person other mistakenly believe they must take some coverage of these new or alternative than the consumer or donor any action before they will be charged—i.e., billing methods.73 The Commission consumer’s or donor’s billing that they are under no obligation unless agrees that consumers need additional information, and further prohibits they take some additional affirmative protection in certain telemarketing sales disclosure of any consumer’s or donor’s step to consent to the purchase. When situations, but has effected these billing information to any person for use such free trial offers are coupled with protections through proposed changes in telemarketing.78 Therefore, because it preacquired account telemarketing, to the express verifiable authorization has addressed concerns about telemarketers often use the preacquired provision.74 Therefore, the definitions preacquired account telemarketing in billing information to charge the of ‘‘credit card,’’ ‘‘merchant,’’ and other ways, the Commission believes consumers at the end of the trial period, ‘‘merchant agreement’’ are retained that it is unnecessary to add definitions even when consumers have taken no unchanged. of ‘‘account holder,’’ ‘‘inbound additional steps to assent to a purchase Telemarketing. DSA recommended telephone call’’ and ‘‘preacquired or authorize the charge, and have never that the definition of ‘‘telemarketing’’ be account number.’’ provided any billing information changed to make the Rule applicable Online solicitation. NCL themselves.82 only when more than one telephone is recommended that the scope of the Rule The proposed Rule addresses used in conducting a plan, program, or be expanded to cover online concerns about free trial offers that are campaign to induce the purchase of solicitations (discussed above in the marketed in conjunction with goods or services.75 The Commission’s section addressing proposed revisions to preacquired-account telemarketing by definition of telemarketing, which states § 310.1), and that a definition of ‘‘online banning the receipt of the consumer’s that telemarketing occurs when one or solicitation’’ be added to the Rule. For billing information for use in more telephones are used to induce the the reasons discussed above, the telemarketing from any source other 83 purchase of goods or services, tracks Commission has decided not to expand than the consumer. The ban on the verbatim the Telemarketing Act.76 Even the Rule’s coverage to online receipt of customer billing information if it is assumed that the Commission has solicitations. Therefore, a definition of from any source other than the authority to deviate from the very ‘‘online solicitation’’ is not necessary. consumer should curtail abuses that specific definition mandated by the Free Trial Offers. NCL recommended have occurred when free trial offers are statute, the Commission believes that that the Commission include definitions made in conjunction with preacquired there is no justification to do so. of ‘‘free offer’’ and ‘‘trial offer’’ if the account telemarketing by effectively Limiting the definition as DSA proposed Rule were amended to include specific eliminating the trade in preacquired would unnecessarily restrict the requirements for sellers and billing information. Free trial offers that application of the Rule, which currently telemarketers who make such offers. are made to consumers via governs interstate calls which are part of Several commenters noted that the telemarketing, but absent the use of a plan, program or campaign to induce practice of making a free trial offer has preacquired billing information, would, the purchase of goods or services or to generated significant numbers of of course, remain subject to the Rule’s induce charitable contributions, even if consumer complaints when those offers requirements, including the disclosure only a single phone is used to place or are coupled with preacquired-account requirements in § 310.3(a)(1) and receive calls. Therefore, the Commission telemarketing.79 The Rule review record § 310.4(d), and the prohibition on has determined not to modify the and the enforcement experience of the misrepresentations in § 310.3(a)(2). definition in this manner. Commission and other law enforcement Pursuant to these provisions, any seller Transactions Involving ‘‘Preacquired agencies confirm that consumers are or telemarketer offering goods or Account Telemarketing.’’ LSAP often confused about their obligations services on a free trial basis would be recommended that new definitions be when a product or service is offered to required to disclose, among other added for the terms ‘‘account,’’ ‘‘account them for a trial period at no cost and the things, the total cost and quantity of the holder,’’ ‘‘inbound telephone call,’’ and seller or telemarketer already possesses goods or services and that the customer’s account will be ‘‘preacquired account number,’’ to the consumer’s billing information.80 address the practice of preacquired automatically charged or debited at the 77 See LSAP at 2–3. end of the free trial period, if such is the 72 See NCL at 9. 78 See the section discussing § 310.4(a)(5), below, 73 Id. for a complete analysis of this provision. MC99–010056 (4th Dist. MN June, 1999); Minnesota 74 § 310.3(a)(3). A complete analysis of the 79 See NACAA at 2; NAAG at 11–12, 16–17; NCL v. Damark Int’l, Inc., No. C8–99–10638, Assurance proposed revisions to this section can be found at 5–6. of Discontinuance (Ramsey County Dist. Ct. Dec. 3, below in the discussion of § 310.3(a)(3). 80 See, e.g., FTC v. Triad Discount Buying Service, 1999); FTC v. S.J.A. Society, Inc., No. 2:97 CV472 75 See DSA at 6. Inc. (S.D. Fla. No. 01–8922 CIV ZLOCH complaint (E.D. Va. filed May 31, 1997). 81 76 15 U.S.C. 6106(4). At the end of the definition, and stipulated order filed Oct. 23, 2001); New York See NAAG at 11. however, the Rule adds a clarifying sentence not v. Memberworks, Assurance of Discontinuance 82 Id. at 11–12. present in the statute. (Aug. 2000); Minnesota v. Memberworks, Inc., No. 83 Proposed Rule, § 310.4(a)(5).
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case. Adherence to these Rule recommended that additional payment.91 The Commission recognizes, requirements will afford consumers the disclosures be added to the Rule. MPA however, that it is possible to state the protections needed when accepting noted that the inclusion of the required cost of an installment contract in such goods or services on a free trial basis. disclosures in the Rule has been a way that, although literally true, ‘‘Promptly.’’ As described in detail beneficial both for industry and obfuscates the actual amount that the below in the discussion of § 310.4(d), consumers by providing clear guidelines consumer is being asked to pay. Such a NACAA and Texas suggested defining for good business practices, and by statement of cost would not meet the the term ‘‘prompt’’ as used in § 310.4(d) establishing a standard that helps relevant ‘‘clear and conspicuous’’ of the Rule, suggesting that the term be consumers to distinguish between standard for disclosures under the defined to mean ‘‘at the onset’’ of a legitimate and fraudulent telemarketing Rule.92 Particularly in long-term, high- call.84 The Commission believes that the practices.87 NASAA noted that the cost contracts, where it may be Rule’s Statement of Basis and Purpose disclosure provisions also have been advantageous to the seller or makes clear that ‘‘prompt’’ means ‘‘at helpful in protecting investors from telemarketer to break the cost down to once or without delay,’’85 and that ‘‘bait and switch’’ scams where weekly or monthly amounts, and for the further clarification is unnecessary. stockbrokers claim to be selling blue customer to pay over time, the C. Section 310.3—Deceptive Telemarketing chip investments, but deliver only high- disclosure of the number of installment Acts or Practices risk, little-known stocks.88 payments and the amount of each must The Commission received no correlate to the billing schedule that Section 310.3 of the Rule sets forth comments addressing the provisions will actually be implemented. required disclosures that must be made regarding disclosure of refund policies Therefore, to comply with the Rule’s in every telemarketing call; prohibits (§ 310.3(a)(1)(iii)), or the disclosure of total cost disclosure provision, it would misrepresentations of material material costs or conditions to receive a be inadequate to state the cost per week information; requires that a telemarketer prize (§ 310.3(a)(1)(v)). Moreover, the if the installments are to be paid obtain a customer’s express verifiable Commission’s enforcement experience monthly or quarterly. authorization before obtaining or with these provisions does not suggest The Commission believes that the submitting for payment a demand draft; current total cost disclosure provision prohibits false and misleading that there are deficiencies or omissions that need to be addressed through provides a customer with the necessary statements to induce the purchase of material information with which to goods or services or, pursuant to the amendments. Therefore, these sections are included in the proposed Rule make a purchasing decision when a USA PATRIOT Act amendments, to seller discloses either the overall total induce charitable contributions; holds without change. Several commenters suggested cost, or, in the case of installment liable anyone who provides substantial additional disclosures or other changes payments, the total number of payments assistance to another in violating the to § 310.3(a)(1), which they felt would and the amount of each. Therefore, the Rule; and prohibits credit card enhance the consumer protections provision’s language is retained in the laundering in telemarketing provided by this section. Each proposed Rule without change. transactions. During the Rule review, recommendation and the Commission’s the Commission received a large Section 310.3(a)(1)(ii)—Disclosure of reasons for accepting or rejecting it are number of comments addressing various Material Restrictions set forth below. provisions of this section, the substance NAAG opined that the material of which are discussed in turn below. Section 310.3(a)(1)(i)—Disclosure of information that a seller or telemarketer Total Costs Section 310.3(a)(1)—Required must disclose to a consumer in a Disclosures Some commenters suggested that the telemarketing transaction includes the Commission clarify that, in the case of illegal nature of any goods and services Section 310.3(a)(1) requires the sales involving monthly installment offered. For example, NAAG noted that disclosure by a seller or telemarketer of payments, the total cost to be disclosed several cross-border telemarketing cases five types of material information before should be the total cost of the entire have involved the sale of foreign lottery a customer pays for goods and services. contract, not just the amount of the chances to citizens of the United States, That information includes: the total cost monthly installment.89 These a practice which is illegal under U.S. and quantity of the goods offered; all commenters noted that it is typical in law.93 NAAG expressed the concern that material restrictions, limitations, or magazine subscription sales for a conditions to purchase, receive, or use 91 telemarketer to state the weekly price 60 FR at 43847; Complying With the the offered goods or services; for a subscription without giving the Telemarketing Sales Rule at 16. information regarding the seller’s refund 92 16 CFR 310.3(a)(1). The Commission believes total cost for the entire term of the policy if the seller has a policy of not that the best practice to ensure the clear and subscription period. For example, a making refunds or if the telemarketer conspicuous standard is met is to ‘‘do the math’’ for magazine telemarketer might state that a the consumer wherever possible. For example, makes a representation about such a consumer would be charged $3.45 per where the contract entails 24 monthly installments policy; certain information relating to of $8.99 each, the best practice would be to disclose week for 48 months, rather than stating the odds involved in prize promotions; that the consumer will be paying $215.76. In open- that the consumer’s ultimate liability for and all material costs or conditions to ended installment contracts it may not be possible the magazines will be more than $700.90 to ‘‘do the math’’ for the consumer. In such a case, receive or redeem a prize. The Commission has already noted particular care must be taken to ensure that the cost Most of the comments about this disclosure is easy for the consumer to understand. that in disclosing total costs it is section expressed support for the 93 NAAG at 15. Law enforcement actions against sufficient for a seller or telemarketer to required disclosures,86 and some telemarketers selling foreign lottery chances to U.S. disclose the total number of installment citizens include: FTC v. Win USA Ltd., No. C98– payments and the amount of each 1614Z (W.D. Wash filed Nov. 13, 1998) (brought by 84 See NACAA at 2; Texas at 2. the FTC, the State of Arizona, and the State of 85 60 FR at 43856, n. 150. Washington); and FTC v. Windermere Big Win Int’l, 87 86 See, e.g., MPA at 5; ARDA at 2 (asserting that See MPA at 5. Inc., No. 98CV 8066, (N.D. Ill. filed Dec. 16, 1998). immediate disclosures benefit consumers 88 See NASAA at 3. Federal law prohibits the importing and ‘‘[w]ithout placing an unreasonable burden on 89 See NAAG at 8; Texas at 2. transmitting of lottery materials by mail and telemarketers’’). 90 NAAG at 8. otherwise, 18 U.S.C. 1301–1302; such schemes may
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some courts may construe the term purchase will enhance their chances of were from consumers over 50 years of ‘‘material’’ narrowly, so as not to require winning the touted prize.97 This age.100 a disclosure of the inherent illegality of message is likely to influence these Telemarketers of credit card loss such offers. consumers’ purchasing decisions, protection plans represent to consumers The Commission believes that the inducing them to purchase a product or that they will protect or otherwise limit definition of ‘‘material’’ contained in the service they are otherwise not interested the consumer’s liability if his or her 101 Rule, which comports with the in purchasing just so they can become credit card is lost or stolen, but Commission’s Deception Statement and winners. For this reason, it is important frequently misrepresent themselves as established Commission precedent,94 is being affiliated with the consumer’s that entities using these promotions take sufficiently clear and broad enough to credit card issuer, or misrepresent either particular care to dispel deception by encompass the illegality of goods or affirmatively or by omission that the disclosing that a purchase will not services offered. Therefore, no change is consumer is not currently protected proposed with respect to this provision. enhance the chance of winning. against credit card fraud, or that the consumer has greater potential legal Section 310.3(a)(1)(iv)—Disclosures Section 310.3(a)(1)(vi)—Disclosures in liability for unauthorized use of his or Regarding Prize Promotions the Sale of Credit Card Protection her credit cards than he or she actually Section 310.3(a)(1)(iv) requires that, The current TSR does not address does under the law.102 Both the in any prize promotion, a telemarketer telemarketing of credit card protection. Commission and the State Attorneys must disclose the odds of being able to NCL recommended that the Commission General have devoted major resources to receive the prize, that no purchase or amend the Rule to do so, specifically to bringing cases that challenge the payment is required to win a prize or prohibit worthless credit card loss deceptive marketing of credit card loss participate in a prize promotion, and the protection plans.98 NCL reports that protection plans as violations of the no purchase/no payment method of fraudulent solicitations for credit card Rule.103 participating in the prize promotion. loss protection plans ranked 9th among To address the deception that NCL suggested adding a disclosure that the most numerous complaints to the frequently characterizes the sale of making a purchase will not improve a NFIC in 1999.99 The Commission’s credit card loss protection plans, the customer’s chances of winning,95 noting complaint-handling experience is Commission believes consumers need that this disclosure would be consistent disclosure of information about existing consistent with that of NCL. Credit card with the requirements for direct mail protections afforded by Federal law. loss protection plans ranked 12th among solicitations under the Deceptive Mail Deception occurs if, first, there is a Prevention and Enforcement Act the most numerous complaints received representation, omission, or practice (‘‘DMPEA’’).96 The Commission has by the Commission during fiscal year that, second, is likely to mislead determined to add such a disclosure 2000 (October 1, 1999–September 30, consumers acting reasonably under the requirement, both in § 310.3(a)(1) 2000). NCL’s statistics also showed that circumstances, and third, the (governing all telemarketing calls), and these schemes disproportionately representation, omission, or practice is in § 310.4(d) (governing outbound affected older consumers: over 71% of material.104 Unscrupulous sellers and telemarketing). the complaints about these schemes telemarketers of credit card protection The Commission believes that this create the impression, by omission and disclosure will ensure that consumers 97 Moreover, Publishers Clearing House (‘‘PCH’’) are not deceived. The legislative history recently agreed to settle an action brought by 24 100 NCL at 16. of the DMPEA suggests that without States and the District of Columbia alleging, among 101 Credit card loss protection plans are other things, that the PCH sweepstakes mailings such a disclosure, many consumers distinguished from credit card registration plans, in deceived consumers into believing that their which consumers pay a fee to register their credit reasonably interpret the overall chances of winning the sweepstakes would be cards with a central party, and that party agrees to presentation of many prize promotions improved by buying magazines from PCH. As part contact the consumers’ credit card companies if the to convey the message that making a of the settlement, PCH agreed to include consumers’ cards are lost or stolen. disclaimers in its mailings stating that buying does 102 NCL at 10. See, e.g., FTC v. Universal Mktg. not increase the recipient’s chances of winning (and Svcs., Inc., No. CIV–00–1084L (W.D. Okla. filed also violate anti-racketeering laws relating to to pay $18.4 million in redress). In 2001, PCH June 20, 2000); FTC v. NCCP Ltd., No. 99 CV–0501 gambling, 18 U.S.C. 1952–1953, 1084. agreed to pay $34 million in a settlement with the A(Sc) (W.D.N.Y. filed July 22, 1999); South Florida 94 Cliffdale Assocs., Inc., 103 F.T.C. 110, 165, remaining 26 States. See, e.g., Missouri ex rel. Nixon Business Ventures, No. 99–1196–CIV–T–17F (M.D. appeal dismissed sub nom., Koven v. F.T.C., No. v. Publishers Clearing House, Boone County Circuit Fla. filed May 24, 1999); Tracker Corp. of America, 84–5337 (11th Cir. 1984); Thompson Medical Co., Court, No. 99 CC 084409 (2001); Ohio ex rel. No. 1:97–CV–2654–JEC. 104 F.T.C. 648 (1984), aff’d 791 F.2d 189 (D.C. Cir. Montgomery v. Publishers Clearing House, Franklin 103 See, e.g., FTC v. Consumer Repair Svcs., Inc., 1986). County Court of Common Pleas, No. 00CVH–01– No. 00–11218 (C.D. Cal. filed Oct. 23, 2000); FTC 95 See NCL at 9. Although this suggestion was 635 (2000). Similarly, in 1999, American Family v. Forum Mktg. Svcs., Inc., No. 00 CV 0905C made with respect to § 310.4(d), governing oral Publishers (‘‘AFP’’) settled several multi-state class (W.D.N.Y. filed Oct. 23, 2000); FTC v. 1306506 disclosures required in outbound telemarketing actions that alleged the AFP sweepstakes mailings Ontario, Ltd., No. 00 CV 0906A (SR) (W.D.N.Y. filed calls, the rationale and purpose of the proposed induced consumers to buy magazines to better their Oct. 23, 2000); FTC v. Advanced Consumer Svcs., disclosure applies with equal force to all chances of winning a sweepstakes. The original No. 6–00–CV–1410–ORL–28–B (M.D. Fla. filed Oct. telemarketing, as covered by § 310.3(a). See also the suit, filed by 27 States, was settled in March 1998 23, 2000); Capital Card Svcs., Inc. No. CIV 00 1993 discussion, below, in the section on sweepstakes for $1.5 million, but was reopened and expanded PHX ECH (D. Ariz. filed Oct. 23, 2000); FTC v. First disclosures within the analysis of § 310.4(d). to 48 States and the District of Columbia after Capital Consumer Membership Svcs, Inc., Civil No. 96 Id. The Deceptive Mail Prevention and claims that AFP violated its agreement. The State 00–CV–0905C(F) (W.D.N.Y. filed Oct. 23, 2000); Enforcement Act of 1999 is codified at 39 U.S.C. action was finally settled in August 2000 with AFP Universal Mktg. Svcs., Inc., No. CIV–00–1084L; FTC 3001(k)(3)(A)(II). In this regard, it is noteworthy that agreeing to pay an additional $8.1 million in v. Liberty Direct, Inc., No. 99–1637 (D. Ariz. filed the Direct Marketing Association’s Code of Ethics damages. See, e.g., Washington v. American Family Sept. 13, 1999); FTC v. Source One Publications, advises that ‘‘[n]o sweepstakes promotion, or any of Publishers, King County Superior Court, No. 99– Inc., No. 99–1636 PHX RCP (D. Ariz. filed Sept. 14, its parts, should represent * * * that any entry 09354–2 SEA (2000). See also, U.S. Senate, 1999); FTC v. Creditmart Fin. Strategies, Inc., No. stands a greater chance of winning a prize than any ‘‘Deceptive Mail Prevention and Enforcement Act,’’ C99–1461 (W.D. Wash. filed Sept. 13, 1999); NCCP other entry when this is not the case.’’ ‘‘The DMA (1st Sess. 1999), Sen. Rep. No. 106–102; and U.S. Ltd., No. 99 CV–0501 A(Sc); South Florida Business Guidelines for Ethical Business Practice,’revised House of Representatives, ‘‘Deceptive Mail Ventures, No. 99–1196–CIV–T–17F; FTC v. Bank Aug. 1999, accessible online at http://www.the- Prevention and Enforcement Act,’’ (1st Sess. 1999), Card Sec. Ctr., Inc., No. 99–212–Civ–Orl–18C (M.D. dma.org/library/guidelines/ H. Rep. No. 106–431. Fla. filed Feb. 26, 1999); Tracker Corp. of America, dotherightthing.shtmlι23 (Article #23, Chances of 98 NCL at 10. No. 1:97–CV–2654–JEC. Winning). 99 NCL at 10. 104 Cliffdale Assocs., 103 F.T.C. at 165.
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affirmative misrepresentation, that pursuant to 15 U.S.C. 1643. The expressed concern about the failure of without the protection they offer, requirement that sellers of such plans some telemarketers to make the consumers’ liability for unauthorized provide consumers with the material disclosures required by § 310.3(a)(1)— purchases is unlimited. In fact, Federal information about statutory limitations especially the disclosure of total cost— law limits this liability to $50.105 This on a cardholder’s liability for during the sales portion of the call, is obviously a material fact, since unauthorized charges will ensure that instead making these disclosures during consumers would not likely purchase consumers have the information the verification portion of the call, after protection that duplicates free necessary to evaluate the worth of the payment information has already been protection the law already provides plan and provide law enforcement with discussed and assent to the transaction them. Yet laypersons may be unaware of the necessary tools to identify and has already occurred.111 NAAG noted this feature of Federal law, and are not combat fraudulent credit card protection that when telemarketers make unreasonable to interpret the sales pitch plans. disclosures only during the verification of unscrupulous sellers and portion of the call, consumers are telemarketers of credit card protection Other Recommendations by deprived of the opportunity to receive to mean that unless they purchase this Commenters Regarding Disclosure meaningful disclosures at an protection, a cardholder is exposed to Requirements appropriate time.112 NAAG and Texas unlimited liability. Therefore, omission Several commenters addressed issues recommended that the total cost be of this material information in the related to the timing of disclosures.107 disclosed before any payment context of a sales pitch for such In general, the commenters agreed that information is discussed, and that the protection is deceptive, and violates disclosures are most meaningful if total cost be stated during both the sales section 5 of the FTC Act. customers receive them in time to make and verification portions of the call.113 Thus, based on the record compiled a ‘‘truly informed buying decision.’’ 108 As discussed above, the Rule requires in this proceeding and on its law This premise was endorsed by the that the disclosures in § 310.3(a)(1) be enforcement experience, the Commission in the initial rulemaking made before the customer pays, which Commission believes that credit card when it noted that the intent of the Rule means before the telemarketer comes loss protection plans—like prize was to have disclosures given ‘‘so as to into possession of the customer’s billing promotions, advance fee loan offers, be meaningful to a customer’s purchase information.114 The disclosures recovery services, and credit repair—are decision.’’ 109 In this regard, the required by § 310.3(a)(1), including so commonly the subject of Commission noted that, when a seller or disclosure of the total cost of the goods telemarketing fraud complaints and telemarketer chooses to use written or services offered, must be made before have caused such substantial injury to disclosures, ‘‘any outbound telephone the telemarketer receives information consumers, particularly the elderly, that call made after written disclosures have that will enable him or her to bill it is warranted to modify the Rule to been sent to customers must be made charges to the consumer. These include specific provisions to address sufficiently close in time to enable the disclosures would logically occur this problem.106 Therefore, the customer to associate the telephone call during the sales portion of the call, Commission proposes to add new with the written document.’’ 110 before the consumer has assented to the § 310.3(a)(1)(vi), which would require Commenters raised three specific purchase by providing billing the seller or telemarketer of such plans concerns regarding the timing of information. A verification process is to disclose, before the customer pays, disclosures: the appropriate timing of precisely what the term implies: the $50 limit on a cardholder’s liability required disclosures in preacquired corroboration of a contract that has for unauthorized use of a credit card account telemarketing; situations where already been formed—of the consumer’s disclosures are made only in the assent to the purchase. It is an 105 Under § 133 of the Consumer Credit Protection verification portion of a call, rather than opportunity to ensure that the billing Act, the consumer’s liability for unauthorized charges is limited to $50. 15 U.S.C. 1643. in the earlier sales pitch; and the 111 106 The Commission has not proposed to prohibit appropriate timing of required See NAAG at 10; Texas at 2. In the original as an abusive practice the requesting or receiving disclosures in dual or multiple purpose rulemaking, the initially proposed Rule included a requirement that a telemarketer repeat certain of payment for credit card protection before calls. The first of these concerns—the delivery of the offered protection—the approach disclosures if verification occurred. 60 FR 8313, adopted in the original TSR with respect to advance appropriate timing of disclosures in 8331 (Feb. 14, 1995) (citing the original proposed fee loan offers, recovery services, and credit repair. preacquired account telemarketing—is Rule § 310.4(d)(2)). The Commission later deleted The Commission took that approach because there addressed in the discussion of proposed this requirement after receiving numerous comments from industry representatives who are no disclosures that could effectively remedy the § 310.4(a)(5), which bans the receipt of problems that arise from the telemarketing of those argued that such a requirement would be illusory services; the harm to consumers could be a consumer’s billing information from ‘‘unnecessary and unduly burdensome, requiring averted only by specifying that the seller’s any source other than the consumer. duplicative disclosures that would add to the cost performance of any of these three services must The other two concerns regarding the of the call and annoy potential customers.’’ 60 FR 30406, 30419 (June 8, 1995). The Commission finds precede payment by the consumer. In the case of timing of disclosures—disclosures credit card protection, such a remedy seems nothing in the Rule review record to contradict its unworkable, because the protection would come during the verification portion of the earlier determination, and therefore, declines to into play only upon a purchaser’s loss of his or her call and disclosures in multiple purpose propose a requirement to make a second disclosure card and/or incurrence of unauthorized charges. calls—are each discussed below, as is of total cost in the verification portion of the call. Of course, there is nothing in the Rule that would More importantly, in such an event, federal law the recommendation, advanced by some would provide the protection at issue, regardless of preclude a seller or telemarketer from making the whether the offered protection did or not. commenters, that the Commission allow required disclosures in the sales portion of the call Moreover, since it is possible that a seller could some disclosures to be made in writing. and then voluntarily repeating those disclosures non-deceptively offer—and consumers could wish Disclosures in the Sales and during the verification process. to purchase—credit card protection that provides Verification Portions of Calls. NAAG 112 See NAAG at 9. more than that which federal law provides, the 113 See id. at 8, 10 (noting that the failure to Commission is reluctant to ban outright the sale of disclose the total cost of the contract is common in 107 credit card protection. Thus, requiring disclosure of See, e.g., AARP at 3–4; NAAG at 9–10; magazine subscription sales when a telemarketer material information seems the appropriate remedy NACAA at 2. states only the weekly price for a subscription, to cure the deception, coupled with a prohibition 108 AARP at 4. rather than the total cost for the entire term); Texas in proposed § 310.3(a)(2)(viii) against 109 60 FR at 43846. at 2. misrepresenting such protection. 110 Id. 114 60 FR at 43846.
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information received from the consumer Statement of Basis and Purpose, the Section 310.3(a)(2)(viii)—Credit Card is correct. It is not the appropriate time Commission noted in this regard that Loss Protection Plans for disclosure of additional material ‘‘[t]hese disclosures may be made either The current TSR does not include information that a consumer needs to orally or in writing.’’ 121 Therefore, there prohibitions regarding the sale of credit make a decision whether to enter into is no need to modify this provision of card protection. As discussed above, the transaction in the first place. the Rule in this regard. NCL, citing the numerous complaints it Disclosure of previously undisclosed receives, recommended that the Section 310.3(a)(2)—Prohibited information in a ‘‘verification’’ comes Commission revise the Rule to address too late for it to be of value to Misrepresentations in the Sale of Goods the telemarketing of credit card loss consumers, or to satisfy the and Services protection plans.124 The Commission’s requirements of the Rule. Thus, a Section 310.3(a)(2) prohibits a seller complaint-handling and law telemarketer or seller who does not enforcement experience confirms the make the required disclosures until the or telemarketer from misrepresenting certain material information in a points made in NCL’s comments. verification portion of the call has Telemarketers of credit card loss telemarketing transaction involving the violated the Rule. protection plans represent to consumers Dual or Multiple Purpose Calls. In a sale of goods or services. These include: that they will protect or otherwise limit dual or multiple purpose telemarketing Total cost, any material restrictions, and the consumer’s liability if his or her call, there are both sales and non-sales any material aspect of the performance, credit card is lost or stolen, but objectives, such as when a telemarketer efficacy, nature, or central frequently misrepresent themselves as calls to inquire about a customer’s characteristics of the goods or services being affiliated with the consumer’s satisfaction with a particular good or offered; any material aspect of the credit card issuer,125 or misrepresent service already purchased, and then seller’s refund policy; any material either affirmatively or by omission that proceeds to offer additional goods or aspect of a prize promotion; any the consumer is not currently protected 115 services. Both NACAA and NAAG material aspect of an investment against credit card fraud, or that the suggested that the Rule be clarified to opportunity; and a seller’s or consumer has greater potential legal require that, in such dual or multiple telemarketer’s affiliation with, or liability for unauthorized use of his or purpose calls, the required oral endorsement by, any governmental or her credit cards than he or she actually disclosures be made in the initial third-party organization.122 does under the law. portion of the call, and that total cost In addition to the new requirement also be disclosed in that initial MPA, the only commenter who proposed in § 310.3(a)(1)(vii) to disclose portion.116 These recommendations are directly addressed this section in its material information about existing considered below in the discussion of comment, stated that it ‘‘wholeheartedly protections afforded by federal law, the proposed changes to § 310.4(d). supports’’ the provision, noting that it is Commission proposes to add to the Rule Written versus oral disclosures. In its in the best interests of legitimate firms a prohibition against misrepresenting Request for Comment on the Rule, the that all telemarketing calls include full that any customer needs offered goods Commission asked for information and accurate disclosures.123 Therefore, or services to provide protections a regarding the burdens, if any, the the only proposed modification to customer already has pursuant to disclosure requirements have placed on § 310.3(a)(2) is two minor wording section 133 of the Consumer Credit sellers and telemarketers.117 Reese changes necessitated by the Protection Act, 15 U.S.C. section 1643, noted that ‘‘(d)isclosures associated amendments to the Telemarketing Act which limits a cardholder’s liability for with sales increase the length of a sales contained in section 1011 of the USA unauthorized charges to $50.126 presentation by factors ranging from PATRIOT Act. First, the phrase ‘‘in the Deception occurs if, first, there is a 10% to 50%,’’ and suggested that the sale of goods or services’’ has been representation, omission, or practice burden on industry could be reduced by added to § 310.3(a)(2) to clarify the that, second, is likely to mislead allowing timely written disclosures to intended scope of that provision. Newly consumers acting reasonably under the complement shorter oral disclosures proposed § 310.3(d) lists prohibited circumstances, and third, the under the Rule.118 On the other hand, representation, omission, or practice is misrepresentations in the context of the ARDA expressed the view that the material.127 Unscrupulous sellers and current disclosures are not unreasonably solicitation of charitable contributions. telemarketers of credit card protection burdensome.119 Second, the language in frequently misrepresent, either In response to the recommendation § 310.3(a)(2)(vii) has been modified to expressly or by implication, that that written disclosures be allowed, the read: ‘‘A seller’s or telemarketer’s without the protection they offer, Commission notes that the Rule’s affiliation with, or endorsement or consumers’ liability for unauthorized requirement that disclosures regarding sponsorship by, any person or purchases is unlimited. This is material terms of the offer be made government entity’’ to conform with the obviously a material fact, since before the customer pays does not new analogous provision proposed in consumers would not likely purchase preclude a telemarketer from providing § 310.3(d)(8). these disclosures in writing, should the 124 NCL at 10. telemarketer choose to do so.120 In the is to sell goods or services; (3) the nature of the 125 This practice violates § 310.3(a)(2(vii), which goods or services; and (4) disclosures about any prohibits misrepresenting a seller’s or telemarketer’s affiliation with any third-party 115 This sales practice was identified and prize promotion being offered. § 310.4(d). organization. explained in the original Rule’s Statement of Basis 121 60 FR at 43846. The Commission further noted 126 This approach parallels the TSR’s treatment of and Purpose. 60 FR at 43856. that it intends, by requiring ‘‘clear and 116 cost and quantity of goods (§§ 310.3(a)(1)(i) and See NAAG at 6–8; NACAA at 2. conspicuous’’ disclosures, that ‘‘any outbound 310.3(a)(2)(i)), material restrictions, limitations, or 117 65 FR 10428, 10431; Question 10(f). telephone call made after written disclosures have conditions (§§ 310.3(a)(1)(ii) and 310.3(a)(2)(ii)), 118 Reese at 5. been sent to consumers must be made sufficiently refund policy (§§ 310.3(a)(1)(iii) and 310.3(a)(2)(iv)), 110 See ARDA at 2. close in time to enable the customer to associate the and prize promotions (§§ 310.3(a)(1)(iv) & (v) and 120 Nevertheless, in outbound telemarketing calls, telephone call with the written document.’’ Id. 310.3(a)(2)(v)). In each case, material facts must be four prompt oral disclosures must be made: (1) The 122 16 CFR 310.3(a)(2). disclosed, and misrepresentations are prohibited. identity of the seller; (2) that the purpose of the call 123 MPA at 7–8. 127 Cliffdale Assocs., 103 F.T.C. at 165.
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protection that duplicates free provided by, or comparable to those provision strikes an appropriate protection the law already provides available under, the Fair Credit Billing balance, allowing telemarketers to them. Yet laypersons may be unaware of Act (‘‘FCBA’’) and the Truth in Lending compete fairly with other point-of-sale this feature of federal law, and Act (‘‘TILA’’)(such as is the case with providers while still protecting reasonably interpret the sales pitch of checks, drafts, or other forms of customers’ checking accounts.130 Law unscrupulous sellers and telemarketers negotiable paper). By expanding the enforcement agencies and consumer of credit card protection to mean that express verifiable authorization protection groups, however, unless they purchase this protection, a provision to cover billing methods recommended several changes to the cardholder is exposed to unlimited besides demand drafts, the Rule would provision. Each recommendation and liability. Therefore, this is a material provide protections for consumers in a the Commission’s reasoning for misrepresentation, and is deceptive, in much larger class of transactions where accepting or rejecting it is discussed violation of section 5 of the FTC Act. an unauthorized charge is likely to below. Accordingly, the Commission proposes present a particular hardship to the Express Verifiable Authorization to add new § 310.3(a)(2)(viii), which consumer because of the lack of TILA When Using Novel Payment Methods. would prohibit misrepresenting that any and FCBA protections. Some commenters suggested that the customer needs offered goods or In addition to expanding the scope of TSR be amended to ensure that services in order to have protections § 310.3(a)(3) to require express verifiable consumers are protected when using provided pursuant to 15 U.S.C. 1643. authorization for additional payment any of the ever-increasing array of methods, the proposed Rule also payment methods to pay for Section 310.3(a)(3)—Express Verifiable requires that the customer must receive telemarketing transactions.131 NCL Authorization additional information in order for suggested that emerging payment Section 310.3(a)(3) of the Rule authorization to be deemed verifiable: methods may necessitate Rule changes requires that a telemarketer obtain the name of the account to be charged to safeguard consumers using these express verifiable authorization in sales (e.g., ‘‘Mastercard,’’ or ‘‘your XYZ methods from unauthorized charges.132 involving payment by demand drafts or Mortgage statement’’) and the account NAAG expressed concern that, given the similar negotiable paper, and provides number, which must be recited by either increasing number of available payment that authorization will be deemed the consumer or the telemarketer. options, consumers’ authorization verifiable if any of three specified means The Commission also proposes to extend not only to the amount of the are employed to obtain it: (1) Express delete § 310.3(a)(3)(iii), which allows a charge, but also to the payment method written authorization by the customer, seller or telemarketer to obtain express to be used.133 including signature; (2) express oral verifiable authorization by confirming a As examples of emerging payment authorization that is tape recorded and transaction in writing, provided the methods, commenters and attendees of made available upon request to the confirmation is sent to the customer the July Forum cited the increasing 134 customer’s bank; or (3) written prior to the submission of the prevalence and use of debit cards, the confirmation of the transaction, sent to customer’s billing information for development of electronic payment 135 the customer before submission of the payment. This change would leave the systems, and the growing use, by draft for payment. If the telemarketer two other methods of authorization— 130 chooses to use the taped oral written authorization before a charge is MPA at 8. placed and taped oral authorization— 131 See NCL at 5; NAAG at 20. authorization method, the Rule requires 132 available for use by sellers and See NCL at 5 (suggesting the Rule be expanded the telemarketer to provide tapes to ‘‘protect consumers from abuses and provide evidencing the customer’s oral telemarketers. better oversight of vendors who participate in new authorization, including an explanation Finally, pursuant to section 1011 of electronic payment systems’’). 133 of the number, date(s) and amount(s) of the USA PATRIOT Act, the Commission See NAAG at 20 (recommending that proposes a global revision throughout ‘‘consumers’ agreement to any participant form of payments to be made, date of payment be expressly demonstrated and subject to authorization, and a telephone number § 310.3(a)(3)—specifically, in every verification’’). for customer inquiry that is answered instance where the word ‘‘customer’’ 134 See NCL at 5 (‘‘Debit cards accounted for one during normal business hours.128 (including the possessive form) occurs, percent of the fraudulent telemarketing transactions reported to the NFIC in 1999 and this form of The Commission proposes to amend the phrase ‘‘or donor’’ (again, including the possessive form, where appropriate) payment is likely to grow as more customers are the express verifiable authorization issued debit cards and grow more comfortable using provision. The proposed Rule retains has been added. This change brings them.’’); Rule Tr. at 132–133 (NCL noting a the concept that it is a deceptive within the coverage of the express ‘‘dramatic increase in debit card usage in the last verifiable authorization requirement all several years;’’ and that debit cards accounted for practice and a rule violation to obtain or three percent of the fraudulent telemarketing submit for payment a check, draft, or situations where a telemarketer accepts transactions reported to NFIC in the first half of other form of negotiable paper drawn on payment of a solicited charitable 2000.). See also, John Reosti, Debit Cards Seen as a person’s checking, savings, share, or contribution through a payment method No Threat to Credit Card Revenues, The American that does not impose a limitation on Banker, (June 29, 2000), p. 11A (noting that the similar account, without that person’s popularity of debit cards is increasing, with some express verifiable authorization; liability for unauthorized charges nor predicting that debit cards will outpace credit cards however, the proposed Rule extends the provide for dispute resolution as a payment method by 2005). provision to specify that is a deceptive procedures pursuant to, or comparable 135 See, e.g., NCL at 5 (noting that the growth in to, those available under the FCBA and electronic commerce has led to the development of practice and a Rule violation to submit new forms of payment, such as ‘‘cyberwallets’’). billing information for payment without the TILA. The Commission received several ‘‘Cyberwallets’’ provide secure access to a the customer’s express verifiable customer’s existing bank or credit card accounts via comments regarding § 310.3(a)(3), and authorization when the method of the Internet, and are now offered by many discussed the topic of express verifiable companies, such as Visa and Mastercard. See payment does not have the protections authorization extensively at the July www.visa.com/pd/ewallet/main.html; 129 www.mastercard.com/shoponline/e-wallets/. Other 128 Section 310.3(a)(3)(iii)(A) requires that all 2000 Forum. MPA stated that this new electronic access devices include stored value information required to be included in a taped oral cards (SVCs) and smartcards, which allow authorization be included in any written 129 See generally LSAP at 4; MPA at 8; NAAG at customers to purchase goods or services using confirmation of the transaction. 20; NCL at 5, 10–11, 13; Rule Tr. at 131–190. money ‘‘loaded’’ onto the cards, which contain
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unrelated vendors, of the billing and with demand drafts could lead them misperception. To obviate deception on collection systems of mortgage or utility unwittingly to provide their bank this issue, consumers need disclosure of companies to bill and collect for account numbers to a telemarketer material facts about how telemarketers telemarketing purchases.136 When asked without realizing that funds could be will use the billing information they are to predict what additional payment withdrawn in the absence of a signed being asked to divulge. Finally, an methods might likely emerge in the check.140 Unaccustomed to this new additional factor supporting the coming years, industry representatives type of transaction, consumers had no expanded coverage of the express at the July Forum noted that new reason to expect that funds could be verifiable authorization provision to technologies have already expanded the debited from their checking accounts novel payment systems is that many of range of payment options. For example, unless they wrote and signed a check. the emerging payment systems cited by the DMA representative noted that a But telemarketers, through omissions or commenters in this proceeding lack small percentage of DMA telemarketer affirmative misrepresentations, were chargeback protection and dispute members already offer to accept inducing consumers to divulge their resolution rights, as well as limited payment via the Internet.137 Another checking account numbers, with the customer liability in the event of Forum participant predicted ‘‘the result that funds were debited from their unauthorized charges. As was the case continued growth of debit accounts. Thus, the Commission with demand drafts, the Commission mechanisms,’’ including not only debit determined that to dispel consumers’ believes that express verifiable cards, but electronic benefit transfer false expectations about their checking authorization for novel payment cards that would, for example, enable account numbers, disclosure of material systems will ensure that such systems recipients of Social Security benefits to facts about how telemarketers would are only used when consumers clearly make payments using an access card use the account information they were agree to that use. tied to those benefits.138 Still another being asked to divulge was necessary. The Commission believes that participant noted the development of Thus, § 310.3(a)(3) of the original TSR requiring express verifiable technology that would enable a provides that it is a deceptive practice authorization when novel payment consumer to purchase goods and and a rule violation to obtain or submit systems are used to bill and collect for services advertised on television with a for payment a check, draft, or other form a telemarketing purchase will remedy simple click of a remote control device, of negotiable paper drawn on a person’s the deceptive practices often associated with the resulting charge billed to the checking, savings, share, or similar with the growth of new payment subscriber’s cable account.139 account, without that person’s express systems. Therefore, the Commission In advancing their argument, those verifiable authorization.141 Section proposes to amend § 310.3(a)(3) to commenters who advocated expanding 310.3(a)(3) also established ‘‘safe require that the consumer’s express the express verifiable authorization harbor’’ disclosure procedures to use in verifiable authorization be obtained provision to cover novel payment obtaining express verifiable when payment is to be made by any methods suggested that consumers may authorization method that ‘‘does not impose a not be aware that they can be billed for The Commission believes that the limitation on the customer’s liability for a telemarketing purchase via some of increased availability and use of new unauthorized charges nor provide for these methods (such as on their utility payment methods necessitates dispute resolution procedures pursuant and mortgage bills). This concern is expanding the Rule’s express verifiable to, or comparable to those available analogous to the concerns articulated authorization provision to cover those under, the Fair Credit Billing Act and about deception in the use of demand new methods. The emergence of novel the Truth in Lending Act, as amended.’’ drafts in the original rulemaking— and, for the consumer, unexpected The proposed Rule retains the safe concerns which led the Commission to billing and collection systems for harbor that calls for the customer determine that consumers’ unfamiliarity telemarketing purchases has brought an receiving the following information as attendant rise in consumer complaints evidence of oral authorization: the embedded microchips to track the cards’ value. See about unauthorized charges for number, date(s) and amount(s) of Janine S. Hiller and Don Lloyd Cook, From Clipper telemarketing purchases on, among payments, a telephone number for Ships to Clipper Chips: The Evolution of Payment other things, mortgage accounts and customer inquiry, and the date of the Systems For Electronic Commerce, J.L.& Com., Fall, 1997, p. 53, 79–81. Visa Cash is one example of a utility bills. The Commission believes customer’s oral authorization. In stored value card that can be used in lieu of cash that deception is occurring in addition, the proposed Rule would call for purchases. See www.visa.com/pd/cash/ connection with telemarketers’ use of for another piece of information to be main.html. Mastercard offers a smartcard product. new billing and collection systems. The included in any taped oral See www.mastercard.com/ourcards/smartcard/. authorization: Specific identification or ‘‘Electronic cash’’ services, using prepaid accounts rationale which supported the original that can be drawn against for making online requirement for express verifiable recitation of the name of the specific purchases, are also under development. See Stacy authorization in the use of demand account and the account number to be Collett, ‘‘New Online Payment Options Emerging,’’ drafts pertains with equal force to other charged in the particular transaction. www.cnn.com/2000/TECH/computing/02/03/ unconventional payment methods not This material information will ensure pay.online.options.idg. 136 See LSAP at 4; NAAG at 10, 20; NCL at 5, 10. covered by the TILA and FCBA. that consumers are aware of the specific For example, buyers’ club programs can be billed Consumers have no reason to anticipate account against which the charge or to customers’ mortgage statements or telephone or that their accounts can be debited or debit will be placed. electricity bills. The growth of this type fo non- charged without their signature, and The proposed Rule deletes the term traditional billing has led to complaints regarding ‘‘draft’’ to reflect the expanded unauthorized charges from customers unfamiliar they may be induced to divulge their with such billing arrangements. billing information on the basis of this application of the provision to forms of 137 Rule Tr. at 180. payment other than demand drafts; and, 138 Id. at 183. 140 60 FR at 43850. for the same reason, the term ‘‘payor’’ 139 Id. at 185. Such a transaction could occur 141 The Commission was persuaded that verifiable has been replaced by the term without any telephone contact between the seller authorization was necessary for demand drafts ‘‘customer.’’ and customer, thus making it outside the scope of because demand drafts lacked chargeback this Rule. However, this technology could also be protection and dispute resolution rights, and Finally, the proposed Rule eliminates used in conjunction with telemarketing, and thus because of the risk that a consumer’s bank account § 310.3(a)(3)(iii), which deemed merits inclusion here. could be drained by unauthorized charges. verifiable any authorization obtained by
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written confirmation of the transaction, These commenters assert that written transfers.151 Moreover, the Commission sent to the customer before submission authorization is necessary when a believes that the oral authorization of the draft for payment. Commenters consumer’s bank account is being alternative provided in § 310.3(a)(3)(ii) and participants at the July Forum made accessed by a telemarketer because has proven sufficient to protect clear that written confirmation prior to consumers have limited recourse when consumers against unauthorized access the submission of a customer’s billing funds are misappropriated from their to their bank accounts, except, perhaps, information for payment is seldom, if bank accounts.146 in those cases where a fraudulent ever, used as a method of express Requiring Written Authorization for telemarketer has resorted to altering verifiable authorization.142 Moreover, Preacquired Account Telemarketing. verification tapes, or has flouted the the Commission’s law enforcement Some commenters expressed the view requirement of the provision altogether. record provides ample evidence that that in situations when the telemarketer The Commission believes that even a when this method is used, it is subject possesses preacquired billing written authorization requirement to abuse.143 Given that the method of information, the Rule should require the would not solve such problems because authorization in § 310.3(a)(3)(iii) is used telemarketer to obtain the consumer’s a telemarketer willing to alter infrequently, and that complaints written authorization. In this way, the verification tapes might also be inclined received by the Commission suggest that consumer would have a readily to forge signatures, and one ignoring the it has been subject to abuse by those recognizable means to signal assent to a current oral authorization procedure telemarketers who employ it, the purchase.147 NAAG argued that such a would be no more likely to follow a Commission proposes to delete this means of ensuring the customer’s assent more stringent one. Therefore, the provision from the Rule. is particularly necessary where an Commission rejects this proposal. In proposing to expand the coverage imbalance of information exists because Section 310.3(a)(4)—Prohibition of False of the express verifiable authorization the telemarketer, often unbeknownst to provision to include novel payment and Misleading Statements to Induce the consumer, has the means to charge the Purchase of Goods or Services or a methods beyond demand drafts, the the customer’s account without ever Commission has considered the effect Charitable Contribution seeking permission to do so.148 this change would have on Only MPA commented on this telemarketing businesses. Although the As outlined below, in the discussion provision of the Rule, noting that its proposed change might be expected to of § 310.4(a)(5), the Commission broad prohibition against false or result in additional costs to some proposes to prohibit as an abusive misleading statements to induce the telemarketers, the record reflects that practice the receipt of a consumer’s purchase of goods or services provided telemarketers already commonly tape billing information from any source flexibility for law enforcement to the customer’s oral authorization in all other than from the consumer. address fraud, regardless of the method calls in which a sale is made.144 Given Therefore, the Commission declines to of payment used. The Commission has the apparent prevalence of taping, the require written authorization in used this provision extensively in cases Commission believes that any instances of preacquired account it has brought under the Rule and has additional burden on telemarketers will telemarketing. determined that the provision should be be minimal. Requiring Written Authorization to retained unchanged.152 Withdraw Funds From a Customer’s Pursuant to section 1011 of the USA Other Recommendations by Checking Account. Some commenters PATRIOT Act, the Commission Commenters Regarding Authorization urged the Commission to amend the proposes to expand the coverage of this Some commenters suggested that the Rule to prohibit any telemarketer from prohibition to encompass Rule restrict the allowable methods of debiting a customer’s bank account misrepresentations ‘‘to induce a authorization in certain circumstances. without the customer’s written charitable contribution.’’ No other For example, some commenters authorization.149 In the original revision is proposed. recommended requiring written rulemaking, the Commission declined to authorization when funds will be adopt such a position, stating that: Section 310.3(b)—Assisting and Facilitating withdrawn from a customer’s bank Requiring such prior written authorization account or when a telemarketer has could be tantamount to eliminating this Section 310.3(b) prohibits a person preacquired billing information.145 emerging payment alternative. Moreover, the from providing substantial assistance or Commission believes that it would be support to any seller or telemarketer 142 See Reese at 5; Rule Tr. 116–118; 122. inconsistent to impose upon demand drafts 143 See, e.g., FTC v. S.J.A. Society, Inc., No. a more stringent authorization mechanism 151 In this regard, the TSR’s express verifiable 2:97cv472 (E.D. Va. filed May 12, 1997) (defendants than that imposed on electronic funds authorization provision is also consistent with the sent consumers written ‘‘confirmation’’ of transfers under the EFTA and Reg. E.150 NACHA Operating Rules, which govern payments unauthorized debit payments). See also FTC v. made through the Automated Clearing House Diversified Mktg. Serv. Corp., No. 96–388 (W.D. The Commission reaffirms its system. See NACHA at 2; Rule Tr. at 131–186. Okla. filed Mar. 13, 1996); FTC v. Winward Mktg., reluctance to impose on demand drafts 152 The Commission has brought over eighty cases Ltd., et al., No. 96–cv–0615–FWH (N.D. Ga. filed that included allegations under § 310.3(a)(4) since Mar. 12, 1996). more stringent requirements than those the Rule was enacted. See, e.g., FTC v. Pacific Rim 144 See Reese at 5 (stating that it is ‘‘standard imposed on electronic funds Pools Int’l, No. C97–1748, (W.D. Wash. filed Nov. practice * * * to ask the buyer’s permission to 7, 1997) (Order for Permanent Injunction and Final record all or part of a sale on tape, as a mutual withdrawn from bank account); Id. at 13 (suggesting Judgment entered on Jan. 12, 1999); FTC v. National protection and to allow for post-sale independent that the Rule require written authorization when a Business Distribs. Co., Inc., No. 96–4470 (Mcx) JGD, verification’’); Rule Tr. at 116–118 (‘‘* * * 100% of telemarketer has preacquired billing information). (C.D. Cal. filed June 26, 1996) (Final Judgment and sales calls are taped, and not the call, the portion Order for Permanent Injunction entered on Jan. 24, 146 AARP at 4; NAAG at 20. in which the agreement to purchase goods and 1997); FTC v. Ideal Credit Referral Svcs. Ltd., No. 147 services and the terms for that purchase are tape See AARP at 4; NAAG at 10. C96–0874, (W.D. Wash. filed June 5, 1996) (Default recorded. I don’t have a client that doesn’t insist on 148 NAAG at 10. Judgment and Order for Permanent Injunction and it right now.’’), 122 (noting an increase in taping to 149 AARP at 4; NAAG at 20 (citing laws in for Monetary Relief entered on Apr. 16, 1997); FTC ensure that consent has been provided and for use Vermont and Kentucky that already require written v. USA Credit Svcs., Inc., No. 96–639 J LSP, (S.C. in any law enforcement investigation). authorization before a customer’s bank account can Cal. filed Apr. 10, 1996) (Final Judgment and Order 145 AARP at 4; NAAG at 20 (suggesting that the be debited). for Permanent Injunction and Other Equitable Relief Rule require written authorization when funds are 150 60 FR at 43851. entered on Mar. 20, 1997).
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when that person knows or consciously correct.’’ 158 However, the Commission instances, hobbled law enforcement avoids knowing that the seller or invites additional comment on, and efforts to bring fraudulent telemarketers telemarketer is violating certain proposals for alternatives to, this to justice. provisions of the Rule. Comments about provision in Section IX. As a result of concern about the this provision of the Rule were mixed. enforceability of the original provision Section 310.3(c)—Credit Card MPA asserted that the assisting and in the absence of the full cooperation of Laundering facilitating standard ‘‘struck exactly the credit card system operators, the right balance,’’ 153 while law Section 310.3(c) prohibits credit card Commission has requested comment in enforcement and consumer advocacy laundering. The few comments received Section IX on possible changes to this groups were critical, reiterating many of concerning this section expressed strong provision that would better facilitate the concerns they raised during the support for the provision. ATA noted law enforcement efforts. original rulemaking about the difficulty that the bright line this provision draws The Commission proposes no changes in meeting the Rule’s scienter between legitimate and illegitimate to the text of § 310.3(c) pursuant to standard.154 business has made the Rule section 1011 of the USA PATRIOT Act. The critics of the provision argued successful.159 MPA stated that this The proposed Rule, however, expands that the Rule’s current standard—which provision strictly targets bad actors coverage of the § 310.3(c) prohibition on requires showing that the individual or because legitimate companies would be credit card laundering through entity knew or consciously avoided able to establish relationships with modification of the definition of a key knowing about the law violations—sets credit card companies, leaving only term used in this provision— the standard too high, and should be illegitimate companies to violate this ‘‘merchant.’’ As discussed, the proposed changed to a ‘‘knew or should have provision.160 ATA agreed with MPA on definition would encompass persons known’’ standard.155 They opined that this point, noting that stricter guidelines authorized to honor or accept credit the ‘‘conscious avoidance’’ standard is adopted by credit card companies for card payment, not only for the purchase not used in other areas of enforcement acceptable chargeback rates have further of goods or services, but also for the and is a departure from legal authority separated good from bad actors.161 payment of charitable contributions. under many State consumer protection The Commission’s enforcement The Telemarketing Act, as originally statutes and under the FTC Act, where experience has demonstrated that enacted, specifically identified as the ‘‘knew or should have known’’ § 310.3(c) can be a useful tool in appropriate for rule coverage ‘‘acts or standard is commonly accepted.156 pursuing fraudulent telemarketers and practices of entities or individuals that They further argued that a ‘‘knew or those who provide them credit card assist or facilitate deceptive should have known’’ standard would laundering services.162 However, the telemarketing, including credit card make it easier for law enforcement to Commission believes the provision’s laundering.’’ 15 U.S.C. 6102(a)(2). challenge the support system for cross- usefulness may be unduly restricted by Neither the text nor the underlying border fraud.157 the phrases ‘‘(e)xcept as expressly rationale of section 1011 of the USA The Commission has considered the permitted by the applicable credit card PATRIOT Act suggest that this recommendation to change the system,’’ in the preamble to § 310.3(c), provision should not be extended to standard, but believes that the and ‘‘when such access is not reach instances where credit card ‘‘conscious avoidance’’ standard is authorized by the merchant agreement laundering occurs in connection with appropriate because the Rule creates or the applicable credit card system’’ in charitable solicitations. potential liability to pay redress or civil § 310.3(c)(3). In the initial rulemaking proceeding, Visa and Mastercard urged Section 310.3(d)—Prohibited Deceptive penalties based on another person’s Acts or Practices in the Solicitation of violation of the Rule. The ‘‘knew or that these limiting phrases be adopted to ensure that the Rule did not unduly Charitable Contributions, Donations, or should have known’’ standard is Gifts appropriate where an alleged wrongdoer restrict legitimate activity. In its is liable to be placed under an enforcement activities, however, the Section 1011(b)(1) of the USA administrative cease-and-desist order or Commission has sometimes met with PATRIOT Act mandates that the conduct injunction in a district court unwillingness on the part of overseas Commission include ‘‘fraudulent order based on his or her own direct affiliates or branches of credit card charitable solicitations’’ in the deceptive violation of the Rule. As noted in the system operators, such as Visa and practices prohibited by the TSR. Rule’s Statement of Basis and Purpose, Mastercard, to corroborate whether the Accordingly, the Commission proposes ‘‘in a situation where a person’s liability conduct of specific telemarketers and a new section, 310.3(d), prohibiting to pay redress or civil penalties for a others providing assistance to specific material misrepresentations that violation of this Rule depends on the telemarketers is allowable under the have been alleged in Commission wrongdoing of another person, the rules of the credit card system or the enforcement actions or those brought by ‘‘conscious avoidance’’ standard is specific terms of the telemarketer’s FTC counterparts on the state level, or merchant agreement. The absence of that have been prohibited by statute in 153 MPA at 8. such cooperation has, in some one or more states. The new provision 154 See NAAG at 6; NACAA at 2; Texas at 2. would prohibit misrepresentations of 155 Id. Despite the high standard of proof set by 158 60 FR at 43852 (citations omitted). the following: the ‘‘conscious avoidance’’ standard, the 159 ATA at 4–5. • The nature, purpose, or mission of Commission has successfully used the provision in 160 MPA at 9. any entity on behalf of which a a number of cases. See, e.g., FTC v. Woofter Inv. 161 ATA at 4–5. Corp., No. CV–S–97–00515–LDG (RLH), (D. Nev. 162 charitable contribution is being See, e.g., FTC v. Windermere Big Win Int’l, 163 filed May 12, 1997) (Stipulated Order for Permanent Inc., No. 98CV 8066, (N.D. Ill. filed Dec. 16, 1998); requested; Injunction and Final Judgment entered on Dec. 28, FTC v. Pacific Rim Pools Int’l, No. C97–1748, (W.D. 1998); FTC v. Ideal Credit Referral Svcs. Ltd., No. Wash. filed Nov. 7, 1997) (Order for Permanent 163 See, e.g., FTC v. Baylis Co., Inc., No. 94–0017– C96–0874, (W.D. Wash. filed June 5, 1996) (Default Injunction and Final Judgment entered on Jan. 12, S–LmB (D.C. Idaho filed Jan. 19, 1994) Judgment and Order for Permanent Injunction and 1999); FTC v. Woofter Inv. Corp., No. CV–S–97– (misrepresented non-profit status); FTC v. for Monetary Relief entered on Apr. 16, 1997). 00515–LDG (RLH), (D. Nev. filed May 12, 1997) Marketing Twenty-One, No. CV–S–94–00624–LDG 156 See NAAG at 5–6; Texas at 2. (Stipulated Order for Permanent Injunction and (LRL) (D.C. Nev. filed July 13, 1994) 167 See NACAA at 2; NAAG at 6; Texas at 2. Final Judgment entered on Dec. 28, 1998). Continued
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• That any charitable contribution is • In connection with the sale of and therefore presumptively material.172 tax deductible in whole or in part;164 advertising, the purpose for which the Even where the misrepresentations are • The purpose for which any proceeds from the sale of advertising implied, they would still likely charitable contribution will be used; 165 will be used; that a purchase of influence a prospective donor’s decision • The percentage or amount of any advertising has been authorized or whether to make a contribution. Thus, charitable contribution that will go to a approved by any donor; that any donor misrepresentation of any of these seven charitable organization or to any owes payment for advertising; or the categories of material information is particular charitable program after any geographic area in which the advertising deceptive, in violation of section 5 of administrative or fundraising expenses will be distributed; 168 or the FTC Act. 166 • are deducted; A seller’s or telemarketer’s D. Section 310.4—Abusive Telemarketing • Any material aspect of a prize affiliation with, or endorsement or Acts or Practices promotion including, but not limited to: sponsorship by, any person or the odds of being able to receive a prize; government.169 The Telemarketing Act authorizes the the nature or value of a prize; or that a Each of these misrepresentations is an Commission to prescribe rules charitable contribution is required to appropriate addition to the list of ‘‘prohibiting deceptive telemarketing win a prize or to participate in a prize defined deceptive telemarketing acts or practices and other abusive promotion;167 practices prohibited in § 310.3 of the telemarketing acts or practices.’’15 TSR, and inclusion of each in the TSR U.S.C. 6102 (a)(1)(emphasis added). The (misrepresented purpose as soliciting contributions is necessary to prevent consumers Act does not define the term ‘‘abusive for non-existent entity named ‘‘For the Children’’); solicited for charitable contributions telemarketing act or practice.’’ It directs FTC v. Voices for Freedom, No. 92–1542–A (E.D. the Commission to include in the TSR Va.. filed Oct. 21, 1991) (falsely obtained IRC from being deceived. Deception occurs 501(c)(3) status and misrepresented mission as if there is a representation, omission, or provisions addressing three specific assisting soldiers in Operation Desert Storm). See practice that is likely to mislead ‘‘abusive’’ telemarketing practices, also Fla. Stat. ch. 496.415(7) (2000); Ariz. Rev. Stat. consumers acting reasonably under the namely, for any telemarketer to: (1) § 6561(3) (2001). ‘‘Undertake a pattern of unsolicited 164 See, e.g., FTC v. Thadow, Inc., No. CV–S–95– circumstances and the representation, 170 75–HDM (LRL) (D.C. Nev. filed Jan. 25, 1995); FTC omission, or practice is material. telephone calls which the reasonable v. United Holdings Group, Inc., No. CV–S–94–331– Where fundraising telemarketers falsely consumer would consider coercive or LDG (RLH) (D.C. Nev., filed April 5, 1994); represent any of the matters enumerated abusive of such consumer’s right to Marketing Twenty-One, No. CV–S–94–00624–LDG privacy;’’ (2) make unsolicited phone (LRL). See also Minn Stat. Ann. § 309.556(1)(b) in the proposed provision, donors are (West 2000). likely to be misled. False calls to consumers during certain hours 165 The Commission intends that term ‘‘purpose’’ representations of material facts are of the day or night; and (3) fail to be interpreted broadly to include, among other likely to mislead.171 This is so in the ‘‘promptly and clearly disclose to the things, whether the charitable contribution would context of purchases of goods or person receiving the call that the benefit any particular individual, group, or locality, as well the way in which these entities would be services or other commercial purpose of the call is to sell goods or helped, such as by the provision of food, shelter, transactions, and there is no material services and make such other etc. See, e.g., FTC v. Gold, No. CV 99–2895 CBM distinction that would render this disclosures as the Commission deems (RZx) (C.D. Calif. filed Nov. 9, 1998) appropriate, including the nature and (misrepresenting that contributions would inter principle any less valid in the context alia, support local firefighters, buy wheelchairs for of charitable solicitations. Moreover, it price of the goods and services.’’ 15 veterans or fund parties for hospitalized children); is reasonable to interpret a fundraising U.S.C. 6102(a)(3). The Act does not limit FTC v. Image Sales & Consultants, Inc. No. 1:97 DV telemarketer’s representations about any the Commission’s authority to address 0131 (N.D. Inc., filed Apr. 7, 1997); FTC v. Saja, No. abusive practices beyond these three CIV–97–0666 PHX sm (D.C. Ariz. filed Mar. 31, of these matters to mean what they seem 1997) (misrepresenting that contributions would on their face to mean. Finally, in the practices legislatively determined to be buy necessary equipment or fund death benefits for Commission’s enforcement experience, abusive.173 Accordingly, the firefighters or law enforcement officers in the often such representations are express, Commission adopted a rule that donors’ local communities); See also Ariz. Rev. Stat. addresses the three specific practices § 4406561(4), (5) (2001); Fla. Stat. ch. 496.415(3),(4) (2000); Md. Code. Ann. Business Regulations § 6– 168 See, e.g., FTC v. Southwest Mktg. Concepts, mentioned in the statute, and, 609, 611 (2000). See also, California v. Jewish Educ. No. H–97–1070 (S.D. Texas filed Apr. 1, 1997); additionally, five other practices that Ctr., No. 987396 (Super. Ct. Cal. filed Nov. 14, 1997) Saja; FTC v. Dean Thomas Corp., No. 1:97 CV 0129 the Commission determined to be (misrepresenting that funds raised through car (N.D. Ind. filed Apr. 7, 1997); FTC v. The Century donations would support needy immigrant Corp., No. 1:97 CV 0130 (N.D. Ind. filed Apr. 7, abusive under the Act. families). See also Ariz. Rev. Stat. § 6561(3) (2001); 1997); Image Sales & Consultants, No. 1:97 CV Each of the three abusive practices Ind. Code Ann. § 23–7–8–7 (Michie 2001); Md. 0131; FTC v. Omni Advertising, No. 1:98 CV 0301 enumerated in the Act implicates Code Ann., Business Regulations § 6–610 (2000); (N.D. Ind. filed Oct. 5, 1998); FTC v. T.E.M.M. consumers’ privacy. In fact, with respect N.M. Stat. Ann. § 57–22–6.3 (Michie 2001); N.Y. Mktg., Inc., No. 1:98 CV 0300 (N.D. Ind. filed Oct. to the first of these practices, the Exec. Law § 172–d (Consol. 2001). 5, 1998); FTC v. Tristate Advertising Unlimited, 166 See, e.g., Voices for Freedom, No. 92–1542–A; Inc., No. 1:98 CV 302 (N.D. Ind, filed Oct 5, 1998); explicit language of the statute directs Gold, No. SACV 98–968 LHM (EEx); Baylis, No. 94– Gold; Eight Point Communications, No. 98–74855 the FTC to regulate ‘‘calls which the 0017–S–LmB; Marketing Twenty-One. See also (D.C. Mich. filed Nov. 10, 1998). See also Pa. Stat. reasonable consumer would consider California v. Jewish Educ. Ctr. See also Fla. Stat. ch. Ann. tit. 10 § 162.15(A)(11) (West 2000). coercive or abusive of such consumer’s 496.415(8); N.Y. Exec. Law § 172–d(4) (Consol. 169 See, e.g. FTC v. Eight Point Communications 2001); Pa. Stat. Ann. tit. 10 § 162.15(A)(9) (West (telemarketers misrepresented affiliation with local right to privacy.’’ 15 U.S.C. 2000). police and fire departments); FTC v. Gold, No. 167 See, e.g., United Holdings Group, Inc., No. SACV 98–968 LHM (EEx) (C.D. Calif. filed Nov. 9, 172 Cliffdale Assocs., 103 F.T.C. at 182. CV–S–94–331; Marketing Twenty-One 1998) (telemarketers falsely identified selves as 173 See Kenneth Culp Davis & Richard J. Pierce, (misrepresented value of prizes being offered in members of local law enforcement); Saja Jr., Administrative Law Treatise Section 3.2 (3rd ed. exchange for contributions of $700 to $1500); FTC (telemarketers falsely claimed to be firefighters or 1994) (noting that agencies have the power to ‘‘fill v. NCH, Inc., No. CV–S–94–00138–LDG (LRL) (D.C. police officers). See also Commonwealth v. Ranick any gaps’’ that Congress either expressly or Nev. filed July 13, 1994) (misrepresented that Enters., Inc., No. 1997–06464–E (Super. Ct. Ma., implicitly left to the agency to decide pursuant to donors would receive a specific prize in return for filed June 26, 2001) (telemarketers misrepresented the decision in Chevron v. Natural Resources their contribution); FTC v. International Charity affiliation with local police and fire departments). Defense Council, 467 U.S. 837 (1984)). It is, Consultants, Inc., No. CV–S–94–00195–DWH (LRL) 170 Cliffdale Assocs., 103 F.T.C. at 165. therefore, permissible for agencies to engage in (D.C. Nev. filed Mar. 1, 1994) (misrepresented odds 171 Thompson Medical Co., 104 F.T.C. 648, 818 statutory construction to resolve ambiguities in of winning valuable prizes purportedly offered in (1984), aff’d, 791 F.2d 189 (D.C. Cir. 1986), cert. laws directing them to act, and courts must defer exchange for contributions). denied, 479 U.S. 1086 (1987). to this administrative policy decision.
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6102(a)(3)(A) (emphasis added). and Purpose for the Rule, the FTC Act.178 This approach constitutes a Similarly, by directing that the Commission stated, with respect to the reasonable exercise of authority under Commission regulate the times when prohibition on threats, intimidation, the Telemarketing Act, and provides an telemarketers could make unsolicited profane and obscene language, that appropriate framework for several calls to consumers in the second these tactics ‘‘are clearly abusive in provisions of the original rule as well as enumerated item, 15 U.S.C. telemarketing transactions.’’ 60 FR for the proposed prohibition on the 6102(a)(3)(B), Congress recognized that 30415. The Commission also noted that transfer of preacquired billing telemarketers’ right to free speech is in the commenters supported this view, information, as discussed below. tension with and encroaches upon and specifically cited the fact that Whether privacy-related intrusions or consumers’ right to privacy within the ‘‘threats are a means of perpetrating a concerns might independently give rise sanctity of their homes; the calling times fraud on vulnerable victims, and that to a Section 5 violation outside of the limitation protects consumers from many older people can be particularly Telemarketing Act’s purview is not telemarketing intrusions during the late vulnerable * * *’’ Id. addressed or affected by this analysis. night and early morning, when the toll The remaining three abusive practices The abusive practices relating to on their privacy from such calls would identified in the Rule—relating to credit credit repair services, recovery services, likely be greatest. The third enumerated repair services, recovery services, and and advance fee loan services each meet practice, 15 U.S.C. 6102(a)(3)(C), also advance fee loan services—were the criteria for unfairness. An act or bears a relation to privacy, in that it included in the rule under the practice is unfair under Section 5 of the requires the consumer be given Telemarketing Act’s grant of authority FTC Act if it causes substantial injury to information promptly that will enable for the Commission to prescribe rules consumers, if the harm is not him or her to decide whether to allow prohibiting other unspecified abusive outweighed by any countervailing the infringement on his or her time and telemarketing acts or practices. The Act benefits, and if the harm is not privacy to go beyond the initial gives the Commission broad authority to reasonably avoidable.179 An important invasion. Congress provided authority identify and prohibit additional abusive characteristic common to credit repair for the Commission to curtail these telemarketing practices beyond the services, recovery services, and advance practices that impinge on consumers’ specified practices that implicate fee loan services is that in each case the right to privacy but are not likely privacy concerns,175 and gives the offered service is fundamentally bogus. deceptive under FTC jurisprudence. Commission discretion in exercising It is the essence of these schemes to take This recognition by Congress that even this authority.176 consumers’ money for services that the non-deceptive telemarketing business As noted above, some of the practices seller has no intention of providing and practices can seriously impair previously prohibited as abusive under in fact does not provide. Each of these consumers’ right to be free from the Act flow directly from the schemes had been the subject of large harassment and abuse and its directive Telemarketing Act’s emphasis on numbers of consumer complaints and to the Commission to reign in these protecting consumers’ privacy. When enforcement actions. Thus, each caused tactics, lie at the heart of § 310.4 of the the Commission seeks to identify substantial injury to consumers. TSR. practices as abusive that are less Amounting to nothing more than The practices not specified as abusive distinctly within that parameter, the outright theft, these practices conferred in the Act, but determined by the Commission now thinks it appropriate no potentially countervailing benefits. Commission to be abusive and and prudent to do so within the Finally, having no way to know these offered services were illusory, prohibited in the original rulemaking purview of its traditional unfairness consumers had no reasonable means to are: (1) Threatening or intimidating a analysis as developed in Commission avoid the harm that resulted from consumer, or using profane or obscene jurisprudence 177 and codified in the language; (2) ‘‘causing any telephone to accepting the offer. Thus, these ring, or engaging any person in Committee intends that the Commission’s practices meet the statutory criteria for telephone conversation, repeatedly or rulemaking will include proscriptions on such unfairness, and accordingly, the remedy continuously with intent to annoy, inappropriate practices as threats or intimidation, imposed by the Rule to correct them is abuse, or harass any person;’’ (3) obscene or profane language, refusal to identify the to prohibit requesting or receiving calling party, continuous or repeated ringing of the payment for these services until after requesting or receiving payment for telephone, or engagement of the called party in credit repair services prior to delivery conversation with an intent to annoy, harass, or performance of the services is and proof that such services have been oppress any person at the called number. The completed. rendered; (4) requesting or receiving Committee also intends that the FTC will identify other such abusive practices that would be Section 310.4(a)—Abusive Conduct payment for recovery services prior to considered by the reasonable consumer to be Generally delivery and proof that such services abusive and thus violate such consumer’s right to have been rendered; and (5) ‘‘requesting privacy.’’ H.R. Rep. No. 20, 103rd Congress, 1st Section 310.4(a) of the Rule sets forth or receiving payment for an advance fee Sess. (1993) at 8. specific conduct that is considered to be 175 15 U.S.C. 6102(a)(1). an ‘‘abusive telemarketing act or loan when a seller or telemarketer has 176 guaranteed or represented a high The ordinary meaning of ‘‘abusive’’ is (1) practice’’ under the Rule. MPA was the ‘‘wrongly used; perverted; misapplied; only commenter to address § 310.4 likelihood of success in obtaining or catachrestic;’’ (2) ‘‘given to or tending to abuse,’’ arranging a loan or other extension of (which is in turn defined as ‘‘improper treatment or specifically, expressing its support for credit.’’ use; application to a wrong or bad purpose’’). this section as a whole and noting that The first two of these are directly Webster’s International Dictionary, Unabridged the practices listed as ‘‘abusive’’ clearly 1949. fall outside the practices of legitimate consistent with the Act’s emphasis on 177 See Letter from the FTC to Hon. Wendell Ford privacy protection, and with the intent, and Hon. John Danforth, Committee on Commerce, made explicit in the legislative history, Science and Transportation, United States Senate, reprinted in FTC Antitrust & Trade Reg. Rep. (BNA) Commission Statement of Policy on the Scope of No. 1055, at 568–70 (Mar. 5, 1982); Orkin that the TSR address these particular Exterminating Company, Inc. v. FTC, 849 F.2d 174 Consumer Unfairness Jurisdiction, appended to practices. In the Statement of Basis International Harvester Co., 104 F.T.C. 949, 1064 1354, 1363–68, reh’g denied, 859 F.2d 928 (11th (1984); Letter from the FTC to Hon. Bob Packwood Cir. 1988), cert. denied, 488 U.S. 1041 (1989). 174 ‘‘With respect to the bill’s reference to ‘other and Hon. Bob Kasten, Committee on Commerce, 178 15 U.S.C. 45(n). abusive telemarketing activities’ *** the Science and Transportation, United States Senate, 179 Id.
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companies.180 None of the comments Each of those suggestions, and the offers via telemarketing.190 In fact, both recommended that changes be made to Commission’s reasoning in accepting or the Commission and the State Attorneys the current wording of § 310.4(a)(1)–(3); rejecting it, will be discussed in more General have brought cases challenging nor has the Commission’s enforcement detail below. advance fee credit card offers as experience revealed any difficulty with violations of the Rule.191 Therefore, the Section 310.4(a)(4)—Advance Fee Loans these provisions that would warrant provision’s language remains amendment. Therefore, the language in Section 310.4(a)(4) prohibits unchanged in the proposed Rule. requesting advance payment for these provisions remains unchanged in Section 310.4(a)(5)—Preacquired 181 obtaining a loan or other extension of the proposed Rule. Account Telemarketing It is important to note, however, that credit when the seller or telemarketer Rule amendments mandated by the USA has represented a high likelihood that A major concern identified by many PATRIOT Act expand the reach of the consumer will receive the loan or commenters was ‘‘preacquired account § 310.4(a) to encompass the solicitation credit. NCL reported that the number of telemarketing,’’ a phrase coined to of charitable contributions. The section complaints it received about such describe those instances when a begins with the statement ‘‘It is an advance fee loan schemes has risen telemarketer already possesses abusive telemarketing act or practice steeply in the five years since the Rule information necessary to bill charges to and a violation of this Rule for any was promulgated.183 In 1995, advance a consumer at the time a telemarketing seller, or any telemarketer to engage in fee loan complaints ranked 15th in call is initiated. Typically, the [the conduct specified in subsections (1) volume; in 1997, they had risen to preacquired billing information is a through (6) of this provision of the number two.184 NCL speculates that one credit card number (and related 192 Rule.]’’ Because the proposed Rule reason for the increased number of information), acquired from a modifies the definitions of complaints about fraudulent advance 190 ‘‘telemarketing’’ and ‘‘telemarketer’’ to fee loans is that consumers may be See Rule Tr. at 297–299, 377–380. Even where the advance fee credit card offers described by NCL encompass the solicitation of charitable confused about whether and under what do not make promises about a ‘‘high likelihood of contributions, § 310.4(a) now applies to circumstances fees are legitimately success’’ in obtaining the card, thus falling outside telemarketers engaged in the solicitation required for different types of loans, and the parameters of § 310.4(a)(4), the offers, in most thus may have an increased cases, would still violate the Rule because they fail of charitable contributions, and each of to make the disclosures of material information the prohibitions in § 310.4(a) will vulnerability to fraudulent advance fee required by § 310.3(a)(1), make one or more therefore now apply to those loan schemes.185 misrepresentations in violation of § 310.4(a)(2), telemarketers soliciting on behalf of As a primary example of such and/or make false or misleading statements to consumer confusion, NCL reports that it induce payment in violation of § 310.4(a)(4). Of either sellers or charitable organizations. course, these provisions apply only to credit card It is unlikely that §§ 310.4(a)(1)–(4) will receives numerous complaints about offers made by individuals or entities not exempt have any significant impact on advance fee credit cards.186 NCL states from coverage under the FTC Act, and so would not telemarketers engaged in the solicitation that, unlike the deposits requested for apply to advance fee credit cards marketed by a legitimate secured credit cards, these financial institution that is exempt from the of charitable contributions, since those Commission’s jurisdiction under Section 5 of the sections all deal with practices that are offers request an advance fee for FTC Act. 15 U.S.C. 45(a)(2). commercial in nature and not associated ‘‘processing’’ or for an ‘‘annual fee’’ for 191 Rule Tr. at 378. To date, the Commission and with charitable solicitations. Section a ‘‘guaranteed’’ credit card. Moreover, the State Attorneys General have launched five law NCL’s complaints show that consumers enforcement ‘‘sweeps’’ targeting corporations and 310.4(a)(5) & (6) however, address individuals that promise loans or credit cards for practices that are not necessarily either do not receive the cards at all or an advance fee, but never deliver them. A recent confined to telemarketing to induce receive a card that is good only for sweep was announced June 20, 2000, and involved purchases of goods or services, and purchasing items from the card-issuer’s five cases filed by the FTC, 13 actions taken by catalog.187 NCL suggested that State officials, and three cases filed by Canadian therefore may have an impact upon law enforcement authorities. See, ‘‘FTC, States and telemarketers engaged in the solicitation consumers often do not understand that Canadian Provinces Launch Crackdown on Outfits of charitable contributions. legitimate credit card companies do not Falsely Promising Credit Cards and Loans for an Commenters did suggest changes to require a fee from a consumer in Advance Fee,’’ FTC press release dated June 20, § 310.4(a)(4) (which addresses advance of providing a non-secured 2000. Among the most recent FTC cases targeting 188 advance fee loans, four involved advance fee credit telemarketing of advance fee loans) and credit card. NCL recommended that card schemes: FTC v. Financial Svcs. of North identified other telemarketing practices § 310.4(a)(4) of the Rule be modified America, No. 00–792 (GEB) (D.N.J. filed June 9, that should be declared ‘‘abusive specifically to prohibit advance fees for 2000); FTC v. Home Life Credit, No. CV00–06154 182 credit cards, suggesting that such a ban CM (Ex) (C.D. Cal. filed June 8, 2000); FTC v. First telemarketing acts or practices.’’ Credit Alliance, No. 300 CV 1049 (D. Conn. filed would make it easier for consumers to June 8, 2000); and FTC v. Credit Approval Svc, No. 180 See MPA at 9. distinguish between legitimate and G–00–324 (S.D. Tex. filed June 7, 2000). In addition, 181 Section 310.4(a)(1) prohibits as an abusive fraudulent credit card offers.189 another case against a fraudulent credit card loss practice ‘‘threats, intimidation, or the use of profane The Commission believes that the protection seller also included elements of illegal or obscene language.’’ Section 310.4(a)(2) prohibits advance fee credit card fees. FTC v. First Capital requesting advance payment for so-called ‘‘credit language of § 310.4(a)(4) already Consumer Membership Svcs, Inc., Civil No. 00–CV– repair’’ services. NCL noted that the level of prohibits such advance fee credit card 0905C(F) (W.D.N.Y. filed Oct. 23, 2000). complaints about such bogus credit repair services, 192 See Rule Tr. at 100–101, which cites a press relative to other products and services, has telemarketers); NAAG at 19–20 (ban targeting release issued by the Minnesota Attorney General remained relatively low since the Rule was vulnerable groups and ban sale of lists of victims); on the lawsuit that Minnesota brought against U.S. promulgated, annually ranking 23rd or 24th on the NCL at 12 (ban advance fees for credit cards). Bancorp for selling customer information. In that list of the most frequent complaints since 1995. 183 FTC complaint data mirrors that provided by case, Minnesota alleged that U.S. Bancorp NCL at 11. Section 310.4(a)(3) prohibits requesting NCL, with advance fee loan complaints rising transferred large amounts of sensitive customer advance payment for the recovery of money lost by during the period from 1995 to 2000. information to Memberworks, Inc., a telemarketing a consumer in a previous telemarketing transaction. 184 NCL at 11. firm, for $4 million, plus commissions on any NCL reported that the number of complaints about completed sales. The customer information 185 See NCL at 11; Rule Tr. at 378–380. such fraudulent ‘‘recovery’’ services declined transferred from U.S. Bancorp to Memberworks 186 dramatically after the Rule was promulgated, from NCL at 12; Rule Tr. at 297–298, 376. included, in addition to account number, the ranking 3rd in 1995 to 25th in 1997. Id. 187 NCL at 12; Rule Tr. at 297–298, 377. customer’s medical status, homeowner status, 182 See, e.g., AARP at 5 (ban use of courier 188 Rule Tr. at 377–378. occupation, Social Security number, date of birth, pickups); Jordan, generally (ban use of prisoners as 189 NCL at 12; Rule Tr. at 297–299, 376–380. and payment history data, among other things. See
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financial institution or some other third addressed by a number of commenters, billing information, they will not be party. However, sellers and and also was the subject of extensive charged unless they affirmatively take telemarketers also obtain other types of discussion at the July Forum.197 Record some action to accept the offer.205 Many billing information in advance of evidence presented by businesses and consumers who complain about such initiating a telemarketing campaign, industry representatives indicates that free trial club membership programs including debit card account numbers, the use of preacquired billing claim to have been told neither that they checking account numbers, mortgage information is quite common,198 and would be charged, nor that the account numbers and the like.193 that it allegedly saves time during telemarketer already had their billing Usually, the acquisition of preacquired telemarketing calls,199 presumably information.206 When they find they billing information occurs through a saving money as well. In the context of have been charged, many consumers are joint marketing agreement or other up-selling and affinity marketing, which shocked and mystified, wondering how arrangement in which, for example, were noted as increasingly common the telemarketer obtained their billing Seller A provides access to its customer forms of marketing at the July Forum, information.207 billing information to Seller B for the the use of preacquired billing The second criticism of the use in purposes of marketing Seller B’s goods information is universal and ‘‘very telemarketing of preacquired billing or services, in exchange for a percentage important’’ to telemarketers.200 information that commenters identified of each sale.194 Telemarketers and Comments from law enforcement is that when the seller avoids the sellers increasingly rely on such affinity representatives, consumer advocacy necessity of persuading the consumer to relationships to up-sell goods and groups, and consumers criticized the demonstrate her consent by divulging services to the customers of companies use of preacquired billing information her billing information, the usual sales with which they have developed a by telemarketers for two specific dynamic of offer and acceptance is business relationship, often transferring reasons. First, NAAG suggested that the inverted.208 One commenter suggested billing information as well as contact practice ‘‘presents inherent that ‘‘(a) typical telemarketing sale not information.195 There are, however, a opportunities for abuse and deception,’’ involving preacquired accounts requires variety of scenarios in which including the billing of unauthorized that the consumer provide his or her preacquired account telemarketing may charges to the customer’s account.201 credit card or other account number to occur. Enhanced database technology According to NAAG, this practice the telemarketer, or that the consumer has also made it practical for sellers to ‘‘generates a significant number of send a check or sign a contract in a later retain and reuse the billing information vehement consumer complaints about transaction. * * * (By contrast, t)he pre- of customers with whom they have an unauthorized account charges,’’ 202 a acquired account telemarketer not only ongoing business relationship, yielding position with which NCL concurred at establishes the method by which the yet another source of preacquired billing the July Forum.203 LSAP echoed these consumer will provide consent, but also information—the seller’s own files.196 concerns in its comments, observing decides whether the consumer actually The issue of the use in telemarketing that, ‘‘(a)s a result of (the) ability to consented.’’ 209 Thus, the most of preacquired billing information was preacquire such accounts, (the State of) fundamental tool consumers have for Minnesota is seeing * * * telemarketers controlling commercial transactions— also, Lornet Turnbull, ‘‘Credit-card Issuer Settles charge customers’ accounts with withholding the information necessary Charges of Violating Consumer Privacy Laws,’’ The questionable or complete lack of to effect payment unless and until they Columbus Dispatch, (Sept. 26, 2000), p. 1E. consumer authorization.’’204 have consented to buy—is ceded, 193 Consumers have reported to various law enforcement agencies, including the Commission, These commenters noted the without the consumers’ knowledge, to that unauthorized charges due to preacquired particular dangers for consumers that the seller before the sales pitch ever account telemarketing have appeared on mortgage arise when preacquired billing begins.210 statements, checking accounts, and telephone bills. information is used in combination with In their comments, various law See, e.g., LSAP at 2; NAAG at 10. 194 Rule Tr. at 89–90; AARP at 4. free trial offers and/or negative option enforcement representatives and 195 See Rule Tr. at 95–96, 176. plans. NAAG cited club membership consumer advocacy groups offered 196 For example, a customer who places quarterly programs sold on a free trial basis as an potential solutions to the deception they orders for contact lenses by calling a particular lens example of why this combination is view as resulting from the use of retailer may provide her billing information in an troubling. Often consumers consent to preacquired billing information. NAAG initial call, with the understanding and intention that the telemarketer will retain it so that, in any having additional information about an suggested that the Rule require subsequent call, the retailer has access to this offered club membership mailed for telemarketers to obtain written consent billing information. As was observed by their review, incorrectly assuming that from any customer before charging a participants in the July Forum, there may be certain 211 benefits that accrue to consumers from the retention since they have not provided their preacquired account. LSAP of their billing information by retailers with whom recommended expanding the express they have a continuing relationship, provided that 197 See generally Hollingsworth at 1; LSAP at 1– verifiable authorization provision of customers understand the nature of their 4; NAAG at 10–13; Texas at 1–2; Rule Tr. at 87– § 310.3(a)(3) to credit card purchases, relationship with the particular seller, as well as the 129, 311. and requiring that where preacquired nature of any transaction for which their billing 198 See Id. at 88, 95–96. information may be used by that seller. During the 199 See Id. at 90. account telemarketing occurs, express July Forum, one commenter gave a non- 200 MPA stated that the use of preacquired telemarketing example of the possible benefits that account information is ‘‘very important’’ in affinity 205 See NAAG at 11–12. might be enjoyed by a consumer who uses a website marketing campaigns. Rule Tr. at 176–177. 206 See Hollingsworth at 1; Rule Tr. at 113–114. such as Priceline.com, to which she provides her 201 207 credit card number and related information, with NAAG at 10. Id. 202 208 the intention that it be retained as a convenience Id. at 11. See NAAG at 10. to her in her ongoing business relationship with the 203 Rule Tr. at 91 (‘‘The National Consumers 209 Id. at 10–11. company. Rule Tr. at 91–92. As another commenter League is really concerned about what we see as the 210 Id. at 10 (‘‘Other than a cash purchase, pointed out, the key to this transaction is the fact growing use of preacquired account information, providing a signature or an account number is a that the consumer makes the decision to supply the and it’s not only credit card accounts. It’s bank readily recognizable means for a consumer to signal billing information to the seller, and understands accounts. This pops up in complaints that we assent to a deal. Preacquired account telemarketing and expects that the information will be retained receive about buyer’s clubs, about credit card loss removes these short-hand methods for the and that the account may be charged in the future, protection plans and certain other telemarketing consumer to control when he or she has agreed to should the consumer authorize another purchase. fraud categories.’’), 113–114. a purchase.’’). Id. at 102. 204 LSAP at 2. 211 Id. at 13.
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authorization be obtained in the form of telemarketing sufficient to outweigh the necessary to protect consumers’ privacy an oral or written statement from the injury that the practice causes or is under the Telemarketing Act. The account holder disclosing the last four likely to cause. Although some industry proposed provision would include a digits of the account number to be members have claimed that preacquired proviso that it is not a violation to charged.212 Texas opined that the Rule account information generates substitute, for the phone number used should require telemarketers to disclose: efficiencies, the Commission has no in making the call, the actual name of (a) That the telemarketer is already in data that identify or quantify specific the seller or charitable organization, and possession of the consumer’s billing efficiency gains. Moreover, other the seller’s or charitable organization’s information; (b) the anticipated billing industry members have maintained that customer or donor service telephone date; and (c) the total amount that the there is no legitimate reason for sharing number, which is answered during consumer is agreeing to pay.213 account information. regular business hours.216 The scope of Third-party sharing of preacquired Finally, consumers are powerless to this provision extends to cover the billing information is an abusive avoid the injury that can result from solicitation by telemarketers of third party sharing of preacquired practice. The TSR, as originally charitable contributions, pursuant to billing information, since making a adopted, implicitly condemned the section 1011 of the USA PATRIOT Act. specific purchase requires divulging then-unknown practice of using The Commission believes there to be no one’s account information; there is preacquired billing information in meaningful distinction between telemarketing, and the Statement of nothing in such a transaction to suggest that the seller or telemarketer will pass telemarketers calling on behalf of sellers Basis and Purpose expressly so and telemarketers calling on behalf of stated.214 Nevertheless, the record it along to third parties or use it for any purpose other than to bill charges for charitable organizations that would developed in this proceeding indicates merit excluding the latter from this that the problematic trafficking in and that particular transaction.215 provision of the Rule. In fact, the record use of consumers’ billing information Accordingly, the Commission evidence amassed during the review of has become prevalent in the proposes, in § 310.4(a)(5), to prohibit the Rule fully supports the proposition marketplace. Therefore, the Commission receiving from any person other than that consumers using caller believes the Rule must address this in the consumer or donor for use in identification technology to screen a more explicit and straightforward telemarketing any consumer’s or donor’s fashion. billing information, or disclosing any telemarketers want to know who is The Commission is persuaded from consumer’s or donor’s billing calling them, regardless of whether the the record evidence and its own law information to any person for use in caller is soliciting them to purchase enforcement experience that receiving telemarketing. During the comment goods or services or to make a charitable from any person other than the period that occurred prior to enactment contribution. Moreover, the mandate of consumer for use in telemarketing any of the USA PATRIOT Act, evidence of the Telemarketing Act regarding the consumer’s billing information, or abuse of donors’ billing information was right to privacy of those called by disclosing any consumer’s billing neither specifically sought, nor telemarketers, which is in no way information to any person for use in received. Nevertheless, pursuant to that altered by the USA PATRIOT Act, telemarketing constitutes an abusive Act, the Commission proposes to supports coverage of the solicitation of practice within the meaning of the include the term ‘‘donor’’ in this charitable contributions under this Telemarketing Act. The practice meets provision to make it clear that provision of the Rule. the Commission’s traditional criteria for telemarketers engaged in the solicitation The Commission received numerous unfairness, in accordance with the of charitable contributions must comments from consumers and others Commission’s view, set forth above, that comply. Nothing in the text or about the fact that Caller ID routinely legislative history of the USA PATRIOT the authority under the Telemarketing fails to display the names and numbers Act suggests that Congress intended to Act to prohibit ‘‘abusive’’ practices not of telemarketers. These commenters exclude telemarketers engaged in the focusing on consumers’’ privacy should noted that the consumer’s Caller ID solicitation of charitable contributions be exercised within the framework of device often displays only a message from provisions like this that target that more rigorous legal standard. The that the identity of the caller is abusive telemarketing practices. The Commission believes that the sharing of ‘‘unavailable,’’ the caller is ‘‘out of the Commission believes that the harm to consumers’ preacquired billing area,’’ or some similar phrase, donors would be no less than the harm information causes or is likely to cause depending on the service or device the to consumers were a telemarketer to substantial injury to consumers which is consumer uses to receive this Caller ID not reasonably avoidable by consumers receive from or disclose to third parties 217 the billing information of donors. information. The record also contains themselves and not outweighed by extensive discussion of the disparate countervailing benefits to consumers or Section 310.4(a)(6)—Blocking Caller views as to why Caller ID equipment to competition. 15 U.S.C. 45(n). Identification Service (‘‘Caller ID’’) often does not display the telemarketer’s In particular, the Commission Information identity and about the technological and questions whether benefits to Proposed § 310.4(a)(5) would prohibit economic feasibility of transmitting that consumers or to competition could information.218 Although some accrue from preacquired account blocking, circumventing, or altering the transmission of, or directing another commenters argue that some telemarketers deliberately block the 212 LSAP at 4. person to block, circumvent or alter the 213 Texas at 1–2. The suggested disclosure that the transmission of, the name and telephone telemarketer already possesses the customer’s number of the calling party for purposes 216 For a discussion of the Rule’s definition of billing information was echoed by some of the of caller identification service (‘‘Caller ‘‘caller identification service,’’ see the explanation industry participants during the July Forum. See ID’’) purposes. The Commission of § 310.2(d), above. Rule Tr. at 177. 217 See, e.g., Baressi at 1; Bell Atlantic at 8; Blake 214 ‘‘(A) telemarketer or seller who fails to provide believes this proposed provision is at 1; Collison at 1; Lee at 1; LeQuang at 1; Mack the (§ 310.3(a)(1)) disclosures until the consumer’s at 1; Sanford at 1. payment information is in hand violates the Rule.’’ 215 See Hollingsworth at 1; NAAG at 10–11, 20; 218 See, e.g., Bell Atlantic at 8; Lesher at 1; DNC 60 FR 43846 (Aug. 23, 1995). Texas at 1–2; Rule Tr. at 102–107. Tr. at 46–47, 106–123, 263; Rule Tr. at 19–49.
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transmission of Caller ID information,219 telemarketer subverts the transmission additional legislation is passed there is record evidence indicating that of its name and telephone number for requiring telemarketers to provide full, it is technically impossible for many Caller ID purposes, the telemarketer unmodified Caller ID information, the telemarketers to transmit Caller ID denies the consumer the means to industry (including PBX vendors, call information because of the type of identify who and where the center solution providers, and other telephone system they use.220 Many telemarketer is, and to whom the technology suppliers) may be forced to telemarketers use a large ‘‘trunk side’’ consumer can assert her ‘‘do-not-call’’ develop the appropriate technology to connection (also known as a trunk or T– rights.224 In order to enhance the meet these regulatory mandates. 1 line), which is cost-effective for usefulness of this tool, and to protect Therefore, in Section IX of this Notice, making many calls, but cannot transmit consumers’ privacy and their right to be the Commission requests comment on Caller ID information.221 Calls from placed on a ‘‘do-not-call’’ list, a number the following: these lines will display a term like of States have passed or are considering • Trends in telecommunications that ‘‘unavailable’’ on a Caller ID device, as legislation regarding transmission of might permit the transmission of full described above. Caller ID information. One State Caller ID information when the caller is Comments from representatives of the legislative approach requires the seller using a trunk line or PBX system; telemarketing industry state that, even if or telemarketer to disclose its name and • How firms currently are meeting the it were possible to transmit a name and telephone number to any Caller ID regulatory requirements in those States telephone number, the information device.225 A second approach prohibits that have passed such legislation; and would be of little use to the consumer the deliberate blocking of Caller ID • The costs and benefits of complying because the number shown most likely information.226 Congress also has with these requirements and with the would be the number of the examined this issue; the most recent Commission’s proposed Rule provision. telemarketer’s central switchboard or Congressional proposals have taken the Although current technological trunk exchange rather than a useful same approaches as the States.227 limitations may restrict transmission of number, such as a customer service Based on the record to date, it appears Caller ID information along some types number, where the consumer could ask that the current state of technology may of phone lines, the Commission believes to be placed on a ‘‘do-not-call’’ list.222 limit the ability of some telemarketers to that there is no reason that a legitimate Caller ID is an important tool for transmit Caller ID information because seller, charitable organization, or consumers, not only because it allows of the type of phone line they use. telemarketer would choose to subvert consumers to screen out unwanted However, the Commission recognizes the display of information sent or callers, but also because it allows that technology advances at a rapid pace transmitted to consumers’ Caller ID consumers to identify companies to in the telecommunications industry; equipment.228 contact to request to be placed on the what is impossible today may be Therefore, the Commission proposes company’s ‘‘do-not-call’’ list.223 If the commonplace in the future. Further, if in § 310.4(a)(5) to specify that it is an abusive telemarketing act or practice for 219 Bell Atlantic at 8; Lesher at 1; DNC Tr. at 46– of Proposed Rulemaking, FCC 94–59, CC Docket a seller, charitable organization, or 47. 91–281, 9 FCC Rcd 1764 (1994) (‘‘Report and telemarketer to deliberately block, 220 Bell Atlantic at 8; DNC Tr. 109–110, 112–118, Order’’). circumvent, or interfere with the 263. 224 LeQuang at 1. information displayed on Caller ID 221 Bell Atlantic at 8; Rule Tr. at 20–47. Bell 225 See, e.g., New Hampshire (ch. 14, effective Atlantic also states, however, that some Jan.1, 1999) and Texas (Tex. Utilities Code Ann. equipment. The proposed provision telemarketers are using ‘‘line side’’ connections that § 55.1065), which require that, if a marketer leaves states that it is not a violation to are capable of transmitting Caller ID information, a message on an answering machine or uses an substitute the actual name of the seller but choose to block its transmission. Bell Atlantic automatic dialing device (ADAD), the Caller ID or charitable organization, and the recommends that to the extent that is occurring, the display must include a telephone number at which Commission should prohibit telemarketers from the marketer may receive calls. seller’s or telemarketer’s customer or blocking Caller ID. Bell Atlantic at 8. In this regard, 226 See, e.g., Alabama (Ala. Code § 8–19C–5(b)); donor service number, which is the FCC has found that some PBX equipment has Arizona (Ariz. Rev. Stat. § 44–1278 subsection B, answered during regular business hours, the capability of transmitting Caller ID information paragraph 1); Georgia (Ga. Code Ann. § 46–5–27); for the phone number used in making and also has the ability to suppress that Kansas (Kan. Stat. Ann. § 50–670(c)); Kentucky (Ky. information. See Rules and Policies Regarding Rev. Stat. Ann. § 367.46955(9); Michigan (Mich. the call. Calling Number Identification Service—Caller ID, Comp. Laws § 484.125, section 25(2)(b)); New As noted, subverting the transmission Third Report and Order, Memorandum Opinion Hampshire (N.H. Rev. Stat. Ann. § 359–E:5a); New of the name or telephone number of the and Order on Further Reconsideration, and York (NY General Business Law § 399–p); calling party for caller identification Memorandum Opinion and Order on Tennessee (Tenn. Code Ann. § 65–4–403); Texas Reconsideration, FCC 97–103, CC Docket 91–281, (Tex. Utilities Code Ann. § 55.1065); Utah (Utah service purposes denies the person 12 FCC Rcd 3867, 3882–84 (1997) (‘‘Third Report Code Ann. § 13–25a–103(6)). and Order’’). Among other issues, the Third Report 227 H.R. 90 (the ‘‘Know Your Caller Act of 2001’’) 228 The FCC requires common carriers to provide and Order establishes new rules to govern PBX and (introduced by Rep. Frelinghuysen Jan. 3, 2001 and a mechanism by which a line subscriber can block related systems, requiring them to provide users (i.e., passed by the House on Dec. 4 2001) would prohibit the display of his or her name and telephone calling parties) with some type of blocking and telemarketers from interfering with or number on a Caller ID device. Rule Tr. at 39–40; unblocking capabilities. Since the agency began its circumventing the consumer’s Caller ID service. It 47 CFR 64.1601(b). See Rules and Policies rulemaking in 1991, a major focus of the FCC also would require that the telemarketer display on Regarding Calling Number Identification Service— proceeding has been to ensure the privacy of calling the Caller ID equipment the name of the seller on Caller ID, Memorandum Opinion and Order on parties by providing the ability to block and whose behalf the call is being made and a valid, Reconsideration, Second Report and Order and unblock the transmission of calling party working telephone number the consumer may call Third Notice of Proposed Rulemaking, FCC 95–187, information. to be placed on a ‘‘do-not-call’’ list. (These CC Docket No. 91–281, 10 FCC Rcd 11700, 11708 222 DNC Tr. at 113–114; Rule Tr. at 41–42. requirements would be implemented through FCC (1995) (‘‘Second Report and Order’’). However, such 223 According to a Bell Atlantic survey of regulations.) A piece of proposed legislation in the a blocking mechanism is intended to ensure the residential customers, three out of four customers previous Congress, H.R. 3180 (a bill to amend the privacy of individual line subscribers, such as those buy Caller ID to help stop abusive telephone calls. Telemarketing Act) (introduced by Rep. Salmon) with unlisted numbers, undercover law Laurie Itkin, ‘‘Caller ID Privacy Issues,’’ 1 NCSL would have prohibited telemarketers from blocking enforcement investigators, or those calling from LegisBriefs (Nov. 1, 1993). Although Caller ID began their telephone number to evade a Caller ID device. battered women’s shelters, whose safety might be as a local service, the advent of new switching Similar legislation was introduced in 2001: H.R. jeopardized if Caller ID information were displayed technology (Signaling System Seven or ‘‘SS7’’ 232 (‘‘Telemarketing Victims Protection Act’’) when they made outgoing calls. No such privacy switching technology) has made it possible for (introduced by Rep. King); and S. 722 concerns pertain when sellers or telemarketers are Caller ID information to be transmitted with out-of- (‘‘Telemarketer Identification Act of 2001’’) initiating outbound sales solicitation calls. See state calls. See Report and Order and Further Notice (introduced by Sen. Frist). Itkin, ‘‘Caller ID Privacy Issues.’’
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called the means to know who and receive calls made by or on behalf of person to deny or interfere with a where the telemarketer is, and to whom that seller. The Commission received person’s right to be placed on a ‘‘do-not- a ‘‘do-not-call’’ demand should be numerous comments from individual call’’ list. This aspect of the provision is directed. It is beyond cavil that this is consumers who recounted experiences proposed to ensure that sellers who use the very type of practice Congress had in which they had been hung up on third party telemarketers cannot shield in mind in directing that the when they requested to be placed on a themselves from liability under this Commission should ‘‘identify other ‘‘do-not-call’’ list. The telemarketers provision by suggesting that the such abusive practices that would be hung up on them without taking their violation was a single act by a ‘‘rogue’’ considered by the reasonable consumer requests, or used other means to hamper telemarketer, where there is evidence to be abusive and thus violate such or impede these consumers’ attempts to that the seller caused the telemarketer to consumer’s right to privacy.’’ 229 As be placed on a ‘‘do-not-call’’ list.231 deny or defeat ‘‘do-not-call’’ requests.234 such, the proposed prohibition directly These comments were echoed by Section 310.4(b)(1)(iii)—‘‘Do-Not-Call’’ advances the Telemarketing Acts’ goal participants in both the ‘‘Do-Not-Call’’ to protect consumers’ privacy. Thus, the Forum and the July Forum.232 Section 310.4(b)(1)(ii) in the original practice is abusive under the Pursuant to section 1011 of the USA Rule prohibits a seller or telemarketer Telemarketing Act, 15 U.S.C. 6102(a)(1). PATRIOT Act, the Commission from calling a person who has proposes to extend the reach of this previously asked not to be called by or Section 310.4(b)—Pattern of Calls provision of the Rule to encompass on behalf of the seller whose goods or Section 310.4(b)(1)(i) specifies that it telemarketers soliciting charitable services were being offered. This is an abusive telemarketing practice to contributions. Nothing in the text or provision, as originally promulgated cause any telephone to ring, or to engage legislative history of that Act indicates pursuant to the Telemarketing Act any person in telephone conversation, an intention to exclude telemarketers before the USA PATRIOT Act repeatedly or continuously, with intent soliciting charitable contributions from amendments, did not reach calls from to annoy, abuse, or harass any person at Rule provisions that, like this one, are telemarketers soliciting charitable the called number. None of the designed to protect consumers’ privacy contributions. comments recommended that changes rights. Moreover, the review of the Rule The ‘‘do-not-call’’ provision of the be made to the current wording of yielded evidence that, in some original Rule is company-specific: After a consumer requests not to receive calls § 310.4(b)(1)(i). Therefore, the language instances, telemarketers soliciting from a particular company, that in that provision remains unchanged in charitable contributions are unwilling to company may not call that consumer. the proposed Rule.230 However, the honor donors’ do-not-call requests, even Other companies, however, may expansion in scope of the TSR when threatened with withdrawal of lawfully call that same consumer until effectuated by the USA PATRIOT Act future support.233 For the reasons set he or she requests each of them not to brings within the ambit of this provision forth below, the Commission, therefore, call. The effect of this provision is to telemarketers soliciting charitable proposes to extend the coverage of this permit consumers to choose those contributions, as well as sellers and section of the Rule to include companies, if any, from which they do telemarketers making calls to induce the telemarketers soliciting charitable not wish to receive telemarketing calls. purchase of goods and services. contributions or purchases of goods or Each company must maintain its own Commenters did suggest changes to services. ‘‘do-not-call’’ list of consumers who § 310.4(b)(1)(ii) (the ‘‘do-not-call’’ A seller or telemarketer has an have stated that they do not wish to provision) and to § 310.4(b)(2) (the ‘‘safe affirmative duty under the Rule to receive telephone calls by or on behalf harbor’’ provision). Those suggestions accept a do-not-call request, and to of that seller. This seller-specific and the Commission’s reasoning in process that request. Failure to do so by approach tracks the approach that the accepting or rejecting the impeding, denying, or otherwise FCC adopted pursuant to its mandate recommendations are discussed in interfering with an attempt to make under the TCPA.235 detail below. such a request clearly would defeat the The Commission proposes to modify purpose of the ‘‘do-not-call’’ provision, Section 310.4(b)(1)(ii)—Denying or the original Rule to effectuate the USA and would frustrate the intent of the Interfering With Rights PATRIOT Act amendments, and to Telemarketing Act to curtail provide consumers with an alternative Proposed § 310.4(b)(1)(ii) would telemarketers from undertaking to reduce the number of telemarketing prohibit a telemarketer from denying or unsolicited telephone calls which the calls they receive, i.e., to place interfering in any way with a person’s reasonable consumer would consider themselves on a national ‘‘do-not-call’’ right to be placed on a ‘‘do-not-call’’ list, coercive or abusive of the consumer’s registry, maintained by the Commission. including hanging up the telephone right to privacy. 15 U.S.C. 6102(a)(3)(A). The proposed modification of the Rule’s when a consumer initiates a request that Therefore, the Commission proposes treatment of the ‘‘do-not-call’’ issue he or she be placed on the seller’s list to specify that it is an abusive would enable consumers to contact one of consumers who do not wish to telemarketing act or practice to deny or centralized registry to effectuate their interfere in any way with a person’s desire not to receive telemarketing calls. 229 H.R. Rep. No. 20, 103rd Congress, 1st Sess. right to be placed on a ‘‘do-not-call’’ list, Telemarketers would be required to (1993) at 8. including hanging up on the individual 230 Section 310.4(b)(1)(i) prohibits as an abusive ‘‘scrub’’ their lists, removing all when he or she initiates such a request. practice ‘‘causing any telephone to ring, or engaging consumers who have placed themselves Proposed § 310.4(b)(1)(ii) would any person in telephone conversation, repeatedly or on the FTC’s centralized registry. This continuously with intent to annoy, abuse, or harass prohibit this practice, and would also any person at the called number.’’ NASAA stated prohibit anyone from directing another that this provision strikes directly at one of the 234 The USA PATRIOT Act amendments retain manipulative techniques used in high-pressure the exclusion of non-profit organizations from sales tactics to coerce consumers into purchasing a 231 See, e.g., Conn at 1; Gilchrist at 1; Gindin at coverage. Therefore, this language is not intended product and noted that it advises consumers that 1; Heagy at 1; Kelly at 1; LeQuang at 1; Mack at 1; to reach non-profit charitable organizations. one of the ‘‘warning signs of trouble’’ is the ‘‘three- Runnels at 1. 235 P.L. 102–243, 105 Stat. 2394, codified at 47 call’’ technique used by fraudulent sellers of 232 See, e.g., DNC Tr. 67–68; Rule Tr. at 423–427. U.S.C. 227. The FCC’s regulations are set out at 47 securities. NASAA at 2. 233 See Peters at 1. CFR 64.1200.
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proposal directly advances the order to determine whether to modify or indication of the intensity of consumer Telemarketing Acts’ goal to protect terminate its operation. discontent on this issue is the number consumers’ privacy. Background. Consumer frustration of people who have placed themselves over unwanted telephone solicitations is 240 In addition, the Commission proposes on ‘‘do-not-call’’ lists. In June, 2001, not a new phenomenon. State and that consumers who have placed the DMA reported that the number of federal legislators and regulators have themselves on the FTC’s national ‘‘do- names registered with the DMA’s been examining the issue since the Telephone Preference Service (‘‘TPS’’) not-call’’ registry could allow 1960’s.238 What is new is the strength of has grown to 4 million, up 1 million telemarketing calls from or on behalf of the response to that frustration, as since June of 2000.241 States report that specific sellers, or on behalf of specific evidenced by, among other things, the consumers are responding in such charitable organizations, by providing number of States that have passed or are overwhelming numbers to the State ‘‘do- express verifiable authorization to the considering legislation to establish not-call’’ statutes that some States’’ seller, or telemarketer making calls for statewide ‘‘do-not-call’’ lists.239 Another telephone systems have crashed.242 or on behalf of a seller or charitable organization, that the consumer agrees 238 As early as 1965, the California Public Utilities and Mark Hamstra, New York Senate, Assembly to accept calls from that seller or Commission investigated the question of Pass Telemarketing Bills, DM News (June 19, 2000) telemarketer.236 The proposed Rule will unsolicited telephone calls, rejecting the idea of a (www.dmnews.com/articles/2000–06–19/ provide consumers with a wider range telephone directory symbol which would indicate 8937.html). The ‘‘do-not-call’’ issue has also drawn whether the subscriber wished to receive the attention of federal legislators, who have of choices than the current Rule commercial and charitable solicitations. McDaniel introduced several bills aimed at addressing provides: They could opt to use the v. Pacific Telephone and Telegraph Co., 60 PUR 3d consumers’ concerns. For example, in the 106th FTC’s centralized registry to eliminate 47 (1965). Federal legislators also began to examine Congress, H.R. 3180 (introduced by Rep. Salmon) the ‘‘do-not-call’’ issue a number of years ago, with would have required telemarketers to tell all telemarketing calls from all sellers proposals such as the ‘‘Telephone Privacy Act’’ consumers that they have a right to be placed on and telemarketers covered by the TSR; (H.R. 2338), which was introduced in 1973. The either the DMA’s ‘‘do-not-call’’ list or on their they could eliminate all telemarketing FCC first examined the issue of unsolicited State’s ‘‘do-not-call’’ list. This proposal also would calls from all sellers and telemarketers telephone calls in 1978, but concluded that, at that have required all telemarketers to obtain and time, it was not in the public interest to subject reconcile the DMA and State ‘‘do-not-call’’ lists covered by the TSR by placing telephone solicitation to federal regulation. with their call lists. Similar legislation was themselves on the central registry, but Memorandum and Order, FCC 80–235, cc Docket introduced in the 107th Congress by Rep. King subsequently agree to accept No. 78–100, 77 FCC 2d 1023 (May 22, 1980). The (H.R. 232, ‘‘Telemarketing Victim Protection Act’’). telemarketing calls only from or on FCC’s action in this regard subsequently was In addition, on Dec. 20, 2001, Sen. Dodd introduced superceded by Congress’ enactment of the TCPA. S.1881, the ‘‘Telemarketing Intrusive Practices Act behalf of specific sellers, or on behalf of 239 DNC Tr. at 16, 137, 157–158. As of January, of 2001,’’ which would require the FTC to establish specific charitable organizations, with 2002, twenty (20) States had passed ‘‘do-not-call’’ a national ‘‘do-not-call’’ registry. respect to which they have provided statutes. Florida established the first State ‘‘do-not- 240 See, e.g., Letter dated Jan. 21, 2000, from express verifiable authorization; or they call’’ list in 1987. (Fla. Stat. Ann. § 501.059.) Oregon James Bradford Ramsay, NARUC, to Carole and Alaska followed with ‘‘do-not-call’’ statutes in Danielson, FTC, and attached News Release (‘‘More could opt to eliminate telemarketing 1989, although, instead of a central registry, they than 40,000 Vermont households are now enrolled calls only from specific sellers, or opted to require telephone companies to place a in the national telemarketing ‘‘do-not-call’’ registry telemarketers on behalf of those sellers, black dot by the names of consumers who do not as a result of a statewide public awareness effort wish to receive telemarketing calls. (1999 Ore. Laws . . ., a more than five-fold increase over pre- or on behalf of charitable organizations, 564; Alaska Stat. Ann. § 45.50.475) In 1999, Oregon campaign levels.’’) See also, DNC Tr. at 57–58, 87– by using the company-specific approach replaced its ‘‘black dot’’ law with a ‘‘no-call’’ 89, 94–95 (Florida’s list contains 112,568 names; in the current rule provision and the central registry program. (Or. Rev. Stat. § 464.567) Kentucky has 50,000 people enrolled; Georgia has current FCC regulations.237 The See also, article regarding Oregon law in 78 BNA signed up more than 180,000 people; Oregon has Antitrust & Trade Reg. Report 97 (Feb. 4, 2000). 74,000 names on its list). Telemarketing Commission proposes to set up this After those three States adopted their statutes, there representatives report that about 2–5% of the centralized registry for a two-year trial was little activity at the State level for about a consumers they call ask to be placed on a ‘‘do-not- period, after which the Commission will decade. Then, in 1999, a new burst of legislation call’’ list. DNC Tr. at 57–58, 87. Connecticut reports review the registry’s operation to obtain occurred as five more States passed ‘‘do-not-call’’ that almost half of its households are on a ‘‘do-not- legislation—Alabama (Ala. Code § 8–19C); Arkansas call’’ list. DM News (June 4, 2001). More than information about the costs and benefits (Ark. Code Ann. § 4–99–401); Georgia (Ga. Code 332,000 phone lines were listed on Missouri’s ‘‘do- of the central registry, as well as its Ann. § 46–5–17; see also, rules at Ga. Comp. R & not-call’’ list within a short time of its passage. St. regulatory and economic impact in Regs. r. 515–14–1); Kentucky (Ky. Rev. Stat. Ann. Louis Post Dispatch, p. 8 (April 9, 2001). New York § 367.46955(15); and Tennessee (Tenn. Code Ann. reports more than 1 million households had signed § 65–4–401; see also, rules at Tenn. Comp. R & Regs. up for its ‘‘do-not-call’’ list by the time it took effect 236 The proposed Rule lists two specific means of Chap. 1220–4–11). During 2000, six more States on April 1, 2001. NY Times (Metropolitan Section), obtaining the express verifiable authorization of a enacted ‘‘do-not-call’’ statutes—Connecticut (Conn. Section 1, p. 31 (April 1, 2001). consumer to receive telemarketing calls despite Gen. Stat. Ann. § 42–288a); Idaho (Idaho Code § 48– 241 Scott Hovanyetz, DMA: Telemarketing Still their inclusion on the national ‘‘do-not-call’’ list: 1003); Maine (Me. Rev. Stat. § 4690–A); Missouri Tops, but Problems Loom, DM News (June 29, 2001) written authorization including the consumer’s (Mo. Rev. Stat. § 407.1098); New York (NY General (wysiwyg://5/http://www.dmnews.com/cgi-bin/ signature; and oral authorization that is recorded Business Law § 399–z; see also, rules at NY Comp. artprevbot.cgi?article_id=15954) Rule Tr. at 409. and authenticated by the telemarketer as being R. & Regs. tit. 12 § 4602); and Wyoming (Wyo. Stat. The TPS is a list of consumers who do not wish made from the telephone number to which the Ann. § 40–12–301). As of January, 2002, another six to receive outbound telemarketing calls. Although consumer is authorizing access. The Commission States had joined the ranks—California (S.B. 771, to not advertised, it was established in 1985 and has expects that written authorization will be necessary be codified at Cal. Bus. & Prof. Code § 17590); been administered by DMA, which subsidizes the in most instances because once on the national ‘‘do- Colorado (H.B. 1405, to be codified at Col. Rev. Stat. cost. DMA does not charge a fee to consumers to not-call’’ list, a consumer could not be contacted by § 6–1–901); Indiana (H.B. 1222, to be codified at place their names on the TPS. DMA requires an outbound call to request oral authorization of Ind. Code Ann. § 24.4.7); Louisiana (H.B. 175, to be consumers to submit their request in writing and, future calls. Oral authorization could be obtained, codified at La. Rev. Stat. 45:844.11); Texas (H.B. at this time, does not permit consumers to submit however, if the consumer were to place an inbound 472, to be codified at Tex. Bus. & Com. Code Ann. their names by telephone or by electronic mail. call, and was asked by the telemarketing sales § 43.001); and Wisconsin (2001 S.B. 55, to be DMA requires its members to adhere to the list; the representative during that call whether he or she codified at Wis. Stat.§ 100.52). In addition, penalty for non-compliance is expulsion from the would consent to further telemarketing solicitations numerous States are considering laws that would association. Sellers and telemarketers that are not from the party called. create State-run ‘‘do-not-call’’ lists, including members of DMA may purchase the TPS for a fee. 237 Even if the Commission were to delete the Maryland, New Jersey, South Carolina, South 242 DNC Tr. at 88–89. A representative from the company-specific ‘‘do-not-call’’ requirement of the Dakota, Utah, Vermont, and Washington. William Kentucky Attorney General’s Office reported: original Rule, sellers and telemarketers would still Raney, Proactive Stance May Affect Pivotal Bills, ‘‘There has been nothing in the 200 years-plus of be required to comply with the very similar DM News (Feb. 21, 2000), p. 50; Sara Marsh, Kentucky’s history that the Attorney General’s requirements promulgated by the FCC under the Residents Want No-call List to Stop Telemarketers, Office has ever seen that equaled the public TCPA. The Capital (Annapolis, MD) (Sept. 24, 1999), p. B1; Continued
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Consumer commenters unanimously intrusive, and only 10% found them to consuming process, which places an expressed their strong dislike of be helpful and informative.247 Similarly, evidentiary burden on the consumer telemarketing and their desire to be free a 1999 survey by the Vermont who must keep detailed lists of who of telemarketing calls, citing the Department of Public Service called and when; 256 and finally, even if intrusiveness and inconvenience of concerning telemarketing found only the consumer wins a lawsuit against a those calls.243 Not a single consumer 2.7% of respondents had no objection to company, it is difficult for the consumer comment championed telemarketing.244 receiving telemarketing calls, whereas to enforce the judgment.257 Several consumers noted that almost 88% stated that they would like Some of the criticisms of the efficacy telemarketing has caused many people all telemarketing calls to stop.248 of the current ‘‘do-not-call’’ scheme will to change their living habits (e.g., by Efficacy of the ‘‘do-not-call’’ be addressed by other proposed screening calls) in order to avoid provision. Industry generally supported amendments to the Rule. For example, telemarketing calls.245 Studies also have the Rule’s current company-specific many commenters complained that they shown that consumers feel angry about approach, stating that it provides cannot exercise their private right of the number of telemarketing calls they consumer choice and satisfies the action because telemarketers do not receive. NCL reported that in a survey consumer protection mandate of the identify themselves and hang up when conducted in 1999, 49% of consumers Telemarketing Act while not imposing consumers try to assert their ‘‘do-not- who responded rated telemarketing at an undue burden on industry.249 call’’ rights.258 This problem is the top of the scale of activities that Several consumer commenters also addressed through the proposed new bothered them.246 A 1999 poll stated that the current scheme works prohibition in § 310.4(b)(1)(ii) against conducted by the State of Kentucky most of the time, although it does not denying or interfering in any way with showed 80% of respondents found work in every case.250 consumers’ right to be placed on a ‘‘do- telemarketing calls to be annoying and The vast majority of individual not-call’’ list.259 commenters, however, joined by Proposed ‘‘do-not-call’’ provision. The response to the no-call list . . . It literally—and I consumer advocates and State law Commission is mindful of the criticism mean literally—fried our telephone systems. It enforcement, claimed that the TSR’s that the company-specific approach in knocked our telephone line out . . . [Tennessee’s] company-specific ‘‘do-not-call’’ the current Rule’s ‘‘do-not-call’’ telephone lines have been broken down because of the overwhelming response, and their list is not provision is inadequate to prevent provision is cumbersome and even ready . . . to be implemented . . . [Georgia] unwanted telemarketing calls.251 They burdensome for those consumers who had exactly the same response, that there was truly cited several problems with the current do not wish to receive any telemarketing a tidal wave of people who were seeking to be on the list. When told this . . . isn’t going to stop ‘‘do-not-call’’ scheme as set out in the calls at all. The Commission believes everybody from calling, people will almost FTC and FCC regulations: the company- that the current approach is inadequate inevitably say, ‘‘If it keeps one person from calling specific approach is extremely to fulfill the mandate in the me, I’m better off.’’ burdensome to consumers, who must Telemarketing Act that the Commission 243 See, e.g., Bennett at 1; Card at 1; Conway at repeat their ‘‘do-not-call’’ request with should prohibit telemarketers from 1; Dawson at 1; Gilchrist at 1; Gindin at 1; Heagy 252 at 1; Hickman at 1; Johnson at 3; Kelly at 1; Lee every telemarketer that calls; undertaking ‘‘a pattern of unsolicited at 1; Mack at 1; Manz at 1; McCurdy at 1; Nova53 consumers’’ repeated requests to be telephone calls which the reasonable at 1; Reynolds at 1; Runnels at 1; Schmied at 1; Ver placed on a ‘‘do-not-call’’ list are consumer would consider coercive or Steegt at 1. 253 244 ignored; consumers have no way to abusive of such consumer’s right to Only two consumer comments even 260 approached acceptance of the notion that verify that their names have been taken privacy.’’ As such, the proposed consumers might value telemarketing calls or wish off a company’s list;254 consumers find modification of the Rule promotes the to preserve telemarketer access to their home that using the TCPA’s private right of telephone—provided telemarketers changed their action 255 is a very complex and time- or receive $500 in damages for each violation, practices. Johnson at 1 (Could be effective and whichever is greater. If the court finds that a accepted if telemarketers were not verbally abusive, company willfully or knowingly violated the FCC’s 247 1999 Kentucky Spring Poll, submitted to FTC did not argue when listener said not interested, and ‘‘do-not-call’’ rules, it can award treble damages. 47 by Kentucky Office of Attorney General, Feb. 4, did not lie.) See also, Runnels at 1 (‘‘Up until past U.S.C. 227(b)(3). year or two, we were always willing to answer calls 2000. 256 See Kelly at 1; NAAG at 17–19; NACAA at 2; from telemarketers, and asked them to put on DNC 248 Letter dated Jan. 21, 2000, from James NCL at 13–14. list....[We] typically received polite Bradford Ramsay, NARUC, to Carole Danielson, 257 See Kelly at 1. response....[But] in the past 2 years, we have FTC, attaching Vermont survey. 258 See, e.g., Gindin at 1; Haines at 1; Heagy at received calls from telemarketers unlike anything 249 ARDA at 2; ATA at 8–10; Bell Atlantic at 4; 1; Hecht at 1; Holloway at 1; Kelly at 1; LeQuang previous.’’) DMA at 2; ERA at 6; MPA at 16; NAA at 2; NASAA at 1; Mack at 1; Manz at 1; Merritt at 1; Runnels 245 See, e.g., Bennett at 1; Runnels at 1 (‘‘We miss at 4; PLP at 1; see also, DNC Tr. at 132–180. at 1; Sanford at 1; Schiber at 1; Thai at 1; see also the days before telemarketers when we could invite 250 See, e.g., Bennett at 1; Brass at 1; Hickman at calls from the public; we feel that the rise of Rule Tr. at 422–427. Some hang-ups occur when the 1; Runnels at 1. consumer answers the telephone only to hear a telemarketing has thus had a negative impact on our 251 See, e.g., Anderson at 1; Bennett at 1; Card at relations with the community at large.’’). ‘‘click’’ as the phone disconnects. These hang-ups 1; Conway at 1; Garbin at 1; A. Gardner at 1; are due to the use of predictive dialers, a problem 246 Letter dated Jan. 20, 2000, from Susan Grant, Gilchrist at 1; Gindin at 1; Harper at 1; Heagy at 1; that is discussed in greater detail in connection NCL, to Carole Danielson, FTC. (‘‘[C]onsumers were Johnson at 1; McCurdy at 1; Menefee at 1; Mey with the oral disclosures required by § 310.4(d). asked to rate seven everyday experiences on a scale generally; Mitchelp at 1; Nova53 at 1; Peters at 1; 259 Other consumers complained that many from 1 to 10 in terms of what bothered them the Rothman at 1; Vanderburg at 1; Ver Steegt at 1; most. A designation of 1 meant ‘‘not bothered at companies require the consumer to use ‘‘magic Worsham at 1; NAAG at 17–19; NCL at 13–14. See words’’ in asserting their ‘‘do-not-call’’ rights. See, all’; 10 indicated ‘‘completely fed up.’’ also, DNC Tr. at 132–180. Telemarketing came in third, with 49% of the e.g., Gilchrist at 1 (company said it did not keep a 252 See Garbin at 1; NAAG at 17; Ver Steeg at 1. respondents giving it a top score of 10.’’) The ‘‘do-not-call’’ list, but only a ‘‘no contact’’ list and 253 tabulation attached to NCL’s letter also shows that See Harper at 1; Heagy at 1; Holloway at 1; would not accept consumer’s request unless only 14% of the respondents gave telemarketing a Johnson at 1; Menefee at 1; Mey generally; Nova53 consumer asked to be placed on ‘‘no contact’’ list); rating of less than 5. Id. The other everyday at 1; Nurik at 1; Peters at 1; Rothman at 1; Runnels Weltha at 1. The Commission was very clear in the experiences rated and the percentage rated as a 10 at 1; Schiber at 1; Schmied at 1; Vanderburg at 1. Statement of Basis of Purpose that any form of ‘‘do- by respondents were: Junk mail (59%); dialing a 254 See McCurdy at 1; Schiber at 1. not-call’’ request is sufficient, and no ‘‘magic company and being answered with ‘‘press 1 for 255 The TCPA permits a person who receives words’’ are necessary to provide notice: ‘‘Any form ...’’ (54%); fine print and codes making bills more than one telephone call in violation of the of request that the consumer does not wish to difficult to understand (41%); credit card fees FCC’s ‘‘do-not-call’’ rules to bring an action in an receive calls from a seller will suffice. An oral (40%); bank fees and ATM charges (34%); and appropriate State court to enjoin the practice, to statement as simple as ‘‘Do not call again’’ is intrusiveness of advertising and commercialism receive money damages, or both. The consumer effective notice.’’ 60 FR at 43855. (30%). Id. may recover actual monetary loss from the violation 260 15 U.S.C. 6102(a)(3)(A).
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Act’s privacy protections. These generally but do not want such calls agree to accept telemarketing calls from consumers would benefit from a from or on behalf of specific sellers or or on behalf of that seller or on behalf national registry they could contact to on behalf of specific charitable of that charitable organization. request to receive no telemarketing calls organizations would still be able to Relationship to FCC regulations. The from or on behalf of any seller, or on choose to use the company-specific Commission’s proposed amendment to behalf of any charitable organization, approach set up by the FCC, also its ‘‘do-not-call’’ provision is consistent whatsoever. In fact, many commenters embodied in § 310.4(b)(1)(iii)(A) of the with the FCC’s regulations. Companies supported the concept of a national ‘‘do- proposed Rule. can comply with both regulations. The not-call’’ database.261 Consumers and Industry representatives expressed Commission intends that its proposed State law enforcement representatives skepticism about the need to strengthen ‘‘do-not-call’’ provision not be stated that a national ‘‘do-not-call’’ list the ‘‘do-not-call’’ provisions of the Rule. construed to permit any conduct that is would provide a ‘‘one-stop’’ method of In this regard, they advanced two precluded or limited by FCC allowing consumers to reach many arguments. First, they asserted that regulations. For example, the FTC does telemarketers quickly and would sellers and telemarketers covered by the not intend that anything in the TSR or enhance consumers’ ability to assert Rule generally comply with the ‘‘do-not- this Notice provide any basis to argue their ‘‘do-not-call’’ rights.262 call’’ provisions, and that non-covered that the FCC is precluded from requiring Some industry representatives also entities—e.g., banks, non-profit that a ‘‘do-not-call’’ list be maintained supported a national ‘‘do-not-call’’ list, organizations, and companies engaged for a specific period of time, or for a stating that it would be preferable to a in common carrier activity—are the period of time that may be greater than patchwork of 50 different State ‘‘do-not- primary source of consumer complaints may be required under the FTC’s Rule. call’’ laws.263 Industry representatives about ‘‘do-not-call’’ requests being Similarly, nothing in the TSR or this generally expressed concern about the ignored.265 The extension of TSR Notice provides any support for an proliferation of State telemarketing coverage, pursuant to the USA assertion that the FCC cannot require a laws, including ‘‘do-not-call’’ statutes, PATRIOT Act amendments, to company’s written ‘‘do-not-call’’ policy indicating that complying with myriad encompass telemarketing calls to solicit be provided to consumers upon request. State laws imposes significant economic charitable contributions will increase In this respect, several industry costs to business.264 The Commission the range of covered calls and commenters pointed out that the FCC recognizes that this is very important, presumably decrease complaints about has issued an interpretation stating that and requests comment on the interplay do-not-call compliance. Industry’s the TCPA does not require companies to between the national registry and State second argument is that although many accept ‘‘do-not-call’’ lists from third- ‘‘do-not-call’’ schemes and poses a consumers may broadly express the party organizations.267 These number of questions in Section IX of view that they would prefer not to commenters asked the Commission to this Notice specifically designed to receive any telemarketing calls, when it clarify whether the TSR requires them elicit information on this issue. comes down to particulars, their true to accept ‘‘do-not-call’’ lists from third A national registry would eliminate wishes may be somewhat different.266 parties. The Commission believes that many of the burdens to consumers of The same consumers who say they its proposed national registry will the company-specific approach. They would like to stop receiving obviate industry members’ uncertainty would only have to register once in telemarketing calls may actually about whether to accept ‘‘do-not-call’’ order to make their preferences known welcome certain types of telemarketing lists from third parties. The Commission to all telemarketers under the FTC’s calls—for example, special sale price believes that the proposed ‘‘do-not-call’’ jurisdiction, instead of having to make offers from companies with which they provision is sufficiently simple and the same request to many companies. have previously transacted business. accessible for consumers that they are Moreover, this proposed revision The proposed Rule addresses this unlikely to turn to third-party addresses industry’s suggestion that concern because consumers could alternatives. consumers may not desire an all-or- selectively agree to receive calls from Related to this issue is the question of nothing approach to telemarketing calls. specific companies, or from whether the national registry might be Consumers who wish to receive telemarketers on behalf of specific presented with consumer ‘‘do-not-call’’ telemarketing calls only from specific charitable organizations, or could still requests compiled by third parties. The companies could place themselves on choose the company-specific approach Commission recognizes that third-party the national registry, but provide set up by the FCC’s regulations. lists, if presented, may not provide express verifiable written authorization Taking all the record evidence into either the level of accuracy or consumer to specific sellers in which they agree to account, the Commission proposes to choice of call preferences available accept telemarketing calls from those amend the Rule to provide consumers through the national registry. Moreover, sellers. Alternatively, consumers who with the option to contact a national to ensure that only the consumers who do not object to telemarketing calls registry maintained by the Commission actually wish to be on the ‘‘do-not-call’’ to indicate that they do not wish to registry are placed there, it is 261 See, e.g., ARDA at 4; Bennett at 1; Card at 1; receive any telemarketing calls, and, in anticipated that enrollment on the Collison at 1; Conway at 1; Dawson at 1; A. Gardner addition, to provide express verifiable national registry will be required to be at 1; Gibb at 1; Gilchrist at 1; Gindin at 1; McCurdy made by the individual consumer from at 1; Mey at 2; NAAG at 18; NACAA at 2; NCL at written authorization to a seller or 14; NFN at 2–3; Schmied at 1. charitable organization in which they the consumer’s home telephone. The 262 See, e.g., Bennett at 1; Card at 1; Collison at Commission, therefore, requests 1; Conway at 1; Dawson at 1; A. Gardner at 1; Gibb 265 DMA at 4–5; ERA at 4; DNC Tr. 96–99, 132– comment on what the costs and/or at 1; Gilchrist at 1; Gindin at 1; McCurdy at 1; 133. The Commission notes that, although certain benefits might be to the incorporation or NAAG at 17–19; NACAA at 2; NCL at 14; Schmied entities such as non-profit organizations, companies refusal of third-party consumer lists by at 1. engaged in common carrier activity, and banks may 263 See, e.g., ARDA at 4; NFN at 2–3. be exempt from the FTC Act, any third-party certified registries. In addition, the 264 See, e.g., ARDA at 2–4; ATA at 6–8; Bell telemarketer hired by an exempt entity to conduct Atlantic at 4–7; DMA at 6–7; Gannett at 1; KTW at its telemarketing activities would be covered by the 267 See DMA at 7–8; NAA at 4; and Letter dated 3–4; MPA at 11, 16; NFN at 2; Reese at 3, 11–12; TSR. See 60 FR at 43843. Aug. 19, 1998, from Geraldine A. Matise, FCC to Verizon at 2–3. 266 See, e.g., DNC Tr. 108, 164. James T. Bruce, Wiley, Rein & Fielding.
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Commission requests comment on (4) any subsequent call must be the harbor’’ provision in order to clarify the whether verification should occur and, result of error. applicability of the safe harbor. if so, what form the verification should These criteria tracked the FCC’s Commenters generally supported the take. regulations, which set forth the safe harbor, stating that strict liability is Finally, several industry minimum standards that companies inappropriate where a company has representatives asked the Commission must follow to comply with the TCPA’s made a good faith effort to comply with to set a single national standard for how ‘‘do-not-call’’ provision.269 Proposed the Rule’s requirements and has long a company may take to place a § 310.4(b)(2) contains three additional implemented reasonable procedures to 268 271 consumer on its ‘‘do-not-call’’ list. requirements that must be met before do so. NASAA noted that it was good With regard to company-specific lists, sellers or telemarketers may avail public policy to reward firms that have the Commission declines to second- themselves of the ‘‘safe harbor’’: (1) been proactive in attempting to comply guess the FCC’s ruling. There is Sellers and telemarketers must obtain with the Rule, and that such a safe insufficient evidence in the record to harbor provides guidelines for industry and reconcile on not less than a 272 justify such action that would introduce monthly basis the names and/or ‘‘best practices.’’ The same rationale the specter of inconsistency between the telephone numbers of persons who have applies with equal force to allowing two sets of regulations. With regard to been placed on the Commission’s telemarketers that solicit charitable the national registry, under proposed national registry; (2) for those contributions to avail themselves of the § 310.4(b)(2)(iii), a seller or telemarketer consumers whose telephone numbers safe harbor. The Commission continues to believe will not be held liable for violating the are in the national registry but who have ‘‘do-not-call’’ requirements of that the Rule should contain a safe agreed to accept telemarketing calls §§ 310.4(b)(1)(ii) and (iii) if, among harbor provision for violations of its from or on behalf of the seller, or on other things, it obtains and reconciles ‘‘do-not-call’’ provision. Sellers or behalf of a specific charitable on no less than a monthly basis the telemarketers who have made a good organization, the seller and telemarketer names and/or telephone numbers of faith effort to provide consumers or must maintain the consumers’ express those persons who have been placed on donors with an opportunity to exercise verifiable authorizations to call; and (3) the national registry. their ‘‘do-not-call’’ rights should not be sellers and telemarketers must monitor liable for violations that result from Section 310.4(b)(3)—Commission compliance and take disciplinary action error.273 The Commission believes the Review for non-compliance. Although these same rationale applies to potential Proposed § 310.4(b)(3) sets out the criteria are not among the minimum violations of proposed § 310.4(b)(1)(ii), Commission’s intention to review the standards contained in the FCC’s and therefore proposes to modify the operation of its national registry after regulations for the TCPA company- introductory sentence of § 310.4(b)(2) to two years. During that review, the specific ‘‘do-not-call’’ regime, the provide a safe harbor for violations of Commission will obtain information additional criteria in the proposed Rule both proposed §§ 310.4(b)(1)(ii) and (iii). about the costs and benefits of the do not conflict with the FCC Section 310.4(b)(1)(ii) prohibits a seller central registry, as well as its regulatory regulations. As discussed above, the or telemarketer from denying or and economic impact. Based on the FCC regulations are silent as to any interfering with a person’s right to be information received, the Commission requirement to reconcile names or placed on a ‘‘do-not-call’’ list, whereas will determine whether to modify numbers from a national registry § 310.4(b)(1)(iii) prohibits calling a aspects of the registry’s operation or because the FCC regulations relate only person who has previously requested to 270 whether to terminate the registry’s to company-specific lists. Therefore, be placed on such a list. The original operation. any FTC requirement about obtaining Rule provided safe harbor protection and reconciling telephone numbers only for violations of the ‘‘do-not-call’’ Section 310.4(b)(2)—‘‘Do-Not-Call Safe placed in a national registry would not Harbor’’ provision. The proposed Rule would conflict with the FCC’s regulations. expand that safe harbor protection to Section 310.4(b)(2) provides sellers Similarly, the FCC regulations are silent violations of the provision that prohibits and telemarketers with a limited safe as to the requirement to monitor denying or interfering with the harbor from liability for violating the compliance and take action to correct consumer’s or donor’s right to be placed ‘‘do-not-call’’ provision found in any non-compliance, or to maintain on a ‘‘do-not-call’’ list. proposed § 310.4(b)(1)(iii). During the evidence of express verifiable written However, while expanding the scope original rulemaking, the Commission authorization to accept telemarketing of the safe harbor provision, the determined that sellers and calls. Thus, the proposed Rule would Commission also proposes to tighten it telemarketers should not be held liable not conflict with the FCC’s regulations. by requiring sellers and telemarketers to for calling a person who previously As discussed more fully below, the monitor compliance and take asked not to be called if they had made Commission believes that it is necessary disciplinary action for non-compliance a good faith effort to comply with the for the proposed Rule to diverge from in order to be eligible for the safe Rule’s ‘‘do-not-call’’ provision and the the FCC regulations by imposing a harbor. Proposed § 310.4(b)(2)(vi) call was the result of error. The Rule monitoring requirement in the ‘‘safe established four requirements that a 271 See ARDA at 4; ERA at 6; NASAA at 3. seller or telemarketer must meet in 269 47 CFR 64.1200(e)(2). 272 NASAA at 3. order to avail itself of the safe harbor: 270 The FCC regulations require companies to 273 The Commission recognizes that the (1) It must establish and implement reconcile ‘‘do-not-call’’ requests for company- implementation of proposed national ‘‘do-not-call’’ specific lists on a continuing or ongoing basis. list will present logistical challenges such as a written procedures to comply with the Specifically, 47 CFR 64.1200(e)(2)(iii) requires the viable means of purging from the list telephone ‘‘do-not-call’’ provision; (2) it must train seller or telemarketer to record the consumer’s ‘‘do- numbers which have been, subsequent to their its personnel in those procedures; (3) it not-call’’ request and place the consumer’s name inclusion on the national ‘‘do-not-call’’ list, must maintain and record lists of and telephone number on the company’s ‘‘do-not- reassigned to new customers. The Commission has call’’ list at the time the request is made. The TSR included, in Section IX of this Notice, questions persons who may not be contacted; and is silent as to how frequently a company must about how best to accomplish this, as well as reconcile ‘‘do-not-call’’ requests for company- whether to include in the Rule safe harbor 268 See DMA at 5–6; KTW at 5; NFN at 1–2. specific lists. provisions addressing calls made to such numbers.
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requires the seller or telemarketer to as permitting calls only between 9 a.m. § 310.4(d) applies only to telemarketing monitor and enforce compliance with and 5 p.m.277 The Commission believes calls made to induce sales of goods or the procedures established in the current calling time restrictions services (in contrast to proposed new § 310.4(b)(2)(i). provide reasonable protections for the § 310.4(e), which contains an analogous Numerous commenters described the consumer’s privacy while not unduly phrase clarifying that § 310.4(e) will problems they had encountered in burdening industry. Moreover, the apply to calls made ‘‘to induce a attempting to assert their ‘‘do-not-call’’ current provision is consistent with the charitable contribution’’). Second, the rights and with companies that FCC’s regulations under the TCPA.278 Commission proposes to modify continued to call after the consumer As the Commission discussed in the § 310.4(d)(4) to require that the asked not to be called.274 This anecdotal Rule’s Statement of Basis and Purpose, telemarketer disclose that a purchase evidence indicates that some entities by altering the permitted calling hours will not enhance a customer’s chances may not be enforcing employee under the Rule, the Commission would of winning a prize or sweepstakes. compliance with their ‘‘do-not-call’’ introduce a conflict in the federal policies. In fact, one consumer reported regulations governing telemarketers.279 Section 310.4(d)(4)—Sweepstakes that telemarketers for two different The record on this issue has not Disclosure companies told her that it was not provided any new evidence that would The Telemarketing Act directed the necessary that a company’s ‘‘do-not- warrant a change that would produce Commission to include in the TSR call’’ policy be effective, only that such such a result. However, the Commission 275 provisions addressing specific a policy exist. has posed questions in Section IX of this ‘‘abusive’’ telemarketing practices, To clarify this apparent Notice asking whether it might be including the failure to ‘‘promptly and misconception about the Rule’s workable to allow consumers to select to clearly disclose to the person receiving requirements, proposed § 310.4(b)(2)(iii) receive telemarketing calls only on the call that the purpose of the call is would require that, in order to avail certain days or during certain hours. to sell goods or services and make such themselves of the safe harbor provision, The Commission poses the questions other disclosures as the Commission sellers and telemarketers must be able to about the costs and benefits of selective demonstrate that, in the ordinary course deems appropriate, including the nature day and time opt out to provide similar and price of the goods and services.’’ 280 of business, they monitor and enforce flexibility for consumers and compliance with the written procedures Section 310.4(d)(4) requires that a telemarketers in developing a schedule telemarketer promptly disclose that no required by § 310.4(b)(2)(i). For for telemarketing that would be example, it is not enough that a seller purchase or payment is necessary to be mutually agreeable. eligible to win a prize or participate in or telemarketer has written procedures Pursuant to Section 1011 of the USA a prize promotion if a prize promotion in place; the company must be able to PATRIOT Act, the Commission is offered. In the original rulemaking, show that those procedures have been proposes to expand the coverage of this the Commission determined, based on and are implemented in the regular prohibition to encompass calls made by its extensive law enforcement course of business. Thus, a seller or telemarketers, whether on behalf of experience, that fraudulent telemarketer cannot take advantage of sellers or charitable organizations, that telemarketers had frequently used the safe harbor exemption in are made outside the permissible hours sweepstakes promotions to disguise the § 310.4(b)(2) unless it can demonstrate set forth in this provision. that it actually trains employees in fact that the purpose of the call is to sell 281 implementing its ‘‘do-not-call’’ policy, Section 310.4(d)—Required Oral goods or services. and enforces that policy. Disclosures To Induce Purchases of NCL recommended that this provision Goods or Services be modified to require the telemarketer Section 310.4(c)—Calling Time Section 310.4(d) sets out certain oral to disclose that making a purchase will Restrictions disclosures that telemarketers must not improve a customer’s chances of Section 310.4(c) prohibits promptly make in any outbound winning.282 NCL noted that this telemarketing calls before 8:00 a.m. and telephone call made to induce the disclosure would be consistent with the after 9:00 p.m. local time at the called purchase of goods or services. requirements for direct mail person’s location. Several commenters Commenters generally supported this solicitations under the DMPEA.283 suggested that the Commission change provision, but suggested several Since the original rulemaking, law the calling time restrictions in modifications or clarifications. Those enforcement experience and the § 310.4(c), stating that unwanted suggestions and the Commission’s legislative history of the DMPEA telemarketing calls are particularly reasoning in accepting or rejecting them strongly suggest that many consumers, abusive when received during the hours are discussed in detail below. In particularly the elderly, get the around dinner time.276 One commenter summary, the Commission has impression, based on the overall suggested that only the consumer determined to retain the wording of presentation of a prize promotion, that should be allowed to determine what § 310.4(d) with two relatively minor purchasing something enhances their are convenient calling times, while modifications. First, the Commission chances of winning.284 Creating such an others suggested other restrictions, such proposes to insert, after the phrase ‘‘in impression undermines one of the an outbound telephone call,’’ the phrase protections the Telemarketing Act 274 See, e.g., Bennett at 1; A. Gardner at 1; ‘‘ to induce the purchase of goods or Gilchrist at 1; Gindin at 1; Harper at 1; Heagy at 1; intended to provide: keeping the Johnson at 3; McCurdy at 1; Menefee at 1; Mey, services.’’ This will clarify that purpose of a telemarketing call—to sell generally; Nova53 at 1; Peters at 1; Runnels at 1. goods or services—clearly in the 275 Mey at 2. 277 See Conway at 1; Hickman at 1; Garbin at 1; 276 See, e.g., Conway at 1; Garbin at 1; Hickman McCurdy at 1. 280 15 U.S.C. 6102(a)(3)(C). at 1; McCurdy at 1; Nurik at 1. NASAA indicated 278 47 CFR 64.1200(e)(1): ‘‘No person or entity 281 that it supports this provision, which has also been shall initiate any telephone solicitation to a 60 FR 43857. adopted by the National Association of Securities residential telephone subscriber before the hour of 282 See NCL at 9. Dealers (‘‘NASD’’) in their Telemarketing Conduct 8:00 a.m. or after 9:00 p.m. (local time at the called 283 Id. 39 U.S.C. 3001(k)(3)(A)(II). Rule 2211(a), because it prevents and limits abusive party’s location).’’ 284 See discussion above regarding proposed and high-pressure sales tactics. NASAA at 2. 279 60 FR at 43855. changes to § 310.3(a)(1)(iv).
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forefront from the start of the call.285 to allow the solicitation to continue— multiple purpose calls and Therefore, the Commission proposes and ultimately, whether he or she recommended that § 310.4(d) be that § 310.4(d)(4) be amended to require wishes to donate.286 amended to address multiple purpose that a telemarketer in an outbound call As noted, the statute specifically calls by requiring that telemarketers disclose promptly and in a clear and mentions a charitable organization’s promptly disclose the cost of the conspicuous manner to the customer mailing address as another disclosure product or service before mentioning receiving the call that making a within the Commission’s discretion to any sweepstakes or other purpose of the purchase will not improve the require. The statute, however, does not call. Finally, one commenter customer’s chances of winning. This require the Commission to adopt such a recommended that the Commission disclosure would clarify for consumers requirement, and accordingly, the amend § 310.4(d) to require that that any sweepstakes or prize promotion Commission does not propose to do so. telemarketers disclose the address and is separate from the sale of the product Such a requirement may impose costs telephone number of the telemarketer. and thus is consistent with the Act’s on charities and telemarketers but Each of these recommendations, and the mandate to prohibit telemarketers from produce few if any benefits—although reasoning behind the Commission’s failing to disclose the purpose of the possibly considerable annoyance—on response to them, are discussed in detail call, as well as the nature and price of the part of individuals interested only in below. the goods and services to be sold. abbreviating the call. In Section IX of Predictive Dialers. A predictive dialer this notice the Commission therefore is an automatic dialing software Section 310.4(e)—Required Oral has included questions on this issue program that, through a complex set of Disclosures To Induce Charitable specifically designed to elicit algorithms, automatically dials Contributions information as to whether such a consumers’ telephone numbers in a Section 1011(b)(2)(D) of the USA disclosure would be appropriate or predetermined manner and at a PATRIOT Act mandates that the necessary. For example, the predetermined time such that the Commission include in the TSR Commission asks whether the purposes consumer will answer the phone at the provisions that address abusive of the USA PATRIOT Act could best be same time that a telemarketer is free to practices: served by requiring prompt disclosure take the call.287 These software programs are set up to predict when a a requirement that any person engaged in of this information only when the donor telemarketing for the solicitation of charitable is interested enough to ask for it. In such telemarketer will be free to take the next contributions, donations, or gifts of money or a case, non-disclosure could possibly call, in order to minimize the amount of any other thing of value, shall promptly and result in consumer harm, since absent a downtime for the telemarketer.288 In clearly disclose to the person receiving the TSR requirement to disclose this some instances, however, when a call that the purpose of the call is to solicit information, consumers would likely consumer answers the phone, there is charitable contributions, donations, or gifts, have little alternative means to obtain it no telemarketer free to take the call. In and make such other disclosures as the as a starting point in verifying the bona those instances, the predictive dialer Commission considers appropriate, including disconnects the call and the consumer the name and mailing address of the fides of a purported charitable organization requesting a donation. The either hears nothing (‘‘dead air’’) or charitable organization on behalf of which hears a click as the dialer hangs up.289 the solicitation is made. Commission specifically seeks additional comment and information on A major theme throughout the Accordingly, the Commission proposes this issue. comments has been consumer to add new section 310.4(e), specifying frustration with the ‘‘hang-ups’’ and that ‘‘it is an abusive telemarketing act Other Recommendations by dead air associated with the industry’s or practice and a violation of this Rule Commenters Regarding Allegedly use of predictive dialers.290 In fact, a for a telemarketer, in an outbound Abusive Practices representative from one Washington, DC telephone call to induce a charitable Commenters raised additional issues area consumer protection agency contribution, to fail to disclose related to abusive practices, urging the reported that the problem of dead air truthfully, promptly, and in a clear and Commission to add to the list of calls due to the use of predictive dialers conspicuous manner to the person practices prohibited by the TSR as is the single largest complaint his receiving the call * * * (1) the identity abusive. These commenters were organization receives regarding of the charitable organization on behalf concerned about several practices: The telemarketing.291 of which the request is being made; and use of predictive dialers; prison-based (2) that the purpose of the call is to telemarketing; telemarketers’ use of 287 See DNC Tr. at 34, 46. 288 solicit a charitable contribution.’’ courier services to pick up payments See DNC Tr. at 34. 289 Another cause of dead air is slow connect A TSR provision requiring disclosure from consumers; telemarketers’ targeting of the purpose of the call is mandated times that create a delay between the consumer of vulnerable groups; and the sale of saying ‘‘hello’’ and the agent getting a tone in his by section 1011(b)(2)(D). Proposed TSR victim lists. In addition, several or her ear. The agent does not hear the initial § 310.4(e)(2) therefore, requires that commenters asked the Commission to ‘‘hello.’’ The consumer who hears only dead air after saying ‘‘hello’’ generally hangs up the phone disclosure. In addition, pursuant to the define the word ‘‘promptly’’ in discretionary authority under after a few seconds. Clifford G. Hurst, Will We Kill § 310.4(d). A number of commenters the Goose? 11 Teleprofessional, Nov. 1998, at 70. § 1011(b)(2)(D) to require other prompt also asked the Commission to clarify 290 See, e.g., Bishop at 1; Braddick at 1; Croushore and clear disclosures (including the when the disclosures required by that at 1; Dawson at 1; Haines at 1; Hecht at 1; Mack at 1; Manz at 1; McCurdy at 1; Merritt at 1; Nova53 charitable organization’s name), provision should be given in the case of proposed TSR § 310.4(3)(2) would also at 1; Sanford at 1; Strang at 1. See also DNC Tr. at 21, 39–40; Rule Tr. at 10, 52–55, 61–62. require disclosure of the identity of the 286 The Commission is mindful that under Riley 291 See Rule Tr. at 55–56 (‘‘During the last two or charitable organization. Prompt v. Nat’l Fed. of the Blind, 487 U.S. 781 (1988), the three years, we’ve conducted numerous seminars disclosure of this information is the range of affirmative disclosures that can be * * * for senior citizens, and the single biggest minimum necessary for a prospective required, consistent with strong First Amendment complaint in all of those seminars without fail has protection of charitable fundraising, is strictly been [what is referred to as] dead ringers, senior donor to know whether he or she wishes constrained. However, the Commission believes citizens who go and answer the phone, there’s such a narrowly tailored disclosure is permitted by nobody there. They either think they’re being 285 15 U.S.C. 6102(a)(3)(C). the First Amendment. See id. at 799 n.11. stalked or they * * * may think [a relative who is
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Consumer commenters expressed decade.296 Predictive dialers have guidelines, if a marketer has abandoned extreme frustration and anger at having become prevalent in the telemarketing a call to a particular number twice in to drop whatever they may be doing and industry because a dialer reputedly can one month, the marketer should not call race to the telephone only to be met significantly increase a telemarketer’s that person again unless the call is with dead air.292 This inconvenience productivity as measured by the amount placed manually by a sales can be particularly troublesome for the of downtime between calls.297 Each representative.300 However, these elderly or infirm who must struggle just telemarketing company can set its guidelines are voluntary and some to get to the telephone, only to find no predictive dialer software for a critics of the telemarketing industry one on the line when they answer. predetermined abandonment rate, i.e., claim that some companies have These consumers often feel frightened, the percentage of hang-up calls the abandonment rates that are substantially threatened, or harassed over these system will allow—the higher the higher than the recommended 5 experiences, since there is no way for abandonment rate, the higher the percent.301 the consumer to tell whether such calls number of hang-up calls. High As a result of increased consumer are placed by a telemarketer or by some abandonment rates can ensure that each outrage over the number of abandoned sinister caller, such as a stalker, or a telemarketing sales representative will calls, the DMA is considering reducing burglar to determine if someone is spend the maximum possible number of the maximum recommended home.293 In addition, when the minutes per hour talking with abandonment rate from 5 percent to predictive dialer disconnects the call, customers. However, the more rapidly some lower number.302 Theoretically, the consumer often has no effective way the dialer places calls, the more the dialer could be set to a zero to determine from whom the call probable it is that the telemarketers will abandonment rate, where a telemarketer originated and thus to whom he or she still be on previously placed calls and would be available for each call should direct a ‘‘do-not-call’’ request; or, not be available when the consumer answered by a consumer. Industry if the consumer has placed his or her picks up the phone. When no members claim, however, that a zero name or number on a ‘‘do-not-call’’ list telemarketer is available, the predictive abandonment rate would lose any or registry, the consumer often has no dialer disconnects the call.298 efficiencies that are gained by the use of 303 effective way to determine which The industry acknowledges the a predictive dialer. They argue that at company is ignoring the consumer’s validity of consumer objections to the a zero abandonment rate, they might as ‘‘do-not-call’’ request.294 Thus, negative effects of predictive dialers and well have telemarketers manually 304 predictive dialers can thwart has attempted to be responsive to the dialing telephone numbers. consumers’’ attempts to protect their increasing consumer frustration over the The Commission in no way condones rights to privacy by placing themselves ‘‘hang-ups’’ and dead air calls. In a practice that enables industry to shift on a ‘‘do-not-call’’ list. January 1999, the DMA established some of its operational costs to Predictive dialers are not a new guidelines for its members which 300 See ‘‘The DMA Guidelines for Ethical phenomenon. The telemarketing recommend an abandonment rate as industry has used these devices for Business Practice,’’ Article #38. See also Rule Tr. close to zero as possible, with a at 60–61. many years.295 However, their use has maximum acceptable abandonment rate 301 McKay, Nuisance Calls, at A1 (quoting Robert increased dramatically in the past of no greater than 5 percent of answered Bulmash of Private Citizen, who estimates that calls per day in any campaign.299 The some telemarketers set the abandonment rate as ill] tried to call them, and they actually place calls high as 40 percent). See also, Hamstra, DMA to to emergency personnel saying, ‘‘Can you go check DMA guidelines also limit the number Explore Predictive Dialer Abandon Rates at 1 on my sister or my aunt or uncle’’ because of the of times a marketer can abandon a (explaining that DMA’s Ethics Committee meets fact that there’s nobody there on the line.’’). consumer’s telephone number in one with members who fail to abide by the guidelines, and a member who continues to be noncompliant 292 See, e.g., Bishop at 1; Braddick at 1; Croushore month. According to the DMA at 1; Dawson at 1; Haines at 1; Hecht at 1; Mack may have its membership terminated). at 1; Manz at 1; McCurdy at 1; Merritt at 1; Nova53 302 See Hamstra, DMA to Explore Predictive 296 at 1; Sanford at 1; Strang at 1; DNC Tr. at 21, 39– Hurst, Will We Kill the Goose? at 70 (‘‘In just Dialer Abandon Rates at 1. See also Rule Tr. at 61. 40; Rule Tr. at 10, 52–55. See also, Martha McKay, eight years, predictive dialers have come to State legislators also have taken note of consumer ‘‘Nuisance Calls Hit New High: Now Telemarketers dominate outbound telemarketing.’’). dissatisfaction with abandoned calls. Although Hang Up,’’ Bergen (Co. NJ) Record (Jan. 30, 2000), 297 Predictive dialer manufacturers claim that several States, including California, Maryland, at A1. dialers can triple the time a telemarketer spends Minnesota and Kansas, have considered legislation 293 See, e.g., Bishop at 1; Haines at 1; Hecht at 1; talking on the telephone and increase productivity prohibiting or restricting the use of predictive Manz at 1; McCurdy at 1; Rule Tr. at 52–56, 61– by 200 to 300 percent. See McKay, ‘‘Nuisance Calls, dialers, only Kansas and California have passed 62. Private Citizen related an incident involving one at A1. According to one manufacturer’s such legislation. The Kansas bill, which was consumer who had 400 abandoned calls in a one- representative, ‘‘[w]hen people dial manually, they possibly the first to address the dead air issue, took year period and, thinking it was a stalker, put an can talk for maybe 15 minutes out of an hour; a effect June 1, 2000, and requires that either a ‘‘live’’ alarm system on her house and quit her job to predictive dialer can increase talk time up to 45 operator or a recorded message be available within watch her children. The abandoned calls turned out minutes per hour. Id. (quoting Rosanne Desmone, 5 seconds of the call’s connection with a Kansas to have come from a telemarketer using a predictive spokeswoman for Virginia-based EIS International consumer. Technically, this statute prohibits dialer. Rule Tr. at 52–53. See also, Mark Hamstra, Inc., a maker of predictive dialing systems). See abandoned calls. See Kan. Stat. Ann. § 50–670(b)(6) DMA to Explore Predictive Dialer Abandon Rates, also, Hamstra, DMA to Explore Predictive Dialer (1999 Supp.) The California bill, which was signed DM News (Feb. 21, 2000), at 1 (DMA reports some Abandon Rates, at 1 (stating that telemarketing on October 10, 2001, prohibits making a telephone consumers saying they thought they were being agents can be twice as productive in a predictive connection for which no person is available for the stalked or harassed.). dialer call center, spending an average of 45 person called. The bill directs the California Public 294 As discussed earlier with regard to blocking of minutes of each hour talking with customers Utilities Commission to establish an acceptable caller identification information, many compared to 22 minutes or less in a center that uses error rate, if any, before July 1, 2002. See, A.B. 870 telemarketers use lines that cannot transmit caller manual dialing). (to be codified at Cal. Pub. Utilities Code § 2875.5). identification. Thus, consumers have no way of 298 McKay, Nuisance Calls, at A1; Hamstra, DMA See also, C. Tyler Prochnow, Keeping an Eye on knowing who called because the consumer’s Caller to Explore Predictive Dialer Abandon Rates at 1. Outbound Calling, DM News, Sept. 18, 2000, p. 48; ID device displays only a message that the identity See also, Rule Tr. at 50–51;57–58. and Telemarketer Fight a Real Call to Arms,’’ LA of the caller is ‘‘unavailable’’ or some similar 299 See DMA, ‘‘The DMA Guidelines for Ethical Times, Part A, Part 1, page 1 (September 9, 2001). phrase. Business Practice,’’ revised August, 1999, available See also, Hamstra, DMA to Explore Predictive Dialer 295 By the mid-1980’s, call center technology was at: www.the-dma.org/library/guidelines/ethics/ Abandon Rates at 1. fairly simple, with only a few software applications guidelines.shtml#6 (Article #38, Use of Predictive 303 See Rule Tr. at 56–57. and predictive dialer manufacturers to choose from. Auto Dialing Equipment); Rule Tr. at 60. See also, 304 Rule Tr. at 50–51, 56–58, 60–61. See also, Rich Tehrani, ‘‘Oh, What Changes Time Hath Hamstra, DMA to Explore Predictive Dialer Hamstra, DMA to Explore Predictive Dialer Wrought,’’ 6 Call Ctr. Solutions, Dec. 1, 1999 at 18. Abandon Rates at 1. Abandon Rates at 1.
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consumers, who receive in return little, intrusion on their privacy and the inmate work programs, including about if any, benefit. The Commission, encroachment on their time. The 2,500 prisoners who work for private however, recognizes the tension balance is further distorted by the fact subcontractors in 38 States.309 between consumer privacy on the one that an abandoned call provides no Supporters maintain that the programs hand and industry productivity on the opportunity for the consumer to assert provide a variety of benefits: to inmates, other. In general, the Commission seeks a ‘‘do-not-call’’ request; and, thus, no by providing job training; to the prison to avoid unnecessary burdens on opportunity to exercise any sovereignty system, because a portion of the wages industry while maximizing consumer whatsoever over future such intrusions goes to offset the costs of incarceration; protections. In this instance, however, on her privacy and encroachments on to taxpayers, because inexpensive labor regardless of the increased productivity her valuable time. is used to handle certain government that predictive dialers provide to the The Commission seeks jobs (e.g., handling tourist bureau calls); telemarking industry, the harm to recommendations regarding alternative and to private companies, because they consumers is very real and falls squarely approaches to the use of predictive gain a supply of inexpensive labor.310 within the areas of abuse that the dialers. For example, should the There have been a number of Telemarketing Act explicitly aimed to Commission mandate a maximum publicized incidents in recent years in address. Using predictive dialers in a setting for abandoned calls, and, if so, which inmates have abused the data and way that produces many abandoned what should that setting be? Would it be resources to which they had access calls is a practice that clearly ‘‘the feasible to limit the use of predictive through these programs to make reasonable consumer would consider dialers to only those telemarketers who improper, invasive, and illegal contact coercive or abusive of such consumer’s are able to transmit Caller ID with members of the public.311 These right to privacy.’’ 305 In this regard, information, including a meaningful events have raised public concern about moreover, one fact is clear: number that the consumer could use to the type of personal information Telemarketers who abandon calls are return the call? Would providing available to inmates who do data entry violating § 310.4(d) of the Telemarketing consumers with this information and telemarketing.312 The commenters Sales Rule. Section 310.4(d) requires alleviate the injury consumers are now point out that while working as that a telemarketer promptly and clearly sustaining as a result of predictive dialer telemarketers, inmates inevitably gain dispose specified information to the practices? Section IX sets out questions access to personal information about person receiving the call. The to elicit suggestions for regulatory individuals, including minors, that may Commission intends for the phase alternatives to the Commission’s endanger the lives and safety of those ‘‘receiving the call’’ to mean when the proposed action regarding predictive they call.313 consumer answers the telephone. Once dialers. In her written comment and in her the consumer answers the telephone, Use of prisoners as telemarketers. The testimony at the July Forum on the TSR, the consumer has ‘‘received the call’’ for Commission received several comments April Jordan described how an inmate purposes of the Rule; the required describing the problems that can occur working as a telemarketer selling family disclosures must then be made. Once when sellers or telemarketers use prison the consumer has answered the inmates to telemarket goods or services, 309 See Light, ‘‘Look for that Prison Label’’ at 21. Since the Prison Industry Enhancement Act was telephone, the telemarketer violates and recommending that the Commission passed in 1979 (P.L. 96–157, § 827, 93 Stat 1215), § 310.4(d) if the telemarketer ban the use of prisoners as telemarketers State prison systems may contract with private disconnects the call without providing or, in the alternative, tightly regulate the firms to provide prison labor as long as the prison the required disclosures. use of such labor, including requiring systems are authorized to do so by State law and the program is certified by the U.S. Department of Section 310.4(d) rests on an essential that inmates disclose their status as Justice’s Bureau of Justice Assistance. balancing of the interests of prisoners when they make calls to, or 310 See Brian Hauck, ‘‘RECENT LEGISLATION: telemarketers and those of consumers. receive calls from, the public.306 In Prison Labor,’’ 37 Harvard Journal on Legislation, In exchange for permitting what is in addition, this issue received 279 (Win. 2000). See also, Gordon Lafer, ‘‘America’s effect the seller’s unsolicited intrusion Prisoners as Corporate Workforce,’’ The American considerable attention during the July Prospect (Sept.-Oct. 1999), p. 66. upon a consumer’s privacy and an Forum.307 311 For example, in its 1997 report to Congress on encroachment on her time, the Rule Prison inmates often are used by the privacy implications of individual reference requires only that the seller federal and State governments, as well services, the FTC cited an example where a prison expeditiously provide the consumer inmate (and convicted rapist), who was employed as private firms, to handle inbound calls as a data processor, used his access to a database with information she needs to to call centers or to make outbound containing personal information to compose and efficiently and quickly reach a decision telemarketing calls.308 About 72,000 send a threatening letter to an Ohio grandmother. as to whether she will extend the prisoners nationwide are employed in See FTC, Individual Reference Services: A Report to conversation and allow a greater Congress (Dec. 1997), at p. 16. 312 Several States, including Wisconsin, Nevada, imposition on her time and her privacy, 306 See generally Jordan, S. Gardner, Budro, and and Massachusetts, have considered legislation that based on her interest in the offer. This Warren. would require their Departments of Correction to balance goes seriously awry when 307 See Rule Tr. at 220–245, 367–375, 443–447. restrict prisoners’ access to personal information telemarketers, in their own self-interest, 308 For example, TWA uses prisoners to make about persons who are not prisoners and/or to employ a practice that provides airline reservations. See Julie Light, ‘‘Look for that require prisoners conducting telephone solicitations Prison Label: Inmate work programs raise human or answering inbound calls to identify themselves consumers with only dead air yet rights concerns,’’ 64 The Progressive 21 (June 1, as prisoners. The Utah State Prison stopped using imposes the same, if not greater, costs 2000). In Wisconsin, inmates have been used to inmates as telemarketers after conceding that they on consumers as does a call that solicit pledges for the Leukemia Society, to answer could not ensure that prisoners would not misuse actually allows them to learn who is State lottery calls, and to give advice on avoiding personal information they obtain. See ‘‘Prison to highway construction zones. See Sam Martino, End Telemarketing By Inmates,’’ Salt Lake Tribune offering to sell them something, and ‘‘Using inmates to staff phones rekindles debate,’’ (June 1, 2000) p. B1. In addition, DMA noted that what is being offered. Abandoned calls Milwaukee Journal Sentinel, (Apr. 12, 1998), p. 5. it had supported legislation banning the use of rob consumers of the benefit of actually Although these examples involve activities that fall inmates in remote sales situations because these being able to consider an offer that outside the coverage of the FTC Act, other prison- sales require the telemarketer to get personal based telemarketing can involve products and information from the consumer. See Rule Tr. at might have made worthwhile the services that are within the Commission’s 371–372. jurisdiction. See, e.g., Jordan (use of prisoners to 313 See generally Jordan, Gardner, Warren, and 305 15 U.S.C. 6102(a)(3)(A). telemarket family films). Budro.
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films engaged in an improper containing only the names and any goods before payment is conversation with her minor daughter telephone numbers of consumers can collected.316 AARP noted that, in the and was able to manipulate the provide valuable personal information initial TSR rulemaking in 1995, both the youngster into revealing a great deal of about consumers that can be abused. Commission and State law enforcement personal information, including her Sellers and telemarketers frequently use agencies recognized that courier address and physical description.314 In lists that target particular types of pickups were disproportionately addition, Attachment VI of Ms. Jordan’s consumers for their solicitations. Thus, associated with fraudulent comment includes newspaper and a telemarketer may be able to deduce telemarketing.317 AARP pointed out that television reports describing other important personal information about a courier pickups are commonly used in instances where inmates misused particular consumer simply by virtue of fraudulent prize and sweepstakes personal information they had received the fact that the consumer’s name and promotions because the courier collects while doing data entry or working as telephone number appear on a list for a the payment before the consumer has telemarketers. particular sales campaign. For example, had a chance to change his or her mind, The Commission is extremely a campaign to sell children’s videos and because the contest seems more concerned about the misuse of the presumably would target households ‘‘official’’ if a ‘‘bonded courier’’ comes access to consumers that prisoners have with young children. The Commission to pick up the payment.318 AARP also when they work as telemarketers, and in is not now convinced that any approach stated that fraudulent businesses that the potential misuse of personal short of banning prison-based target low-income consumers also often information and abusive telemarketing telemarketing as an abusive practice use courier pickups.319 activity that has occurred in connection would ensure sufficient protection for In its 1995 rulemaking to promulgate with prison-based telemarketing. consumers against misuse of their the TSR, the Commission initially Nevertheless, the Commission believes personal information, or other abuses proposed prohibiting any seller or that some public benefit may be associated with this form of telemarketer from providing for or provided by inmate work programs that telemarketing. directing a courier to pick up payment entail telemarketing. The record Therefore, the Commission is from a customer.320 However, the complied to date contains insufficient considering whether prison-based Commission deleted that ban from the information upon which to base a telemarketing ought to be banned as an subsequent revised proposed Rule and, proposal regarding prisoner- abusive practice. Clearly the consumer ultimately, from its final Rule after telemarketing or to assess the costs and privacy concerns that in no small determining that such a ban was benefits of such a proposal. measure prompted Congress to enact the unworkable.321 In this regard, the Possible regulatory approaches under Telemarketing Act are implicated by Commission stated: consideration to address prison-based this activity. Although it seems clear There is nothing inherently deceptive telemarketing abuses. The Commission that prison-based telemarketing may about the use of couriers by legitimate could propose disclosure requirements cause significant unavoidable consumer business, and * * * legitimate businesses or screening and monitoring use them. While fraudulent telemarketers injury, similar risks may occur from often use couriers to obtain quickly the spoils requirements to govern prisoner-based telemarketing employees who are not in of their deceit, such telemarketers engage in telemarketing. It is not clear, however, prison (e.g., former convicts). Prison- other acts or practices that clearly are that such requirements are workable, or based telemarketing is presumably deceptive or abusive, and that are prohibited if workable, whether they would employed because it is less costly than by this Rule. Thus, the prohibition of courier adequately protect consumers from alternatives, which constitutes a use is unnecessary * * *322 misuse of personal information in this countervailing benefit to consumers or Based on the comments it had context. The Commission notes that to competition that might outweigh the received, Commission staff raised the even the most stringent screening and issue of banning courier pickups at the harm. Moreover, a ban on prisoner 323 monitoring procedures instituted by telemarketing would only affect sellers July Forum. However, the discussion those using inmate work programs have and telemarketers that are subject to the did not provide any evidence indicating not prevented prisoners from misusing Rule. Individuals and entities outside that the conclusion the Commission the personal information to which they the scope of the FTC Act would not be drew in 1995 is now invalid. Absent have access. Telemarketing, by its very affected in their telemarketing activities. record evidence to the contrary, the Commission declines to modify the TSR nature, is an interactive medium in Therefore, in this notice, the to prohibit the use of courier pickups for which the prisoner will be talking Commission seeks more information payments. directly with a potential customer. Even from commenters, particularly on the if prisoners are given scripts to use Sale of victim lists. NAAG costs to consumers and the measurable recommended that the Commission ban during the solicitation, nothing short of benefits to consumers or to competition 100% monitoring can ensure that they of prison-based telemarketing, to enable 316 See AARP at 5; Rule Tr. at 382–383. adhere to the script and do not digress it to determine the most appropriate 317 AARP at 5 (citing ‘‘Comments of the Federal into ‘‘personal’’ conversations with Commission action with regard to this Trade Commission, Public Hearing on consumers.315 Moreover, even a list activity. Telemarketing Sales Rule, Chicago, Illinois, April Courier pickups. AARP recommended 1995’’ and ‘‘Comments and Recommendations of the Telemarketing Fraud Task Force of the 314 See generally Jordan and Rule Tr. at 220–245, that the Commission ban the use of Consumer Protection Committee of the National 443–447. couriers to pick up payments unless the Association of Attorneys General in the Matter of 315 In the case involving the Utah prisoner who consumer has an opportunity to inspect the Proposed Telemarketing Sales Rule. FTC File engaged in inapropriate conversations with minors, No. R411001 (1995), pp. 18–19’’). there were numerous safeguards to protect against 318 AARP at 5; Rule Tr. at 382–383. abuse. First, once the main computer system dialed outside the prison; that representative gathered 319 Id. a number and someone answered, the call would additional information in connection with the be transferred to an inmate telemarketer. The only transaction. Second, two separate systems had been 320 Initially proposed Rule § 310.4(a)(2). 60 FR at information the inmate saw was the name the set up to randomly monitor the prisoners’ 8330. phone number was listed under and the name of the conversations with consumers, including built-in 321 60 FR at 30415. person who gave the referral. If the consumer ‘‘alerts’’ that notified the security personnel if a call expresed interest in the product, the call was lasted over 15 minutes. Abuses occurred despite all 322 Id. switched to a civilian representative who worked of these precautions. See Jordan, Attachment III. 323 See Rule Tr. at 382–383.
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as an abusive act or practice the sale of material fact.329 This issue was raised at The wording of this provision adopts ‘‘sucker’’ lists (lists of known victims of the July Forum.330 The results of that the statutory language found in the telemarketing scams); its discussion have led the Commission to Telemarketing Act.336 Furthermore, the recommendation was echoed by several conclude that prohibiting this practice Commission believes that its discussion participants at the July Forum.324 would raise issues similar to those of this term in the Statement of Basis In its 1995 rulemaking to promulgate encountered in attempting to prohibit and Purpose of the Rule is absolutely the TSR, the Commission initially the sale of victim lists, as discussed clear that, while industry is allowed proposed prohibiting any person from above. There is nothing inherently some flexibility, the disclosures must selling, renting, publishing, or harmful about directing sales efforts to occur at once or without delay, and distributing any list of customer a particular segment of the population— before any substantive information contacts when that person is subject to even ‘‘vulnerable’’ ones—provided the about a prize, product, or service is 337 a federal court order for violations of efforts do not entail unfair or deceptive conveyed to the consumer. Although certain provisions of the TSR.325 practices. It is these practices, not commenters suggested other terms that However, the Commission deleted that ‘‘targeting’’ per se, that gives rise to might be used instead of the word 338 ban from the subsequent revised injury. Moreover, these practices ‘‘promptly,‘‘ the Commission does proposed Rule and, ultimately, from its independently violate the Rule. Adding not believe that those suggestions final Rule after determining that such a targeting as a Rule violation would, at provide any greater precision than does ban was best left to the discretion of law best, provide ‘‘makeweight’’ allegations the current wording. Therefore, the enforcement agencies to seek in that serve little purpose. Such a Commission has determined to retain individual law enforcement actions violation, standing alone, would not the current wording of this provision. Multiple purpose calls. Several before the courts.326 likely provide a basis for law commenters noted that there has been a enforcement action. Moreover, it would Based on the comments it had problem with dual purpose calls—i.e., be very difficult to define what received, Commission staff raised the calls that combine selling with some constitutes a ‘‘vulnerable’’ group issue of banning the sale of victim lists other activity, such as conducting a at the July Forum.327 During the without infringing on consumers’’ prize promotion or survey, or assessing discussion at the forum, participants prerogatives to receive offers and whether a customer is satisfied with a raised many of the same arguments for information that may be valuable to recent purchase.339 These commenters and against the prohibition that were them, or without unduly hindering state that the problem has been raised during the initial rulemaking. legitimate telemarketers from focusing particularly acute in the outbound sale 331 Although participants agreed that the their marketing campaigns. As with of magazines, where a prize or sale of ‘‘sucker’’ lists was a pernicious the sale of victim lists, the Commission sweepstakes offer is used to solicit the practice that should be stopped, they believes that combating the practice of purchase of a magazine subscription.340 also agreed that it was extremely targeting vulnerable groups is a NAAG states that some telemarketers difficult to define ‘‘victim.’’ Participants challenge best left to the discretion of fail to make the required disclosures up also noted the danger of overbreadth in law enforcement agencies who may seek front and, when challenged, contend such a provision, and infringement on a injunctions and other penalties on a that the primary purpose of the call is consumer’s sovereignty in the matter of case by case basis in individual law to solicit a sweepstakes entry, not to sell which telemarketing calls he or she enforcement actions. a magazine subscription.341 For this might wish to receive, simply because Definition of ‘‘promptly.’’ Section reason, NAAG and NACAA recommend the consumer had once been 310.4(d) requires that a telemarketer in that, instead of relying upon language in defrauded.328 The discussion did not an outbound call promptly disclose the Statement of Basis and Purpose provide any evidence that the certain information to the person being (discussed below), the TSR should conclusion the Commission drew in called.332 Several commenters urged the contain a provision that expressly deals 1995 was incorrect. Moreover, the Commission to define the term with multiple purpose calls and that the Commission believes it is highly likely ‘‘promptly.’’333 These commenters provision should require telemarketers that any telemarketer attempting to suggested that, by failing to define the to make the required oral disclosures, defraud those who have previously been term, the Rule gives too much latitude including the cost disclosures required victimized by telemarketing fraud will to the telemarketer as to when such by § 310.3(a)(1)(i), before soliciting the violate one or more existing provisions disclosures should be made.334 Other consumer to enter a sweepstakes or of the Rule, and thus be subject to commenters supported the current prize promotion or before mentioning liability without a provision addressing wording, believing the standard strikes any other purpose of the call.342 sucker lists. Therefore, the Commission the appropriate balance.335 declines to amend the TSR to prohibit 336 The Telemarketing Act requires the the sale of lists of known telemarketing Commission to include in its Rule ‘‘a requirement 329 NAAG at 20. that any person engaged in telemarketing for the victims. 330 See Rule Tr. at 380–382. sale of goods or services shall promptly and clarly Targeting vulnerable groups. NAAG 331 See Rule Tr. at 380–382. disclose to the person receiving the call that the recommended that the Commission 332 The Rule requires the telemarketer to disclose purpose of the call is to sell goods or services and promptly the identity of the seller, that the purpose make other such disclosures as the Commission amend the TSR to prohibit the targeting of the call is to sell goods or services, the nature deems appropriate.’’ 15 U.S.C. 6102(a)(3)(C). of vulnerable groups (such as the of the goods or services, and that no purchase or 337 60 FR at 43856, generally and at n.150. elderly) in telemarketing schemes that payment is necessary to win a prize or participate 338 See LSAP at 2 (define as ‘‘when a consumer contain any misrepresentation of in a prize promotion. 16 CFR 310.4(d). answers an outbound telemarketing call’’); NACAA 333 See LSAP at 2; NAAG at 14; NACAA at 2; at 2 (define as ‘‘immediate and at commencement Texas at 2. of the call’’); NAAG at 14 (define as ‘‘at the onset 324 See NAAG at 19. See also Rule Tr. at 354–363. 334 NAAG at 14. of the call’’); Texas at 2 (define as ‘‘prior to making 325 the sales presentation’’). Initially proposed Rule § 310.4(f); 60 FR at 335 See ARDA at 2; Gannett at 1 (noting that many 339 8332. State laws contain different timing requirements for NAAG at 6–8; NACAA at 2. 326 60 FR at 30420. making the required disclosures to the detriment of 340 NAAG at 6–7. 327 See Rule Tr. at 354–367. the effectiveness of telemarketing); MPA at 9–10; 341 Id. at 7. 328 See Rule Tr. at 355–356, 360–361, 366–367. NASAA at 3. 342 Id. at 8; NACAA at 2.
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The Commission does not believe that consumer or to regulatory agencies Commission could alleviate this burden the cost disclosures required by should the consumer have a either by allowing that such records be § 310.3(a)(1)(i) should be one of the complaint.345 The Commission agrees kept for a shorter time, such as 90 days required oral disclosures that must be that the identity of the telemarketer is from the time of sale, delivery, or given promptly at the beginning of the often helpful to law enforcement presentment of charges in writing, or call. These cost disclosures are more agencies when investigating fraudulent that the length of time for record meaningful to the consumer when made telemarketing activities. However, from retention vary depending on the value in conjunction with the remainder of the consumer’s perspective, the identity of the purchase made by telephone, the disclosures required by § 310.3(a)(1). of the seller continues to be the most with longer record storage requirements So long as the disclosures that are vital piece of information that for more expensive sales.351 Bell required by § 310.4(d) are made consumers must capture when a Atlantic suggested that the record promptly, consumers will be put on telemarketer calls, since it is the seller retention period be reduced to only 12 notice that, at some point during the to which the consumer would direct months for companies that offer money call, they will be offered the chance to complaints, requests for refund, as well back guarantees, which would reduce purchase a good or service. In addition, as ‘‘do-not-call’’ requests under the the burden on such companies and the prompt disclosures serve as an Rule. In addition, the Commission create an incentive in the marketplace to obstacle to those telemarketers who believes that the initial oral disclosures offer such guarantees.352 would seek to mischaracterize a sales should be succinct in order to avoid The Commission declines to reduce transaction as something else (e.g., as a confusing consumers with an overload the record retention period for survey or as a contest). of information. Therefore, the telemarketing transactions. As the The Commission also believes that its Commission declines to adopt NASAA’s Commission noted in its discussion of position with respect to multiple recommendation. the recordkeeping provision in the purpose calls is clear. In the Rule’s E. Section 310.5—Recordkeeping Rule’s Statement of Basis and Purpose, Statement of Basis and Purpose, the the 24-month record retention period Section 310.5 of the Rule describes Commission stated: ‘‘is necessary to provide adequate time the types of records sellers or for the Commission and State law [T]he Commission believes that in any telemarketers must keep, and the time multiple purpose call where the seller or enforcement agencies to complete period for retention.346 Specifically, this telemarketer plans, in at least some of those investigations of noncompliance.’’353 provision requires that telemarketers calls, to sell goods or services, the disclosures The Commission further noted that the must keep for a period of 24 months: all required by this section of the Rule must be burden on business in keeping records made ‘‘promptly,’’ during the first part of the substantially different advertising, call, before the non-sales portion of the call brochures, scripts, and promotional for 24 months was carefully balanced by takes place. Only in this manner will the materials; information about prize designating that those records to be kept Rule assure that a sales call is not being made recipients; information about customers, were those already routinely maintained under the guise of a survey research call, or by businesses in the ordinary course of a call for some other purpose.343 including what they purchased, when they made their purchase, and how business. Nothing in the Rule review The Commission believes that this record suggests that a shorter time language leaves no room for doubt that much they paid for the goods or services they purchased; information about period for retention would meet the the sale of goods or services does not needs of law enforcement, and the have to be the primary purpose of the employees; and all verifiable authorizations required by § 310.3(a)(3). Commission finds no compelling call; it only has to be one of the evidence in the Rule review record that purposes in order to trigger the required Commenters generally favored the recordkeeping provisions, noting that such a change is necessary to alleviate oral disclosures. Thus, in any call in any undue burden on industry. which one of the purposes is to sell they have not been unduly 347 The Commission also rejects the goods or services, the required burdensome and that they have provided necessary guidance to industry proposal to tie the duration of record disclosures must be made ‘‘promptly’’ retention to either the value of the goods before any discussion of any members about what records must be kept and for how long.348 In particular, or services sold or to the refund policy sweepstakes, survey, or other non-sales of the seller. As to the former, the purpose. Therefore, because the MPA noted with approval the requirement in § 310.5(a)(1) that only Commission has numerous examples in Commission made its intention so clear its law enforcement experience of in the Statement of Basis and Purpose substantially different advertising materials need be retained under the telemarketing frauds where large regarding when disclosures must be numbers of consumers have been bilked made in a multiple purpose call, it is Rule, which equitably balances the 354 needs of businesses with those of out of small amounts of money. unnecessary to amend the Rule to deal While the injury per consumer may expressly with those types of calls. consumers.349 Reese was the only commenter who have been small in such cases, the Number and address of telemarketer. cumulative injury was substantial. NASAA recommended that the Rule be found the cost of recordkeeping burdensome,350 suggesting that the Consequently, the Commission believes modified to track the language of the that eliminating the 24-month retention NASD Rule that requires the 345 requirement for transactions below a telemarketer to disclose the telephone Id. 346 number and address at which the The Telemarketing Act expressly authorizes the Commission to require recordkeeping in the event of disputes’ and that the cost of this adds 2% 344 telemarketer can be contacted. TSR. 15 U.S.C. 6102(a). to operating costs). NASAA contends that this would 347 See ARDA at 4 (noting that, independent of 351 Id. expand the definition of ‘‘identity of the State law requirements for recordkeeping, 352 Bell Atlantic at 7. seller’’ and provide the consumer with particularly for ‘‘do-not-call’’ requests, the TSR has 353 60 FR at 43857. important information that could be not been burdensome on ARDA members). 354 See, e.g., FTC v. Progressive Media, Inc., No. 348 MPA at 10. used to identify the telemarketer to the C96–1723WD (W.D. Wash. July 23, 1997) 349 Id. (employment opportunities, scholarships/ financial 350 Reese at 8 (stating that ‘‘[i]ndustry practice is aid for $39.95 to $69.95); FTC v. Ed Boehlke, No. 343 60 FR at 43856. to store audiotapes of sales for 2–3 years to satisfy CIV96–0482–E–BLW (D. Idaho, filed Nov. 4, 1996) 344 NASAA at 3. FTC record keeping and for future retrieval in the (work-at-home kits for $38.95).
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certain dollar threshold would be were designed to ensure that legitimate Third, the Commission proposes detrimental to consumers. Similarly, the businesses are not unduly burdened by modifying the exceptions to the direct Commission rejects the proposal to the Rule, and each is justified by one of mail exemption, § 310.6(f). As in the shorten the record retention period for four factors: (1) Whether Congress case of the general media exemption, companies offering money back intended a particular activity to be the direct mail exemption is unavailable guarantees. Although a money back exempt from the Rule; (2) whether the to telemarketers of certain goods or guarantee can be beneficial for conduct or business in question is services that are particularly susceptible consumers, the guarantee is only as already the subject of extensive federal to fraud. The Commission proposes to good as the company that offers it. The or State regulation; (3) whether the add to this list of problematic goods or Commission’s law enforcement conduct at issue lends itself easily to the services. Specifically, the direct mail experience is replete with examples of forms of abuse or deception the exemption will no longer be available to companies engaging in fraud or Telemarketing Act was intended to telemarketers of credit card loss deception, including misrepresentations address; and (4) whether the risk that protection plans or business regarding their money back fraudulent sellers or telemarketers opportunities other than business guarantees.355 Law enforcement would would avail themselves of the arrangements covered by the Franchise still require a 24-month period of exemption outweigh the burden to Rule. In addition, the proposed Rule records in order to complete legitimate industry of compliance with would make clear that email and investigations of noncompliance. the Rule.358 facsimile messages are direct mail for Finally, pursuant to section 1011 of The exemptions to the Rule generated purposes of the Rule. the USA PATRIOT Act, the a significant number of written Fourth, pursuant to the USA recordkeeping provisions of the Rule comments, and were also the subject of PATRIOT Act amendment of the will now be applicable to telemarketers extensive discussion at the July Forum. Telemarketing Act, the Commission also who solicit charitable contributions, as Law enforcement and consumer groups proposes to expand certain of the well as to those who attempt to induce generally favored limiting the exemptions to include charitable the purchase of goods and services. exemptions,359 while the business solicitations. Thus, the proposed Rule Therefore, telemarketers now will be community generally favored retaining would exempt: charitable solicitation required to adhere to § 310.5, regardless the current exemptions.360 calls that are followed by face-to-face of whether they are attempting to No comments were received payment, § 310.6(c); prospective donors’ induce the purchase of goods or services recommending changes to § 310.6(d), inbound calls not prompted by a or a charitable contribution.356 The only which exempts ‘‘calls initiated by a solicitation, § 310.6(d); charitable explicit modification proposed to consumer that are not the result of any solicitation calls placed in response to § 310.5 is made to extend the solicitation by a seller or telemarketer.’’ general media advertising, § 310.6(e); provision’s coverage to include The proposed Rule retains this and charitable solicitation calls placed charitable solicitations in a non-sales provision unchanged, except for in response to direct mail solicitations context. Specifically, in § 310.5 (a)(4), expanding the exemption to charitable that comply with § 310.3(a)(1). In the phrase ‘‘employees directly involved solicitations that are not the result of addition, the Commission proposes to any solicitation. Based on the record in in telephone sales’’ is now directly make the business-to-business this proceeding, and on its law followed by the phrase ‘‘or solicitations exemption unavailable for charitable enforcement experience, the of charitable contributions.’’ solicitation calls (along with calls for Commission proposes several the sale of Internet services, Web F. Section 310.6—Exemptions modifications to other subsections of services, or the retail sale of nondurable Section 310.6 exempts certain § 310.6. office of cleaning supplies), § 310.6(g). telemarketing activities from the Rule’s First, the Commission proposes The Commission’s law enforcement coverage.357 The exemptions to the Rule modification to §§ 310.6(a), 310.6(b) and experience demonstrates that fraudulent 310.6(c) in order to require charitable solicitations directed at 355 See, e.g., FTC v. Telebrands Corp. et al., FTC telemarketers and sellers of pay-per-call businesses are a widespread problem. Docket No. C–3699; and modified Order, 96–0827– services, franchises, and those whose Consequently, telemarketers that solicit R (Turk), (W.D. Va. Sept. 1, 1999) (products via mail sales involve a face-to-face meeting charitable contributions from businesses and telephone order); In the Matter of Gateway before consummation of the transaction 2000, Inc., FTC Docket No. C–3844 (1998) (mail should not be exempt from complying order computers); FTC v. Progressive Media, Inc., et to comply with the ‘‘do-not-call’’ and with the TSR. al., C96–1723WD (W.D. Wash. July 23, 1997) certain other provisions of § 310.4. (employment opportunities, scholarships/financial Second, the Commission proposes to Sections 310.6(a), (b) and (c)— aid); FTC v. Ed Boehlke, No. CIV96–0482–E–BLW; modify the general media exemption to Exemptions for Pay-Per-Call Services, FTC v. Universal Credit Corp., 96–114–LHM(EEx) make it unavailable to telemarketers of Franchising, and Face-to-Face (C.D. Calif. Feb. 9, 1996) (credit repair); FTC v. Transactions Environmental Protection Servs., No. 89–1498 (S.D. credit card loss protection plans and Fla. 1989). business opportunities other than Section 310.6(a) of the original Rule 356 When provisions within this section business arrangements covered by the exempts from the Rule’s requirements specifically contemplate recordkeeping by ‘‘sellers’’ Franchise Rule. those transactions that are subject to the or only require recordkeeping about ‘‘customers,’’ 361 telemarketers soliciting charitable contributions Commission’s Pay-Per-Call Rule. will be exempt from compliance. disclose all material information (except Similarly, § 310.6(b) exempts 357 Specifically, the Rule exempts: (1) Goods and solicitations relating to prize promotions, transactions subject to the Commission’s services subject to the Commission’s 900–Number investment opportunities, credit repair, ‘‘recovery’’ 362 or advance fee loan services); and (6) business-to- Franchise Rule. Section 310.6(c) Rule and Franchise Rule; (2) telemarketing sales exempts from the Rule’s requirements consummated by face-to-face transactions; (3) business telemarketing (except calls involving the inbound telephone calls that are not the result of retail sale of non-durable office or cleaning any solicitation by the seller or telemarketer; (4) supplies). 361 Trade Regulation Rule pursuant to the telephone calls in response to a general media 358 60 FR at 43859. Telephone Disclosure and Dispute Resolution Act advertisement (except those related to investment 359 See FAMSA at 2; NAAG at 16–17; NACAA at of 1992, 16 CFR part 308. opportunities, credit repair, ‘‘recovery’’ or advance 2; NCL at 5. 362 Rule Regarding Disclosure Requirements and fee loan services); (5) inbound telephone calls in 360 See ARDA at 5; DSA at 4; ERA at 4; ICFA at Prohibitions Concerning Franchising and Business response to direct mail solicitations that truthfully 1–2; MPA at 10; Reese at 12. Opportunity Ventures, 16 CFR part 436.
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those transactions in which the sale of from the provisions relating to deceptive § 310.5.371 These calls would also goods or services is not completed, and practices. continue to be exempt from providing payment or authorization of payment is On the other hand, the Rule review the oral disclosures required by not required, until after a face-to-face record makes clear that consumers are § 310.4(d). Similarly, telemarketers sales presentation by the seller.363 The increasingly frustrated with unwanted soliciting charitable donations would be Commission proposes to retain the telemarketing calls, including those exempt from § 310.4(e) when the exemptions for pay-per-call services, soliciting for pay-per-call services or payment or donation is made franchising, and face-to-face sales appointments.366 One consumer subsequently in a face-to-face setting. transactions set out in §§ 310.6(a)–(c),364 who spoke during the public However, the proposed Rule would but to require these telemarketers to participation portion of the ‘‘Do-Not- require that, even when a call falls comply with § 310.4(a)(1) (prohibiting Call’’ Forum noted frustration about her within these exemptions, a telemarketer threats, intimidation or use of profane or inability to invoke her right not to be may not engage in the following obscene language), § 310.4(a)(6) called again by a company that called practices: 367 • (blocking, circumventing, or altering the her to solicit a sales appointment. A Threatening or intimidating a transmission of the name and/or number of participants in the July customer, or using obscene language; telephone number of the calling party Forum concurred that the ‘‘do-not-call’’ • Blocking Caller ID information; provision of the Rule should also be on Caller ID), § 310.4(b) (prohibiting • Causing any telephone to ring or applicable to calls where a seller abusive pattern of calls, and requiring engaging a person in conversation with attempts to set up an in-person sales compliance with ‘‘do-not-call’’ intent to annoy, abuse, or harass the meeting at a later date.368 provisions), and § 310.4(c) (calling time person called; The Telemarketing Act mandates that • restrictions). the Commission’s Rule address abusive Denying or interfering with a No comments were received regarding telemarketing practices and specifically persons’s right to be placed on a ‘‘do- §§ 310.6(a) or (b). Commenters generally mandates that the Commission’s Rule not-call’’ registry; favored § 310.6(c), noting that it include a prohibition on calls that a • Calling persons who have placed appropriately excludes from the Rule’s reasonable consumer would consider themselves on the central ‘‘no-call’’ coverage transactions in which the coercive or abusive to the consumer’s registry list maintained by the incidence of telemarketing fraud and right to privacy, as well as restrictions Commission or calling persons who abuse is lessened by a subsequent in- on calling times.369 The incidence of have placed their names on that seller’s person meeting between a customer and fraud may be diminished in face-to-face ‘‘do-not-call’’ list; and a seller.365 The Commission continues telemarketing transactions or when the • Calling outside the time periods to believe that the incidence of fraud transactions are subject to regulation by allowed by the Rule. may be lessened when a transaction is other Commission rules, but the Section 310.6(d)—Exemption for Calls a not completed, and payment is not Rulemaking record shows that these Customer or Donor That Do Not Result made, until a face-to-face meeting transactions are not less susceptible to From a Solicitation occurs between the buyer and seller. the abusive practices prohibited in 370 Thus, the proposed Rule would § 310.4. For this reason, the As part of the implementation of the continue to exempt face-to-face Commission agrees that telemarketing USA PATRIOT Act amendments, the transactions from the provisions relating calls to solicit a face-to-face presentation Commission proposes to expand this to deceptive practices. For the same or to solicit the purchase of pay-per-call exemption to prevent the Rule from reasons, the Commission proposes to services should be subject to certain of covering calls initiated by a donor that the Rule’s provisions designed to limit do not result from any solicitation by a expand the ‘‘face-to-face’’ exemption to abusive practices. Because franchise charitable organization or telemarketer. those charitable solicitations where the sales generally involve a face-to-face In exempting commercial calls that are donation or payment is made meeting at some point, these not the result of any solicitation by a subsequently in a face-to-face setting. transactions are simply another type of seller, the Commission stated in the Similarly, the Commission continues to face-to-face transaction and thus the Statement of Basis and Purpose for the believe that the Pay-Per-Call Rule and telemarketing of franchises should be original TSR, ‘‘Such calls are not the Franchise Rule provide protection held to the same standard. deemed to be part of a telemarketing against deceptive practices for Therefore, the Commission proposes ‘‘plan, program, or campaign * * * to consumers seeking to purchase those to retain the exemptions for pay-per-call induce the purchase of goods or goods or services. Thus, the proposed services, franchising, and face-to-face services.’’’’ 372 Similarly, calls placed Rule would continue to exempt transactions set out in §§ 310.6(a)–(c), without the prompting of a solicitation transactions subject to the Commission’s but to require that telemarketers making by a charitable organization or Pay-Per-Call Rule and Franchise Rule these types of calls comply with telemarketer are not deemed to be part §§ 310.4(a)(1) and (6), and §§ 310.4(b) of a ‘‘plan, program, or campaign which 363 Face-to-face transactions are also covered by and (c). The proposed Rule would is conducted to induce * * * a the Commission’s Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other continue to exempt these calls from the charitable contribution, donation, or gift Locations, 16 CFR part 429. requirements of § 310.3 relating to of money or any other thing of value 364 No modifications to §§ 310.6(a) & (b) are deceptive practices and from the ***’’, by use of one or more necessary to implement the USA PATRIOT Act recordkeeping requirements set out in telephones and which involves more amendments, because charitable solicitations are than one interstate telephone call. not likely to be combined with pay-per-call or 366 franchise sales. Therefore, there is no need to See generally the text, above, discussing expressly exempt such an unlikely scenario from § 310.4(b). 371 Of course, a seller or telemarketer would have TSR coverage. However, modification of § 310.6(c) 367 See Mey generally; DNC Tr. at 241–246. to keep documentation in order to successfully raise is proposed in order to exempt charitable 368 See Rule Tr. at 291–296. the ‘‘safe harbor’’ defense in § 310.4(b)(2) regarding solicitations that entail a face-to-face meeting before 369 15 U.S.C. 6102(a)(1) and (3)(A) and (B). compliance with the proposed Rule’s ‘‘do-not-call’’ the donor pays. 370 See Gindin at 1; Mey generally; DNC Tr. at requirements. 365 See ARDA at 5; DSA at 3; ICFA at 2. 241–246; Rule Tr. at 291–295. 372 60 F.R. 43860 (Aug. 23, 1995).
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Section 310.6(e)—General Media exemption provides insufficient or its legislative history indicates that Advertising Exemption protection for consumers,379 pointing these kinds of calls have raised concerns Section 310.6(e) of the Rule exempts out that consumer complaints about that would warrant coverage by the calls initiated by a customer in response fraudulent telemarketing schemes are TSR. to general media advertisements, except often the result of advertisements placed Although general media was for telemarketing calls offering credit in general media sources.380 NCL noted exempted from the Rule’s requirements repair services, ‘‘recovery’’ services, or that the exemption for such in the original rulemaking, the advance fee loans. The proposed Rule advertisements is especially troubling Commission noted that deceptive adds credit card loss protection plans because the solicitations rarely, if ever, telemarketers of certain types of and business opportunities other than provide enough information for a products or services did use mass media business arrangements covered by the consumer to make an informed or general advertising to entice their Franchise Rule to the list of exceptions purchasing decision, leaving the victims to call. Those products and to the exemption for general media consumer to base his or her decision on services included investment advertisements. In addition, pursuant to unregulated representations made in the opportunities, credit repair offers, the USA PATRIOT Act amendments, subsequent inbound telephone call.381 advance fee loan offers, and ‘‘recovery’’ the proposed Rule expands the NCL recommended creating an services. Therefore, the Commission exemption to exclude from the Rule’s exception to the general media made this exemption unavailable to coverage calls initiated by a donor in advertising exemption that would sellers and telemarketers of those response to general media subject calls in response to such specified products and services. In criticizing the general media advertisements. advertisements to the Rule’s ERA and Reese recommended requirements unless the initial exemption, NCL cited work-at-home retaining the general media advertising advertisements contained full schemes as an example of a scheme exemption.374 ERA stated that inbound information about the offer.382 commonly promoted using calls in response to most general media When the original Rule was advertisements in newspapers or advertisements are appropriately promulgated, the Commission decided magazines, noting that the number one complaint reported to the NFIC in 1999 excluded from the Rule’s coverage to include narrowly-tailored exemptions 385 because they are not traditionally in order to avoid unduly burdening was such scams. The Commission subject to the abuses the Act addresses, legitimate businesses and sales agrees with NCL that an increasing and because fraudulent general media transactions that Congress specifically number of telemarketing fraud advertisements can be addressed under intended not to be covered under the solicitations for work-at-home schemes and other job opportunities appear in Section 5 of the FTC Act.375 These Rule.383 A review of the legislative general media advertising. Complaint commenters argued that the current history of the Telemarketing Act data show that the single greatest per exemption is justified because it is less indicates that the implicit concern capita monetary loss category in common to find fraudulent offers of behind the Act was with deceptive complaints reported to the FTC is for products or services promoted via solicitations that directly target an business opportunities, including work- general media advertisements. In individual consumer or address (e.g., at-home schemes, and that many of addition, they argued that consumers outbound telephone calls or direct mail these are advertised through general are less susceptible to believing dubious solicitations that induce the consumer media.386 The Commission has devoted prize promotions when they are to call a telemarketer), not with calls much of its resources to law presented through general media than prompted by deceptive advertisements enforcement involving business when presented as an offer for which in general media such as infomercials, 376 opportunity schemes in general, and they have been ‘‘specially selected.’’ television commercials, home shopping work-at-home schemes in particular, Other commenters disagreed with programs, or telephone Yellow Pages over the last several years.387 Of course, ERA and Reese, recommending that the that are broadcast to the general the Commission’s Franchise Rule general media advertising exemption be 384 public. Thus, the Commission addresses the activities of some business removed from the Rule entirely. These believes that the general media opportunity ventures; however, the commenters argued that the general exemption is consistent with the Commission’s law enforcement media exemption is inconsistent with Congressional intent and that the experience and the Rule review record the intent of the Telemarketing Act to exemption should not be removed from confirm that there are ever-emerging cover all telemarketing calls except the Rule. permutations of these business those in response to a catalog Similar reasoning leads the 377 arrangements that are not subject to the solicitation. Commenters also noted Commission to propose extending this Franchise Rule, but that have proven to that there can be little justification for exemption to calls placed by donors in be popular avenues of fraud in the exempting telemarketers from the Rule’s response to general media advertising. marketplace, and therefore merit coverage simply because they avail Nothing in the Commission’s treatment here. themselves of advertising via television, enforcement experience, or in the text of In recognition of the fact that newspaper, or the Internet, while section 1011 of the USA PATRIOT Act telemarketing fraud perpetrated by the regulating telemarketers who use direct 378 mail solicitations, which is another form NAAG at 16. Most solicitations in response to 384 See, e.g., H. Rep. 102–421, 102d Cong., 1st of general media advertising.378 direct mail are exempt from the Rule’s coverage Sess. (1991) (describing the way in which These commenters further argued that provided that the mailing clearly, conspicuously, telemarketing schemes work and detailing a wide and truthfully discloses all material information the current general media advertising variety of boiler room and direct mail schemes required by § 310.3(a)(1). 16 CFR 310.6(f). targeted at specific individuals). 379 NAAG at 16; NCL at 15. 385 See NCL at 15. According to NCL, complaint 373 USA PATRIOT Act, Pub. L. 107–56 (Oct. 25, 380 NCL at 15. data show that 24 percent of work-at-home offers 2001) § 1011(d). 381 Id. were initiated through print advertising, a figure 374 See ERA at 5; Reese at 12. 382 NCL at 15. This approach is similar to that more than double that for offers of other kinds, 375 ERA at 5. adopted in the Rule for direct mail solicitations. See which originate in print advertising in only 11 376 See ERA at 5; Rule Tr. at 276–281, 287–291. 16 CFR 310.6(f). percent of the cases. 377 See NAAG at 16; NCL at 15. 383 60 FR at 43859. 386 Rule Tr. at 282.
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advertising of work-at-home and other electronic mail advertisements are relates to small businesses.393 business opportunity schemes in analogous to traditional direct mail sent Participants at the July Forum also general media sources is a prevalent and through the United States Postal Service noted that small businesses are growing phenomenon, the Commission or private mail services, such as United increasingly the targets of fraudulent proposes to make the general media Postal Service or Federal Express. telemarketing schemes.394 Some critics advertising exemption unavailable to Indeed, the Commission has brought recommended abolishing the business- sellers and telemarketers of business law enforcement actions under the Rule to-business exemption, while others opportunities other than business against fraudulent telemarketers who recommended removing additional arrangements covered by the Franchise used facsimiles or electronic mail to products and services from the Rule or any subsequent Rule covering solicit inbound calls.390 Therefore, the exemption.395 business opportunities the Commission Commission proposes to modify The Commission believes a business- may promulgate. The proposed Rule § 310.6(f) to clarify that direct mail to-business exemption continues to be also makes this exemption unavailable solicitations include ‘‘solicitations via appropriate. However, the Commission for sellers and telemarketers of credit the U.S. Postal Service, facsimiles, also is cognizant of the increasing card loss protection plans.388 Otherwise, electronic mail, and other similar emergence of fraudulent telemarketing the Commission believes that the methods’’ of delivery which directly scams that target businesses, proposed Rule’s focus on credit card target potential customers or donors. particularly small businesses, for certain loss protection plans, including new The original Rule removed prize kinds of fraud.396 The Commission affirmative disclosures and prohibited promotions, investment opportunities, receives a high number of complaints misrepresentations, may create some credit repair services, ‘‘recovery’’ about such business-to-business incentive for unscrupulous sellers to services, and advance fee loan offers telemarketing frauds,397 and has brought market these programs via general from the direct mail exemption. In numerous law enforcement actions media advertising specifically to ensure addition to these, the proposed Rule, for against them, both under the Rule and 398 that their efforts are exempt from the reasons similar to those cited with section 5 of the FTC Act. Currently, Rule’s coverage. Therefore, sellers and respect to the modification to the the Rule makes the business-to-business telemarketers who market these goods general media exemption, § 310.6(e), exemption unavailable to telemarketers and services would be required to abide also removes from the direct mail of nondurable office or cleaning by the Rule regardless of the medium exemption both credit card loss supplies. The sale of Internet and Web used to advertise their products and protection plans as well as business services to small businesses has services. opportunities other than business emerged as one of the leading sources of arrangements covered by the Franchise complaints about fraud by small Section 310.6(f)—Direct Mail Exemption 399 Rule or any subsequent Rule covering businesses. The proliferation of Section 310.6(f) exempts from the business opportunities the Commission sellers of these services has increased Rule’s requirements inbound telephone may promulgate. dramatically as Internet use has calls resulting from a direct mail skyrocketed over the past five years.400 solicitation that clearly, conspicuously, Section 310.6(g)—Business-to-Business and truthfully discloses all material Exemption 393 See, e.g., NAAG at 16–17; NACAA at 2; Texas at 2–3. information required by § 310.3(a)(1). Section 310.6(g) of the original Rule The proposed Rule adds language 394 See generally Rule Tr. at 250–272. exempts most business-to-business 395 clarifying that the Commission See NAAG at 17 (recommending that the telemarketing from the Rule’s exemption be eliminated when telemarketing calls considers advertisements sent via requirements; only the sale of are made to small businesses, or, in the alternative, facsimile machine or electronic mail to that the exception be broadened to include the sale nondurable office and cleaning supplies of Internet and Web services); NACAA at 2 be forms of direct mail. are covered under the Rule. In addition In addition, the proposed Rule (recommending that calls to small businesses be to these, the proposed Rule also makes covered by the Rule); Texas at 2–3. extends this exemption to inbound this exemption unavailable to 396 Rule Tr. at 252–253 (NAAG noting that telephone calls resulting from direct telemarketers of Internet services or businesses are ‘‘the consumers of choice for mail charitable fundraising solicitations fraudulent telemarketers of the 21st century’’). Web services, and telemarketers’ that comply with § 310.3(a)(1), and 397 See E-Commerce Fraud Targeted at Small solicitations for charitable which would otherwise be subject to the Business: Hearings on Web Site Cramming Before contributions. the Senate Comm. on Small Bus. (Oct. 25, 1999) Rule pursuant to the modifications ERA praised the business-to-business (statement of Jodie Bernstein, Director of the Bureau mandated by the USA PATRIOT Act of Consumer Protection, FTC); FTC Cracks Down on exemption, noting that in business-to- amendments. Small Business Scams: Internet Cramming is business transactions, telemarketers are Costing Companies Millions, FTC news release, Commenters suggested that selling to ‘‘uniquely sophisticated’’ June 17, 1999, available online at: www.ftc.gov/opa/ advertisements sent by facsimile purchasers who are skilled in evaluating 1999/small9.htm. machine or electronic mail should be 398 and negotiating competing offers.391 See, e.g., FTC v. Shared Network Svcs. LLC., included as categories of direct mail, Case No. S–99–1087–WBS JFM, (E.D. Cal. filed June and therefore be exempt from the Rule’s ERA also noted that business purchasers 12, 2000); FTC v. U.S. Republic Communications, Inc., Case No. H–99–3657, S.D. Tex. (Oct. 21, 1999) coverage as long as they make the would ‘‘find a seller’s rote adherence to the requirements of the TSR annoying (Stipulated Final Order for Permanent Injunction required disclosures required by and Other Equitable Relief entered on Oct. 25, § 310.3(a)(1) in a clear, conspicuous, and disruptive to ordinary business 1999); FTC v. WebViper LLC d/b/a Yellow Web negotiations.’’392 and truthful manner.389 The Services, Case No. 99–T–589–N, (M.D. Ala. June 9, State and local law enforcement 1999); FTC v. Wazzu Corp., Case No. SA CV–99– Commission believes that facsimile and officials were less enthusiastic about 762 AHS (ANx), (C.D. Cal. filed June 7, 1999). 399 See NAAG at 16–17; Rule Tr. 250–253, 266, 387 See, e.g., FTC v. Advanced Public this Rule exemption, particularly as it 269–270. Communications Corp., 00–00515 (S.D. Fla. filed 400 See, e.g., www.media-awareness.ca/eng/ Feb. 7, 2000); FTC v. MegaKing, No.00–00513 (S.D. 390 See, e.g., FTC v. Leisure Time Mktg, Inc., No. issues/stats/usenet.htm (‘‘In 1997, electronic Fla. filed Feb. 7, 2000); and FTC v. Home 6:00–Civ–1057–ORL–19–B, (M.D. Fla. filed Aug. 14, commerce transactions around the world totalled Professions, Inc., SACV 00–111 AHS(EEx) (C.D. Cal. 2000). [sic] about $4 billion. By 2002, that figure is filed Feb. 1, 2000). 391 ERA at 5. expected to jump to $400 billion.’’) (‘‘Over 83 388 See also, the discussion above regarding 392 Id. Continued
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Small businesses have proven eager to the seller’s home telephone line to call call someone known to the seller, join the online revolution, but often are someone known to the seller, someone someone referred to the seller by a unable to distinguish between offers referred to the seller by a current current customer, or to invite potential from legitimate sellers and those customer, or to invite potential guests to guests to a direct selling party.409 In the extended by fraud artists. Therefore, the a direct selling party.405 DSA argued original rulemaking, the Commission proposed Rule also makes the business- that these types of sellers should be declined to add an exemption for to-business exemption unavailable to distinguished from telemarketers who telephone calls made to a consumer telemarketers of Internet services and use boiler rooms to market their goods with whom a business had a prior Web services. The Commission believes and services. business relationship because it that this will strengthen the tools As explained, above, in the section determined that such an exemption available to law enforcement to stop discussing § 310.2 of the Rule, the would be unworkable in the context of these schemes from proliferating. Rule’s definition of ‘‘telemarketing’’ telemarketing fraud.410 A prior business Similarly, the Commission’s tracks the statutory definition in the relationship exemption would enable Telemarketing Act.406 Thus, for enforcement experience compels the fraudulent telemarketers who were able purposes of the Rule, telemarketing conclusion that charity fraud targeting to fraudulently make an initial sale to a ‘‘means a plan, program, or campaign businesses is a widespread problem, customer to continue to exploit that and that small businesses in particular which is conducted to induce the purchase of goods or services by use of customer without being subject to the need the TSR’s protection from charity Rule.411 The Commission continues to fraud.401 The Commission believes it one or more telephones and which involves more than one interstate believe that such an exemption would consistent with the plain language and work to the disadvantage of consumers, the legislative history of the USA telephone call.’’407 Fraudulent telemarketing practices are not limited and thus declines to accept this PATRIOT Act amendments that the TSR recommendation. should reach this problem. to boiler room operations. A series of telephone calls by one seller to several Other Recommendations by G. Section 310.7—Actions by States and consumers would constitute Private Persons Commenters Regarding Exemptions telemarketing if those telephone calls Preneed Funeral Goods and Services. are to induce the purchase of goods or The Telemarketing Act grants the FAMSA recommended that the face-to- services. Such a situation is as States and private persons the authority face exemption not be available to susceptible to fraud as is a boiler room to enforce the TSR.412 Section 310.7 sellers and telemarketers of preneed or call center situation. Altering the details the procedures the States and funeral and cemetery sales. According definition to exclude telemarketers who private persons should follow in to FAMSA, Rule coverage is appropriate use only their own phone to solicit bringing actions under the Rule in order here because abuses occur when customers would unnecessarily limit to maximize the impact of law aggressive telemarketing techniques are the scope of the Rule, and provide a enforcement actions by promoting used to sell funeral goods and services potential loophole for fraudulent consistency and coordination of effort. telemarketers. Individual telemarketers to individuals who are particularly The language in this provision tracks or sellers can engage in fraud regardless vulnerable because they are grieving the the language of the sections of the of the number of telephones they may loss of a loved one.402 The Commission Telemarketing Act that provide for use. recognizes that these individuals are a enforcement of the TSR by the States particularly vulnerable group and are DSA also recommended exempting telephone calls where ‘‘the solicitation and private persons. The Commission deserving of protection. However, the received no comments recommending Commission believes that the sale of is an isolated transaction and not done in the course of pattern or repeated changes to this section. Therefore, no preneed funeral good and services transactions of like nature.’’408 An change to § 310.7 is proposed. would be more appropriately addressed isolated transaction would not in the Funeral Rule, which is currently Although there were no comments constitute ‘‘a plan, program, or under review by the Commission.403 specifically on this section, campaign’’ and thus would not be Isolated transactions. DSA proposed representatives from industry, consumer subject to the Rule’s provisions. The modifying the definition of groups, and State law enforcement Rule already exempts isolated ‘‘telemarketing’’ to state that it involves praised the dual enforcement scheme transactions through its definition of more than one telephone in order to that Congress set up in the ‘‘telemarketing’’ and, therefore, the emphasize the ‘‘plan, program, or Telemarketing Act. For example, MPA Commission does not believe it is campaign’’ element of the definition.404 noted that fraudulent telemarketers’ necessary to amend the Rule to clarify pattern of ‘‘run(ning) from state to state DSA stated that most of the phone calls that exclusion. made by direct sellers are made using to avoid prosecution’’ has been stymied Prior business or personal because under the Rule individual relationship. DSA also proposed States can obtain nationwide million adults, or 40 percent of the US population exempting ‘‘telephone calls made to any over 16 are accessing the Internet, up from 66 injunctions.413 Other commenters also million in 1998.); www.thestandard.com/research/ person with whom the caller has a prior supported the Act’s dual enforcement metrics/display/0,2799,10089,00.html. or established business or personal scheme, noting that one factor that has 401 See, e.g., Southwest Marketing Concepts; Saja; relationship.’’ In advocating for this been particularly essential to the Rule’s Dean Thomas Corp.; Century Corp.; Image Sales & exemption, DSA noted that most of the Consultants; Omni Advertising: T.E.M.M. Mktg., success in curbing telemarketing fraud phone calls made by direct sellers are to Inc.; Tristate Advertising Unlimited, Inc.; Fold; is the increased enforcement made Eight Point Communications. See also Pa. Stat. Ann. tit. 10 § 162.15(A)(11) (West 2000). 405 Id. at 3–4, 6. DSA represents approximately 409 402 FAMSA at 2. 200 companies that sell their products and services DSA at 3–4. 410 403 FTC, Funeral Rule, 16 CFR 453. On May 5, by personal presentation and demonstration, 60 FR at 30423. 1999, the Commission published a request for primarily in the home. DSA at 3. 411 Id. comment in its review of the Funeral Rule. 64 FR 406 15 U.S.C. 6106(4). 412 15 U.S.C. 6103 (States) and 6104 (private 24249 (May 5, 1999). The review is still pending. 407 16 CFR 310.2(u) (emphasis added). persons). 404 DSA at 3. 408 DSA at 3. 413 MPA at 11.
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possible by allowing States to initiate consumers receive this important or between participants and actions under the Rule.414 information in additional ways, where Commission staff with respect to any State law enforcement officials also feasible. As discussed in detail above in issue raised in the comments. expressed strong approval for the Act’s connection with the proposed changes Commission staff will consider the enforcement scheme, focusing on the to § 310.4(a), the Commission believes views and suggestions made during the efficiencies that the Act has created in that the enforceability of the Rule will forum, in conjunction with the written the use of law enforcement resources. be bolstered by the Commission’s comments, in formulating its final These commenters noted that the Act’s proposal to prohibit as an abusive recommendation to the Commission enforcement scheme allows States to practice any action by a telemarketer to regarding amendment of the work together, and with the block the calling party’s name and Telemarketing Sales Rule. Commission, to jointly sue fraudulent telephone number, thus ensuring that, Commission staff will select a limited 415 telemarketers in a single action. The when feasible, consumers receive number of parties from among those Commission’s own experience confirms information about the identity of who submit written comments to that the dual enforcement provision of telemarketers who call them. In represent the significant interests the Act has been integral in attacking addition, the Commission believes that affected by the issues raised in the telemarketing fraud. Working together enforcement will be enhanced by its Notice. These parties will participate in with States in ‘‘sweeps’’ targeted at proposal in § 310.4(b)(1)(ii) to prohibit an open discussion of the issues, specific types of telemarketing scams, telemarketers from denying or including asking and answering such as those touting advance fee loans interfering in any way with the questions based on their respective or travel promotions, the Commission consumer’s right to be placed on a ‘‘do- comments. In addition, the forum will and States have brought over one not-call’’ list. be open to the general public. The hundred fifty actions since the Rule IV. Invitation To Comment discussion will be transcribed and the took effect.416 All persons are hereby given notice of transcription placed on the public In contrast, the Rule review record record. regarding the private right of action the opportunity to submit written data, available under the Act for violations of views, facts, and arguments concerning To the extent possible, Commission the TSR indicates two sources of the proposed changes to the staff will select parties to represent the frustration: The $50,000 monetary harm Commission’s Telemarketing Sales Rule. following interests: telemarketers, list threshold consumers must meet to be The Commission invites written providers, direct marketers, local eligible to sue under the Act for comments to assist it in ascertaining the exchange carriers, consumer groups, violations of the TSR, and the difficulty facts necessary to reach a determination federal and State law enforcement and in identifying those who violate the as to whether to adopt as final the regulatory authorities, and any other Rule, particularly when a consumer proposed changes to the Rule. Written interests that Commission staff may wishes to enforce those provisions of comments must be submitted to the identify and deem appropriate for the Rule aimed not at fraud and Office of the Secretary, Room 159, FTC, representation. deception, but at abusive practices.417 600 Pennsylvania Avenue, NW., Parties who represent the above- As to the threshold amount of Washington, DC 20580, on or before referenced interests will be selected on monetary harm, the Telemarketing Act March 29, 2002. Comments submitted the basis of the following criteria: will be available for public inspection in prescribed that the amount in 1. The party submits a written accordance with the Freedom of controversy required for a private comment during the comment period. Information Act (5 U.S.C. 552) and person to bring an action under the Rule 2. During the comment period the be $50,000.418 Congress, and not Commission Rules of Practice, on normal business days between the hours party notifies Commission staff of its Commission, is vested with the interest in participating in the forum. authority to alter this amount. Any of 9:00 a.m. and 5 p.m. at the Public change in this amount would Reference Section, Room 130, Federal 3. The party’s participation would necessarily be made by Congress Trade Commission, 600 Pennsylvania promote a balance of interests being through an amendment to the Avenue, NW., Washington, DC 20580. represented at the forum. Telemarketing Act. The Commission will make this Notice 4. The party’s participation would The Commission agrees that the and, to the extent possible, all papers or promote the consideration and difficulty of identifying those who comments received in electronic form in discussion of a variety of issues raised violate the Rule has been an response to this Notice available to the in this Notice. impediment to effective enforcement of public through the Internet at the 5. The party has expertise in activities the Rule, not only by private parties, but following address: www.ftc.gov. affected by the issues raised in this by law enforcement as well. While V. Public Forum Notice. § 310.4(d)(1) of the Rule already requires The FTC staff will conduct a public 6. The number of parties selected will telemarketers to disclose the identity of forum on June 5, 6, and 7, 2002, to not be so large as to inhibit effective the seller promptly in each call, the discuss the written comments received discussion among them. Commission is persuaded that the Rule in response to this Federal Register should be supplemented to ensure that VI. Communications by Outside Parties Notice. The purpose of the forum is to to Commissioners or Their Advisors 414 See, e.g., AARP at 2; ATA at 10; NACAA at afford Commission staff and interested 1; NCL at 3. parties a further opportunity to discuss Written communications and 415 NAAG at 1; Texas at 1. issues raised by the proposal and in the summaries or transcripts of oral 416 The vast majority of these targeted sweeps comments; and, in particular, to communications respecting the merits have been accompanied by a media advisory and examine publicly any areas of of this proceeding from any outside public education campaign, making them an important tool in raising public awareness of significant controversy or divergent party to any Commissioner or particular types of telemarketing fraud. opinions that are raised in the written Commissioner’s advisor will be placed 417 See Kelly (1) at 1; DNC Tr. at 103, 106. comments. The forum is not intended to on the public record. See 16 C.F.R. 418 See 15 U.S.C. 6104(a). achieve a consensus among participants 1.26(b)(5).
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VII. Paperwork Reduction Act approximately 40,000 industry members members affected by the Rule generally, × In this Notice of Proposed make approximately 9 billion calls per approximately 11,200 (28% 40,000 Rulemaking, the Commission proposes year, or 225,000 calls per year per members) of them may additionally be to alter some collection of information company. subject to the Rule under the new Staff also noted during previous requirements contained in the TSR. As definition of ‘‘outbound call.’’ Of those clearance processes, however, that the required by the Paperwork Reduction members, staff conservatively estimates, direct mail exemption in section Act of 1995 (‘‘PRA’’), 44 U.S.C. 3501– based on its law enforcement experience 310.6(f), which includes all required 3517, the Commission has submitted a and industry research, that disclosures under the Rule, would result approximately one-third of copy of the proposed revisions and a in about 9,000 firms choosing that telemarketers’ calls, or around 75,000 Supporting Statement for Information marketing method, and thereby become calls per year per firm, involve a Collection Provisions of the exempt from the remaining TSR suggested transfer or further solicitation Telemarketing Sales Rule (‘‘Clearance requirements. Staff also estimated that by a single telemarketer on behalf of a Submission’’) to the Office of the total time expenditure for the 31,000 second entity. Staff also estimates that Management and Budget (‘‘OMB’’) for firms choosing marketing methods that of the calls in which a transfer is its review. require these oral disclosures was 7.75 suggested to the consumer or in which The proposed amendments to the million hours, but that, based on the a second solicitation is attempted, 60% Rule presented in this Notice of assumption that no more than 25 will be successfully transferred or Proposed Rulemaking clarify some of percent of that time constitutes ‘‘upsold’’ (versus an estimated 40% the Rule’s language, add and change ‘‘burden’’ imposed solely by the Rule (as response rate for traditional outbound some disclosure items, amend the ‘‘do- opposed to the normal business calls). Assuming, as staff has in the past not-call’’ requirements, modify some of practices of most affected entities apart that sales occur in 6 percent of all calls, the current exemptions, and expand the from the Rule’s requirements),420 the that it takes 7 seconds to make the Rule’s coverage by mandate of the USA burden subtotal attributable to these required disclosures, and that these PATRIOT Act. Each of these proposals basic disclosures is 1,937,500 hours. proposed revisions will impose a will impact different industry members The Commission received no paperwork burden only about 25% of differently and, depending on the comments or other evidence to the time,421 staff estimates that the particular industry member, may contradict these estimates during either proposed amendment to the definition reduce, increase, or have no effect on the initial rulemaking or its subsequent of ‘‘outbound call’’ will yield an compliance costs and burdens. Several OMB submissions for renewed increase of 245,000 burden hours. proposals provide new disclosure clearance; thus, Commission staff will (2) Changes to the Express Verifiable requirements—some for industry continue to use them to conduct the Authorization Provision. The members generally, some for instant analysis under the PRA. Commission has proposed no changes to telemarketers soliciting charitable (1) Proposed amendment to the the Rule’s recordkeeping requirements contributions that are now subject to the definition of ‘‘outbound call’’. The per se. However, because of the Rule, and others only in certain specific Commission proposes modifying the proposed changes to the express circumstances. Other proposed Rule’s definition of ‘‘outbound verifiable authorization provision, amendments clarify existing provisions telephone call’’ to clarify the Rule’s § 310.3(a)(3), the § 310.5(a)(5) mandate and should provide an overall benefit to coverage of outbound calls, which that sellers and telemarketers keep all affected respondents without increasing includes not only a call initiated by a verifiable authorizations required to be costs. These clarifications, however, do telemarketer, but also instances when a provided or received under the Rule not affect the collections of information call: (1) Is transferred to a telemarketer suggests that additional records must be contained in the regulation and other than the original one; or (2) retained. Nonetheless, as noted above in therefore will not be addressed here. involves a single telemarketer soliciting the discussion of the express verifiable Only those proposals that might change on behalf of more than one seller or authorization provision of the Rule, the an information collection requirement telemarketer seeking a charitable Rule review record indicates that are discussed below. contribution. Based on its law virtually all telemarketers already keep Estimated Total Additional Hour enforcement experience and the record such records in the ordinary course of Burden: 392,000 hours (rounded to the in this Rule review, the Commission business. Thus, there should be minimal nearest thousand) believes the majority of these two or no incremental recordkeeping burden A. Additional Hour Burden for Non- additional types of calls will occur after resulting from the contemplated Rule PATRIOT Act proposals: 247,500 an inbound call by a customer. changes. burden hours. According to the DMA’s year 2000 The recordkeeping provision, The current total public disclosure Statistical Fact Book, 28 percent of its however, now also applies to and recordkeeping burden for survey respondents said they used telemarketers soliciting charitable collections of information under the inbound calling as a direct marketing contributions, pursuant to the change in Rule is 2,301,000 hours, as stated most method in 1999. the definition of ‘‘telemarketing’’ made recently in the Commission’s Based on the DMA data, and in the USA PATRIOT Act. Staff immediately preceding clearance assuming broadly that these additional estimates that approximately 2,500 submission for the TSR,419 which OMB types of calls will occur solely via telemarketers are solely engaged in the approved on July 24, 2001 under OMB inbound calls by a customer, staff solicitation of charitable contributions, Control No. 3084–0097 (expiration date estimates that of the 40,000 industry and that no more than 2% of July 31, 2004). Consistent with that submission and earlier ones addressing 420 OMB does not view as ‘‘burden’’ the time, 421 See, e.g, 63 FR 40713 (1998), 66 FR 33701 the Rule’s issuance and ensuing effort, and financial resources necessary to comply (2001), in which the Commission assumed that requests for OMB clearance, with a collection of information that would sales occurred in 6 percent of all outbound calls, normally be incurred by persons in the normal that it took 7 seconds to make the required Commission staff estimates that course of their activities to the extent that the disclosures, and that about 75% of affected entities activities are usual and customary. 5 CFR already are making these discloures. See also 60 FR 419 66 Fed. Reg. 33,701 (June 25, 2001). 1320.3(b)(2). 32682 (1995).
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telemarketers of goods or services also new requirements in the ‘‘abusive Thus, total estimated annual hour engage in such activities. Staff telemarketing acts or practices’’ burden for the TSR will be 2,693,000 conservatively estimates that this provisions of the TSR. The proposed hours, including the effects of the provision will account for no more than Rule, therefore, includes proposed proposed Rule changes. one hour of recordkeeping burden per § 310.4(e), which requires telemarketers Estimated Total Additional Cost entity engaged solely in the solicitation soliciting on behalf of charitable Burden: $1,402,000 (rounded to the of charitable contributions. Those organizations to make two oral nearest thousand). entities conducting telemarketing disclosures in the course of the (1) Non-PATRIOT Act proposals: campaigns in both sales and telephone solicitation. $882,000. solicitations of charitable contributions Based on analysis of data from a The current estimate of the cost to are already subject to the Rule regarding sampling of states requiring registration comply with the Rule’s information their sales activities, and, to the extent of professional fundraisers, including collection requirements is that they are compliant with the Rule, telemarketers, staff conservatively $10,022,000.422 With regard to its already perform recordkeeping pursuant estimates that there are approximately proposed additional disclosure to it. Consequently, staff anticipates that 2,500 telemarketing firms potentially requirements, the Commission incremental recordkeeping burden for subject to the proposed amendments of recognizes, as it did during the initial those entities would be de minimis. the Rule specific to the PATRIOT Act. rulemaking, that telemarketing firms Accordingly, the total increase in Additionally, staff estimates that may incur additional costs for telephone recordkeeping burden attributable to approximately 2% of the telemarketers service, assuming that the firms spend this provision is approximately 2,500 currently subject to the Rule also solicit more time on the telephone with (2,500 telemarketers engaged solely in charitable contributions, and thus will customers given the proposed × soliciting charitable contributions 1 now be subject to additional disclosure disclosure requirements. As noted hour each for recordkeeping under the requirements. Thus, the total number of above, staff estimates that the proposed Rule). entities staff estimates will be affected amendment to the definition of (3) Adoption of a national ‘‘do-not- by these additional requirements is ‘‘outbound call’’ will yield an increase call’’ registry. As discussed with regard approximately 3,300. of 245,000 burden hours. Assuming all to § 310.4(b)(1)(iii), the Commission Proposed § 310.4(e) requires calls to customers are long distance and proposes to amend the original Rule to telemarketers soliciting charitable a commercial calling rate of 6 cents per provide consumers the option of placing contributions to make two prompt and minute ($3.60 per hour), affected themselves on a national ‘‘do-not-call’’ entities as a whole may incur up to registry, maintained by the Commission. clear disclosures at the start of each call. $882,000 in associated Telemarketers would be required, at This provision was drafted to mirror telecommunications costs. least monthly, to obtain the current § 310.4(d), which includes four (2) PATRIOT Act proposals: $519,750. Commission’s registry in order to required disclosures, and which staff The Commission recognizes that update their own call lists, ensuring that previously estimated would take 7 consumers who have requested seconds to make in the course of each telemarketing firms now subject to the inclusion on the Commission’s registry telemarketing call. Given that there are Rule after the PATRIOT Act will be deleted from telemarketers’ call half as many disclosures required of amendments may incur additional costs lists. Staff believes that the incremental telemarketers under proposed § 310.4(e), for telephone service, assuming that the PRA effects would be minimal and, staff estimates that these disclosures firms spend more time on the telephone possibly, lead to reduced burden for will take approximately 4 seconds per with customers due to the proposed telemarketers. Many affected entities, call. As with commercial telemarketing disclosure requirements specific to the whether telemarketing for commercial calls, staff’s estimate anticipates that at solicitation of charitable contributions. or charitable organizations, already have least 60% of calls result in ‘‘hang-ups’’ As noted abvoe, staff estimates that the in place procedures either for scrubbing before the telemarketer has the proposed amendments arising from this their own lists (to the extent that they opportunity to make all of the required Act will result in 144,375 additional maintain such lists) or for inputting into oral disclosures (resulting in, burden hours. Assuming all calls to their automatic dialing systems the approximately, a 2-second call). Finally, customers are long distance and a numbers of persons who have requested as is the case with telemarketing of commercial calling rate of 6 cents per not to be called. Moreover, it is possible goods or services, the Commission minute ($3.60 per hour), affected that some states may partially rescind believes that telemarketers already are entities as a whole may incur up to their own provisions with regard to making the required disclosures in the $519,750 in associated interstate calls in favor of the instant majority of telemarketing transactions telecommunications costs. proposed rule. The effect of such subject to these provisions under the Thus, total estimated annual cost centralization would be to simplify the USA PATRIOT Act amendments. burden for the TSR will be $11,424,000, process for telemarketers as well as Accordingly, staff estimates that the including the effects of the proposed consumers and thereby reduce proposed provision will yield an added Rule changes. PRA burden in only 25% of affected cumulative burden. Request for Comments B. Additional Hour Burden for transactions. Applying these PATRIOT Act proposals: 144,375 assumptions and estimates, staff The Commission invites comment burden hours. concludes that the new disclosure that will enable it to: As noted above, section 1011 of the requirements will result in an additional 1. Evaluate whether the proposed USA PATRIOT Act amended the burden of 144,375 hours. ((225,000 collections of information are necessary Telemarketing Act to extend the Act’s calls/year × 60% hang-ups after 2 for the proper performance of the coverage to solicitations for charitable seconds) + (225,000 calls/year × 40% functions of the Commission, including contributions. Specifically, section with 4-seconds full disclosure)) × 3,300 whether the information will have 1011(b)(2) of the PATRIOT Act adds a firms × 25% of them making these practical utility; new section to the Telemarketing Act additional disclosures solely due to the mandating that the Commission include Rule revisions.) 422 See 66 FR at 33,702.
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2. Evaluate the accuracy of the staff’s impact on small entities because they to the Small Business Administration of estimates of the burdens of the proposed reflect practices that already are being that determination. collections of information, including the implemented or utilized by most IX. Questions for Comment on the validity of the methodology and telemarketing firms, are already Proposed Rule assumptions used; required of them by state statutes, or 3. Enhance the quality, utility, and impose a minimal burden on these The Commission seeks comment on validity of the information to be entities. various aspects of the proposed Rule. collected; and In addition, the Commission believes Without limiting the scope of issues on 4. Minimize the burden of the that the amendments required by the which it seeks comment, the collections of information on those who USA PATRIOT Act, which apply to Commission is particularly interested in are to respond, including through the telemarketing firms conducting receiving comments on the questions use of appropriate automated, telemarketing campaigns on behalf of that follow. In responding to these electronic, mechanical or other charitable organizations, are not likely questions, include detailed, factual technological collection techniques or to affect a substantial number of small supporting information whenever other forms of information technology. entities. The Commission’s possible. VIII. Regulatory Flexibility Act understanding is that most such General Questions for Comment telemarketing firms are not small The Regulatory Flexibility Act businesses. However, even if the Please provide comment, including provides for analysis of the potential amendments would affect a substantial relevant data, statistics, consumer impact on small entities of rules number of small entities, the complaint information, or any other proposed by federal agencies.423 In Commission believes that the proposed evidence, on each different proposed publishing the originally proposed TSR, amendments will not have a significant change to the Rule. Regarding each the Commission certified, subject to economic impact upon such entities. proposed modification commented on, subsequent public comment, that the The disclosure requirements proposed please include answers to the following proposed Rule, if promulgated, would in the NPRM mirror the requirements questions: not have a significant economic impact already in effect regarding telemarketers (a) What is the effect (including any on a substantial number of small of goods and services, and, in fact, are benefits and costs), if any, on entities.424 After receiving public fewer in number, imposing even less consumers? comment, the Commission determined (b) What is the impact (including any burden on solicitors of charitable that this projection was correct, and benefits and costs), if any, on individual contributions under the proposed certified this fact to the Small Business firms that must comply with the Rule? amendments. Moreover, as with the sale Administration.425 In issuing this Notice (c) What is the impact (including any of goods or services, most telemarketers proposing amendments to the TSR, the benefits and costs), if any, on industry? soliciting charitable contributions Commission similarly certifies that (d) What changes, if any, should be already are making such disclosures in these Rule amendments, if adopted, will made to the proposed Rule to minimize the ordinary course of business, either not have a significant economic impact any cost to industry or consumers? voluntarily or pursuant to state statute. on a substantial number of small (e) How would each suggested change Similarly, the Commission tailored the entities.426 affect the benefits that might be recordkeeping requirements that would In originally promulgating the TSR, provided by the proposed Rule to be applicable to these firms to be the which applied to sellers and consumers or industry? least burdensome possible to effectuate telemarketers engaged in the interstate (f) How would the proposed Rule the goals of the TSR. Also, the kinds of telemarketing of goods or services, the affect small business entities with records that would be required by an Commission recognized that the Rule respect to costs, profitability, amended TSR are kept by most firms in might affect a substantial number of competitiveness, and employment? the ordinary course of business. Finally, small entities. The amendments now the establishment of a national do-not- Questions on Proposed Specific proposed may also affect a substantial call registry will have no significant Changes number of small entities. Nevertheless, impact on such entities, since most are the Commission believes that the In response to each of the following already subject to similar state- proposed amendments—including questions, please provide: (1) Detailed mandated do-not-call regulations. expansion of the definition of comment, including data, statistics, ‘‘outbound call,’’ expansion of the scope However, to ensure that the agency is consumer complaint information and of the express verifiable authorization not overlooking any possible substantial other evidence, regarding the problem provisions to cover additional payment economic impact, the Commission is referred to in the question; (2) comment methods, and the formulation of a requesting public comment on the effect as to whether the proposed changes do national do-not-call registry—would not of the proposed regulations on the costs or do not provide an adequate solution have a significant economic impact on to, profitability and competitiveness of, to the problems they were intended to such entities. As explained above in the and employment in small entities. address, and why; and (3) suggestions discussion of each proposed Subsequent to the receipt of public for additional changes that might better amendment and the PRA analysis, the comments, the Commission will maximize consumer protections or amendments proposed in this NPRM determine whether the preparation of a minimize the burden on industry. final regulatory flexibility analysis is reflect changes to the existing Rule, A. Scope intended to better effectuate the warranted. Accordingly, based on mandate of the Telemarketing Act. They available information, the Commission 1. Has the Internet affected the way would not have a significant economic hereby certifies under the Regulatory telemarketing companies conduct Flexibility Act, 5 U.S.C. 605(b), that the business? If so, what has the effect been? 423 U.S.C. 603–604. proposed regulations will not have a What, if any, changes have occurred in 424 60 FR at 8322. significant economic impact on a telemarketing as a result of the Internet? 425 60 FR at 43863. substantial number of small entities. Have consumers lost any protections 426 5 U.S.C. 605(b). This Notice also serves as certification against deceptive or abusive acts or
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practices in telemarketing as a result of one seller, and subsequently during the unanticipated and unauthorized charges this development? call begins selling on behalf of another associated with free trial offers? If not, 2. Does the Rule’s coverage of for- seller? If not, why not? What are the what additional protections are needed? profit telemarketers working on behalf benefits to consumers and the burdens What benefits does this provision of sellers outside the FTC’s jurisdiction to telemarketers and sellers of this provide to consumers, sellers or affect the business relationships created definition? telemarketers? What costs does this between those telemarketers and those a. In what circumstances do requirement impose on affected sellers? If so, how do these changes in telemarketers currently transfer a call businesses? business relationships affect consumer from one telemarketer to another? In 3. Under the proposed Rule, sellers protections provided by the Rule? what circumstances does a single and telemarketers would no longer have 3. Do the Commission’s proposals to telemarketer start a call promoting the the option of providing written expand the scope of the TSR to cover products or services of one seller, and confirmation as a method of express solicitation of charitable contributions subsequently during the call sells on verifiable authorization. What are the by for-profit telemarketers, but not by behalf of one or more other sellers? costs and benefits to consumers and non-profit charitable organization, What are the benefits of these practices? industry of eliminating this option of achieve the Congressional purpose of What abusive or deceptive practices are providing authorization? section 1011 of the USA PATRIOT Act? associated with them? 4. The proposed Rule requires that Has the Commission proposed all b. Should calls made by a customer any credit card loss protection plan changes to the text necessary to directly to a telemarketer be treated must provide consumers with effectuate that Act? Are all proposed differently from calls transferred to a information about the consumers’ changes consistent and workable? What telemarketer by another person? If so, potential liability under the Consumer are the relative costs and benefits of what differences in treatment by the Credit Protection Act. Does the coverage of calls placed by for-profit Rule are appropriate? If not, why not? proposed provision adequately address telemarketers, but not by non-profit c. What would be the benefits to the problems associated with the sale of charitable organizations? consumers of treating calls made by a credit card loss protection plans? customer directly to a telemarketer a. What are the costs and benefits of B. Definitions differently from calls transferred to a this provision to industry? to 1. Is the proposed definition of telemarketer by another person? consumers? ‘‘billing information’’ broad enough to d. What burdens, if any, would b. Does the proposed provision capture any information that can be treating a transferred telemarketing call differentiate clearly between legitimate used to bill a consumer for goods or the same as an outbound telemarketing credit card registration plans and services or a charitable contribution? Is call place on sellers and telemarketers? fraudulent credit cost loss protection the definition too broad? e. How has the increased prevalence plans? If not, how should the Rule be 2. Is the definition of ‘‘caller of up-selling since the Rule was changed to accomplish this? identification services’’ broad enough to promulgated affected telemarketing and c. How should the disclosure be capture all devices and services that the effectiveness of the Rule? given? In writing? Orally? What costs now or may in the future provide a 8. Is the proposed definition of ‘‘Web would a writing requirement impose on telephone subscriber with the name and services’’ sufficiently broad to industry? What, if any, benefits? What telephone number of the calling party? encompass the range of Internet-related would be the costs and benefits to 3. Is the definition of ‘‘charitable services offered to consumers, consumers? contribution’’ appropriate and sufficient particularly businesses, through 5. What are the implications of the to effectuate section 1011 of the USA telemarketing? new Electronic Signature (‘‘E-Sign’’) law PATRIOT Act? If not, how can it be C. Deceptive Telemarketing Acts or for telemarketing? Is the requirement improved upon? Are the exclusions of Practices that any signature be ‘‘verifiable’’ political clubs and certain religious adequate to protect consumers? If not, organizations appropriate? Should there 1. The proposed Rule would prohibit what other protections are necessary? be other exclusions? If so, why and on misrepresentations regarding seven 6. What changes, if any, to the scienter what basis? enumerated topics in connection with requirement in the assisting and 4. Is the proposed definition of solicitations by telemarketers for facilitating provision, § 310.3(b), would ‘‘donor’’ appropriate and sufficient to charitable contributions. Is each of these be appropriate to better ensure effective effectuate section 1011 of the USA prohibitions necessary? Is each law enforcement? PATRIOT Act? What, if any, changes sufficiently widespread to justify 7. What changes, if any, to the credit could be made to improve it? inclusion in the Rule? What are the card laundering provision, § 310.3(c), 5. Is the proposed definition of relative costs to consumers and burdens would be appropriate to better ensure ‘‘express verifiable authorization’’ to industry of prohibiting these effective law enforcement? Is it adequate? What, if any, changes could practices? Are there changes that could appropriate for this provision to cover be made to improve it? be made to lessen the burdens without telemarketers engaged in the solicitation 6. Does the proposed definition of harming donors? Are there other of charitable contributions? ‘‘Internet services’’ accurately define the widespread misrepresentations that the scope of Internet-related services offered TSR should prohibit? D. Abusive Telemarketing Acts or to customers through telemarketing? 2. Under the Rule, if a seller will bill Practices 7. Is the proposed definition of charges to a consumer’s account at the 1. In order to address the problems ‘‘outbound telephone call’’ adequate to end of a free trial period unless the associated with preacquired account address up-selling situations where the consumer takes affirmative action to telemarketing, the proposed Rule call is transferred from one telemarketer prevent that charge, that fact must be prohibits a seller or telemarketer from to another? If not, why not? Is the disclosed as a material restriction, receiving from any person other than definition adequate to address situations limitation, or condition under the consumer or donor, or disclosing to where a single telemarketer in the initial § 310.3(a)(1)(ii). Does this provision any other person, a consumer’s or part of the call is selling on behalf of adequately protect consumers against donor’s billing information. The only
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circumstance in which the proposed legislation requiring the transmission of a. What expenses will sellers, and Rule would allow receipt of a full caller identification information by telemarketers acting on behalf of sellers consumer’s or donor’s billing telemarketers? or charitable organizations, incur in information from, or disclosure of the e. If Caller ID information is order to reconcile their call lists with a consumer’s or donor’s billing transmitted in a telemarketing call, national registry on a regular basis? information to, another party is when should the information identify the What changes, if any, to the proposed the information is used to process a seller (or charitable organization) or ‘‘do-not-call’’ scheme could reduce payment in a transaction where the should it identify the telemarketer? Is it these expenses? Can the offsetting consumer or donor has disclosed the technologically feasible for the calling benefits to consumers of a national do- billing information and authorized its party to alter the information displayed not-call scheme be quantified? use to process that payment. by Caller ID so that the seller’s name b. Is the restriction on selling, a. How will this provision interplay and customer service telephone number purchasing or using the ‘‘do-not-call’’ with the requirements of the Gramm- or the charitable organization’s name registry for any purposes except Leach-Bliley Act? and donor service number, are compliance with §§ 310.4(b)(1)(iii) b. Will this proposed change displayed rather than the telemarketer’s adequate to protect consumers? Will adequately address the problems name and the telephone number from this provision create burdens on resulting from preacquired account which the call is being placed? If not industry that are difficult to anticipate telemarketing? Will this action currently feasible, is such substitution or quantify? What restrictions, if any, adequately protect consumers from of the seller’s or charitable should be placed on a person’s ability being billed for unauthorized charges? organization’s information for that of the to use or sell a ‘‘do-not-call’’ database to c. If not, what changes to the Rule telemarketer likely to become feasible in other persons who may use it other than would provide better protection to the future? for the purposes of complying with the consumers? f. Would charitable organizations Rule? d. What additional provisions, if any, likely make use of the option to transmit c. Would a list or database of Caller ID information that provides the should be included to protect customers telephone numbers of persons who do charitable organization’s name and a from unauthorized billing? not wish to receive telemarketing calls ‘‘donor service’’ number? What would e. What specific, quantifiable benefits have any value, other than for its be the costs and benefits to charitable to sellers or telemarketers result from intended purpose, for sellers and organizations of doing this? preacquired account telemarketing? telemarketers? f. Is extension of this provision to g. Would it be desirable for the d. How long should a telephone cover telemarketers soliciting on behalf Commission to propose a date in the number remain on the central ‘‘do-not- of charitable organizations appropriate future by which all telemarketers would call’’ registry? Should telephone to effectuate the USA PATRIOT be required to transmit Caller ID numbers that have been included on the amendments to the Telemarketing Act? information? If so, what would be a registry be deleted once they become If not, why not? reasonable date by which compliance 2. How do the credit card chargeback could be required? If not, why not? reassigned to new consumers? Is it rates and error rates for telemarketers h. Does the proposed Rule provide feasible for the Commission to that use preacquired billing information adequate protection against misleading accomplish this? If so, how? If not, compare with the chargeback rates and or deceptive information by allowing for should there be a ‘‘safe harbor’’ error rates for telemarketers that do not alteration to provide beneficial provision for telemarketers who call use preacquired billing information? information to consumers, i.e., the these reassigned numbers? 3. The proposed Rule prohibits actual name of the seller and the seller’s e. Who should be permitted to request blocking or altering the transmission of customer service number, or the that a telephone number be placed on caller identification (‘‘Caller ID’’) charitable organization and the the ‘‘do-not-call’’ registry? Should information, but allows altering the charitable organization’s donor service permission be limited to the line Caller ID information to provide the number? What would be the costs and subscriber or should requests from the actual name of the seller or charitable benefits if the Rule were simply to line subscriber’s spouse be permitted? organization and the seller’s or prohibit any alteration of Caller ID Should third parties be permitted to charitable organization’s customer or information that is misleading? Should collect and forward requests to be put donor service number. the proposed Rule make any exception on the ‘‘do-not-call’’ registry? What a. What costs would this provision to the prohibition on altering Caller ID procedures, if any, would be impose on sellers? On charitable information? appropriate or necessary to verify in organizations? On telemarketers? Are 4. The proposed Rule would prohibit these situations that the line subscriber these costs outweighed by the benefits a seller, or a telemarketer acting on intends to be included on the ‘‘do-not- the provision would confer on behalf of a seller or charitable call’’ registry? consumers and donors? organization, from denying or f. What security measures are b. Have significant numbers of interfering with the consumer’s right to appropriate and necessary to ensure that consumers used Caller ID information to be placed on a ‘‘do-not-call’’ list or only those persons who wish to place contact sellers, telemarketers, or registry. Is this proposed provision their telephone numbers on the ‘‘do-not- charitable organizations to make ‘‘do- adequate to address the problem of call’’ registry can do so? What security not-call’’ requests? telemarketers hanging up on consumers measures are appropriate and necessary c. What, if any, trends in or otherwise erecting obstacles when the to ensure that access to the registry of telecommunications technology might consumer attempts to assert his or her numbers is used only for TSR permit the transmission of full Caller ID ‘‘do-not-call’’ rights? What alternatives compliance? What are the costs and information when the caller is using a exist that might provide greater benefits of these security measures? trunk line or PBX system? protections? g. Should consumers be able to verify d. How are telemarketing firms 5. The proposed Rule would establish that their numbers have been placed on currently meeting the regulatory a national ‘‘do-not-call’’ registry the ‘‘do-not-call’’ registry? If so, what requirements in States that have passed maintained by the Commission. form should that verification take?
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h. Should the ‘‘do-not-call’’ registry option to agree to receiving calls from c. Would it be beneficial to businesses allow consumers to specify the days or specific entities? and charitable organizations to allow time of day that they are willing to b. What are the costs and benefits to them to play a tape-recorded message accept telemarketing calls? What are the sellers and telemarketers of providing when the use of a predictive dialer costs and benefits of allowing such consumers and donors with this option? results in a shortage of telemarketing selective opt-out/opt-in? What expenses will sellers and agents available to take calls? What i. Should the ‘‘do-not-call’’ registry be telemarketers incur to ensure that they would be costs and benefits to structured so that requests not to receive have the authorization of the consumer consumers if such tape-recorded telemarketing calls to induce the or donor to call? What, if any, expenses messages were permitted? purchase of goods and services are will they incur in reconciling these 12. Proposed § 310.4(e) requires handled separately from requests not to authorizations against the central telemarketers soliciting charitable receive calls soliciting charitable registry? contributions to promptly, clearly and contributions? c. How will this requirement affect truthfully disclose that the purpose of j. Some states with centralized those entities with which a consumer the call is to solicit a charitable statewide ‘‘do-not-call’’ list programs (or donor) has a preexisting business (or contribution and the identity of the charge telemarketers for access to the philanthropic) relationship (such as charitable organization on behalf of list to enable them to ‘‘scrub’’ their lists. bookstores and the like)? which the call is being made. In addition, some of these states charge d. Does the proposed Rule’s express a. Are the proposed disclosures verifiable authorization provision for consumers a fee for including their sufficient to effectuate the purposes of agreeing to receive calls from specific names and/or phone numbers on the the USA PATRIOT Act amendments? sellers, or telemarketers acting on behalf b. Absent other disclosures, are statewide ‘‘do-not-call’’ list. Have these of those sellers or on behalf of specific donors likely to suffer an invasion of approaches to covering the cost of the charitable organizations, provide privacy or incur substantial unavoidable state ‘‘do-not-call’’ list programs been sufficient protection to consumers? injury that is not outweighed by effective? What have been the problems, e. Does the proposed Rule provide countervailing benefits? If so, what are if any, with these two approaches?’’ sufficient guidance to business on what these disclosures, and would they be 6. What should be the interplay information is sufficient to evidence a permissible under leading First between the national ‘‘do-not-call’’ consumer’s express verifiable Amendment decisions, such as Riley v. registry and centralized state ‘‘do-not- authorization to opt in to receiving calls Nat’l Fed. of Blind? call’’ requirements? Would state from a specific seller, or a telemarketer c. Should this provision of the TSR requirements still be needed to reach acting on behalf of that seller or on require disclosure of the mailing intrastate telemarketing? Would the behalf of a specific charitable address of the charitable organization on state requirements be pre-empted in organization? Is there additional behalf of which a telemarketer is whole or in part? If so, to what degree? information that should be required in soliciting a contribution? Should such Should state requirements be pre- order to evidence the consumer’s disclosure be required only upon some empted only to the extent that the express verifiable authorization? triggering event, such as the donor’s national ‘‘do-not-call’’ registry would 10. Is the Commission’s position inquiry, or the donor’s assent to provide more protection to consumers? regarding the timing of disclosures in contribute? What would be the costs to Will the national do-not-call registry multiple purpose calls sufficiently charitable organizations and have greater reach than state clear? If not, what additional telemarketers to require mailing address requirements with numerous clarification is needed? disclosure? What benefits to consumers exceptions? 11. Is the fact that, in the would result from such a requirement? 7. What procedures could ensure that Commission’s view, telemarketers who 13. The Commission is concerned telephone numbers placed on the ‘‘do- abandon calls are violating § 310.4(d) about the misuse of personal not-call’’ registry by consumers who sufficient to curtail abuses of this information in connection with the use subsequently change their numbers do technology? Is there additional language of prisoners as telemarketers. not stay on the registry? Can that could be added to the Rule that a. To what extent does the information be obtained from the local would more effectively address this telemarketing industry use inmate work exchange carriers or other problem? programs? What are the costs and telecommunications entities that would a. Should the Commission mandate a benefits of the use of prison-based enable this to be done, and if so, how? maximum setting for abandoned calls, telemarketing to industry? To charitable If not, why not? and, if so, what should that setting be? organizations? To the public? Is this a 8. What procedures could be How could such a limit be policed? practice more appropriate to address at established to update numbers in the What are the benefits and costs to the federal level rather than through ‘‘do-not-call’’ registry when the area consumers and to industry from such an State legislatures or State regulatory codes associated with those numbers approach? agencies? change? b. Would it be feasible to limit the use b. Are there alternatives to banning 9. The proposed Rule would permit of predictive dialers to only those prison-based telemarketing that would consumers or donors who have placed telemarketers who are able to transmit provide adequate protection to the their names and/or telephone numbers Caller ID information, including a public against misuse of personal on the central ‘‘do-not-call’’ registry to meaningful number that the consumer information and abusive telemarketing provide to specific sellers or charitable could use to return the call? Would by prisoner-telemarketers? For example, organizations express verifiable providing consumers with this are any monitoring systems available authorization to receive telemarketing information alleviate the injury that would prevent abuses by prison- calls from those sellers or telemarketers consumers are now sustaining as a based telemarketers? If so, would the acting on behalf of those sellers or result of predictive dialer practices? cost of these systems be prohibitively charitable organizations. What would be the costs and burdens to high for telemarketers? Would a a. What are the costs and benefits of sellers, charitable organizations, and disclosure requirement (i.e., disclosure providing consumers or donors an telemarketers of such action? to the consumer that the caller is a
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prisoner) provide adequate protection information’’ within the meaning of the (b) Attorney General means the chief for consumers? Would a ban provide PRA. The Commission requests legal officer of a State. sufficient protection? comments that will enable it to: (c) Billing information means any data c. To what extent, if any, do charitable 1. Evaluate whether the proposed that provides access to a consumer’s or organizations make use of prison-based collections of information are necessary donor’s account, such as a credit card, telemarketing? for the proper performance of the checking, savings, share or similar E. Exemptions functions of the agency, including account, utility bill, mortgage loan whether the information will have account or debit card. 1. What costs and burdens will be practical utility; (d) Caller identification service means placed on industry by the proposed 2. Evaluate the accuracy of the a service that allows a telephone requirement that firms that are exempt agency’s estimate of the burden of the subscriber to have the telephone from the Rule under §§ 310.6(a)—(c) proposed collections of information, number, and, where available, name of comply with the requirements of including the validity of the the calling party transmitted §§ 310.4(a)(1) and (6) and §§ 310.4(b) methodology and assumptions used; contemporaneously with the telephone and (c)? What benefits would this 3. Enhance the quality, utility, and call, and displayed on a device in or proposed change provide to consumers? clarity of the information to be connected to the subscriber’s telephone. 2. What are the costs and burdens collected, and; (e) Cardholder means a person to imposed upon industry by the proposed 4. Minimize the burden of the whom a credit card is issued or who is modifications to the general media collections of information on those who authorized to use a credit card on behalf exemption? What benefits to the public are to respond, including through the of or in addition to the person to whom will these proposed changes provide? use of appropriate automated, the credit card is issued. Are there alternative proposals that electronic, mechanical, or other (f) Charitable contribution means any would provide the necessary protection technological collection techniques or donation or gift of money or any other for consumers while minimizing the other forms of information technology thing of value; provided, however, that burden on industry? Are there (e.g., permitting electronic submission such donations or gifts of money or any additional products and services that of responses). other thing of value solicited by or on should be excepted from the general behalf of the following shall be media exemption? What benefits and X. Proposed Rule excluded from the definition of burdens would accrue from excluding List of Subjects in 16 CFR Part 310 charitable contribution for the purposes from the exemption any calls in of this Rule: response to general media Telemarketing, Trade practices. (1) Political clubs, committees, or advertisements where disclosures Accordingly, it is proposed that part parties; or required by § 310.3(a)(1) were not made 310 of title 16 of the Code of Federal either in the advertisement or in the Regulations, be revised to read as (2) Constituted religious organizations call? follows: or groups affiliated with and forming an 3. What are the costs and burdens integral part of the organization where PART 310—TELEMARKETING SALES no part of the net income inures to the imposed upon industry by the proposed RULE modifications to the direct mail direct benefit of any individual, and exemption? What benefits to the public Sec. which has received a declaration of will these proposed changes provide? 310.1 Scope of regulations in this part. current tax exempt status from the Are there alternative proposals that 310.2 Definitions. United States government. would provide the necessary protection 310.3 Deceptive telemarketing acts or (g) Commission means the Federal for consumers while minimizing the practices Trade Commission. burden on industry? Does the proposed 310.4 Abusive telemarketing acts or (h) Credit means the right granted by practices. a creditor to a debtor to defer payment Rule sufficiently clarify the types of 310.5 Recordkeeping requirements. mail transmission methods that will be of debt or to incur debt and defer its 310.6 Exemptions. payment. considered ‘‘direct mail’’ for purposes of 310.7 Actions by States and private the Rule? Are there additional methods persons. (i) Credit card means any card, plate, of solicitation that should be included 310.8 Severability. coupon book, or other credit device existing for the purpose of obtaining within the term ‘‘direct mail’? Authority: 15 U.S.C. 6101–6108. 4. What costs and burdens to industry money, property, labor, or services on will be imposed by the proposed § 310.1 Scope of regulations in this part. credit. modification to the business-to-business This part implements the (j) Credit card sales draft means any exemption? What benefits to the public Telemarketing and Consumer Fraud and record or evidence of a credit card will this proposed change provide? Are Abuse Prevention Act, 15 U.S.C. 6101– transaction. there alternative methods that would 6108, as amended. (k) Credit card system means any provide the necessary protections to the method or procedure used to process public while minimizing burdens on § 310.2 Definitions. credit card transactions involving credit industry? Is it appropriate to exclude (a) Acquirer means a business cards issued or licensed by the operator from the coverage of this exemption organization, financial institution, or an of that system. telemarketing calls made on behalf of agent of a business organization or (l) Customer means any person who is charitable organizations? If not, why? financial institution that has authority or may be required to pay for goods or from an organization that operates or services offered through telemarketing. Questions Relating to the Paperwork licenses a credit card system to (m) Donor means any person solicited Reduction Act authorize merchants to accept, transmit, to make a charitable contribution. The Commission solicits comments or process payment by credit card (n) Express verifiable authorization on the reporting and disclosure through the credit card system for means the informed, explicit consent of requirements above to the extent that money, goods or services, or anything a consumer or donor, which is capable they constitute ‘‘collections of else of value. of substantiation.
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(o) Internet services means the Puerto Rico, the Northern Mariana (ii) All material restrictions, provision, by an Internet Service Islands, and any territory or possession limitations, or conditions to purchase, Provider, or another, of access to the of the United States. receive, or use the goods or services that Internet. (z) Telemarketer means any person are the subject of the sales offer; (p) Investment opportunity means who, in connection with telemarketing, (iii) If the seller has a policy of not anything, tangible or intangible, that is initiates or receives telephone calls to or making refunds, cancellations, offered, offered for sale, sold, or traded from a customer or donor. exchanges, or repurchases, a statement based wholly or in part on (aa) Telemarketing means a plan, informing the customer that this is the representations, either express or program, or campaign which is seller’s policy; or, if the seller or implied, about past, present, or future conducted to induce the purchase of telemarketer makes a representation income, profit, or appreciation. goods or services or a charitable about a refund, cancellation, exchange, (q) Material means likely to affect a contribution, by use of one or more or repurchase policy, a statement of all person’s choice of, or conduct regarding, telephones and which involves more material terms and conditions of such (1) Goods or services; or than one interstate telephone call. The policy; (2) A charitable contribution. term does not include the solicitation of (iv) In any prize promotion, the odds (r) Merchant means a person who is sales through the mailing of a catalog of being able to receive the prize, and, authorized under a written contract which: Contains a written description or if the odds are not calculable in with an acquirer to honor or accept illustration of the goods or services advance, the factors used in calculating credit cards, or to transmit or process for offered for sale; includes the business the odds; that no purchase or payment payment credit card payments, for the address of the seller; includes multiple is required to win a prize or to purchase of goods or services or a pages of written material or participate in a prize promotion and charitable contribution. illustrations; and has been issued not that any purchase or payment will not (s) Merchant agreement means a less frequently than once a year, when increase the person’s chances of written contract between a merchant the person making the solicitation does winning; and the no purchase/no and an acquirer to honor or accept not solicit customers by telephone but payment method of participating in the credit cards, or to transmit or process for only receives calls initiated by prize promotion with either instructions payment credit card payments, for the customers in response to the catalog and on how to participate or an address or purchase of goods or services or a during those calls takes orders only local or toll-free telephone number to without further solicitation. For charitable contribution. which customers may write or call for purposes of the previous sentence, the (t) Outbound telephone call means information on how to participate; term ‘‘further solicitation’’ does not any telephone call to induce the (v) All material costs or conditions to include providing the customer with purchase of goods or services or to receive or redeem a prize that is the information about, or attempting to sell, solicit a charitable contribution, when subject of the prize promotion; any other item included in the same such telephone call: (vi) In the sale of any goods or (1) Is initiated by a telemarketer; catalog which prompted the customer’s services represented to protect, insure, (2) Is transferred to a telemarketer call or in a substantially similar catalog. or otherwise limit a customer’s liability other than the original telemarketer; or (bb) Web services means designing, (3) Involves a single telemarketer building, creating, publishing, in the event of unauthorized use of the soliciting on behalf of more than one maintaining, providing or hosting a customer’s credit card, the limits on a seller or charitable organization. website on the Internet. cardholder’s liability for unauthorized (u) Person means any individual, use of a credit card pursuant to 15 § 310.3 Deceptive telemarketing acts or U.S.C. 1643; group, unincorporated association, practices. limited or general partnership, (2) Misrepresenting, directly or by (a) Prohibited deceptive telemarketing corporation, or other business entity. implication, in the sale of goods or (v) Prize means anything offered, or acts or practices. It is a deceptive services any of the following material purportedly offered, and given, or telemarketing act or practice and a information: purportedly given, to a person by violation of this Rule for any seller or (i) The total costs to purchase, receive, telemarketer to engage in the following chance. For purposes of this definition, or use, and the quantity of, any goods conduct: chance exists if a person is guaranteed or services that are the subject of a sales (1) Before a customer pays 1 for goods to receive an item and, at the time of the offer; or services offered, failing to disclose (ii) Any material restriction, offer or purported offer, the telemarketer truthfully, in a clear and conspicuous does not identify the specific item that limitation, or condition to purchase, manner, the following material receive, or use goods or services that are the person will receive. information: (w) Prize promotion means: the subject of a sales offer; (i) The total costs to purchase, receive, (iii) Any material aspect of the (1) A sweepstakes or other game of or use, and the quantity of, any goods chance; or performance, efficacy, nature, or central or services that are the subject of the characteristics of goods or services that (2) An oral or written express or sales offer; 2 implied representation that a person has are the subject of a sales offer; (iv) Any material aspect of the nature won, has been selected to receive, or 1 When a seller or telemarketer uses, or directs a may be eligible to receive a prize or customer to use, a courier to transport payment, the or terms of the seller’s refund, purported prize. seller or telemarketer must make the disclosures cancellation, exchange, or repurchase (x) Seller means any person who, in required by § 310.3(a)(1) before sending a courier to policies; pick up payment or authorization for payment, or connection with a telemarketing directing a customer to have a courier pick up (v) Any material aspect of a prize transaction, provides, offers to provide, payment or authorization for payment. promotion including, but not limited to, or arranges for others to provide goods 2 For offers of consumer credit products subject the odds of being able to receive a prize, or services to the customer in exchange to the Truth in Lending Act, 15 U.S.C. 1601 et seq., the nature or value of a prize, or that a and Regulation Z, 12 CFR 226, compliance with the purchase or payment is required to win for consideration. disclosure requirements under the Truth in Lending (y) State means any State of the Act, and Regulation Z, shall constitute compliance a prize or to participate in a prize United States, the District of Columbia, with § 310.3(a)(1)(i) of this Rule. promotion;
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(vi) Any material aspect of an for goods or services or to induce a prize; the nature or value of a prize; or investment opportunity including, but charitable contribution; or that a charitable contribution is required not limited to, risk, liquidity, earnings (b) Assisting and facilitating. It is a to win a prize or to participate in a prize potential, or profitability; deceptive telemarketing act or practice promotion; (vii) A seller’s or telemarketer’s and a violation of this Rule for a person (6) In connection with the sale of affiliation with, or endorsement or to provide substantial assistance or advertising: The purpose for which the sponsorship by, any person or support to any seller or telemarketer proceeds from the sale of advertising government entity; or when that person knows or consciously will be used; that a purchase of (viii) That any customer needs offered avoids knowing that the seller or advertising has been authorized or goods or services to provide protections telemarketer is engaged in any act or approved by any donor; that any donor a customer already has pursuant to 15 practice that violates §§ 310.3(a) or (c), owes payment for advertising; or the U.S.C. 1643; or § 310.4. geographic area in which the advertising (3) Submitting billing information for (c) Credit card laundering. Except as will be distributed; or payment, or collecting or attempting to expressly permitted by the applicable (7) A seller’s or telemarketer’s collect payment for goods or services or credit card system, it is a deceptive affiliation with, or endorsement or a charitable contribution, directly or telemarketing act or practice and a sponsorship by, any person or indirectly, without the customer’s or violation of this Rule for: government entity. donor’s express verifiable authorization (1) A merchant to present to or deposit into, or cause another to present § 310.4 Abusive telemarketing acts or when the method of payment used to practices. collect payment does not impose a to or deposit into, the credit card system (a) Abusive conduct generally. It is an limitation on the customer’s or donor’s for payment, a credit card sales draft abusive telemarketing act or practice liability for unauthorized charges nor generated by a telemarketing transaction and a violation of this Rule for any provide for dispute resolution that is not the result of a telemarketing seller or telemarketer to engage in the procedures pursuant to, or comparable credit card transaction between the following conduct: to those available under, the Fair Credit cardholder and the merchant; (1) Threats, intimidation, or the use of Billing Act and the Truth in Lending (2) Any person to employ, solicit, or otherwise cause a merchant or an profane or obscene language; Act, as amended. Such authorization (2) Requesting or receiving payment shall be deemed verifiable if either of employee, representative, or agent of the merchant, to present to or deposit into of any fee or consideration for goods or the following means are employed: services represented to remove (i) Express written authorization by the credit card system for payment, a credit card sales draft generated by a derogatory information from, or the customer or donor, which includes improve, a person’s credit history, credit the customer’s or donor’s signature; 3 or telemarketing transaction that is not the result of a telemarketing credit card record, or credit rating until: (ii) Express oral authorization which (i) The time frame in which the seller is recorded and made available upon transaction between the cardholder and the merchant; or has represented all of the goods or request to the customer or donor, and services will be provided to that person the customer’s or donor’s bank, credit (3) Any person to obtain access to the credit card system through the use of a has expired; and card company or other billing entity, (ii) The seller has provided the person and which evidences clearly both the business relationship or an affiliation with a merchant, when such access is with documentation in the form of a customer’s or donor’s authorization of consumer report from a consumer payment for the goods and services that not authorized by the merchant agreement or the applicable credit card reporting agency demonstrating that the are the subject of the sales offer and the promised results have been achieved, customer’s or donor’s receipt of all of system. (d) Prohibited deceptive acts or such report having been issued more the following information: practices in the solicitation of charitable than six months after the results were (A) The number of debits, charges or contributions, donations, or gifts. It is a achieved. Nothing in this Rule should payments; fraudulent charitable solicitation, a be construed to affect the requirement in (B) The date of the debit(s), charge(s), deceptive telemarketing act or practice the Fair Credit Reporting Act, 15 U.S.C. or payment(s); and a violation of this Rule for any 1681, that a consumer report may only (C) The amount of the debit(s), telemarketer soliciting charitable be obtained for a specified permissible charge(s), or payment(s); contributions to misrepresent, directly purpose; (D) The customer’s or donor’s name; or by implication, any of the following (3) Requesting or receiving payment (E) The customer’s or donor’s specific material information: of any fee or consideration from a billing information, including the name (1) The nature, purpose, or mission of person, for goods or services of the account and the account number, any entity on behalf of which a represented to recover or otherwise that will be used to collect payment for charitable contribution is being assist in the return of money or any the goods or services that are the subject requested; other item of value paid for by, or of the sales offer; (2) That any charitable contribution is promised to, that person in a previous (F) A telephone number for customer tax deductible in whole or in part; telemarketing transaction, until seven or donor inquiry that is answered (3) The purpose for which any (7) business days after such money or during normal business hours; and charitable contribution will be used; other item is delivered to that person. (G) The date of the customer’s or (4) The percentage or amount of any This provision shall not apply to goods donor’s oral authorization; charitable contribution that will go to a or services provided to a person by a (4) Making a false or misleading charitable organization or to any licensed attorney; statement to induce any person to pay particular charitable program after any (4) Requesting or receiving payment administrative or fundraising expenses of any fee or consideration in advance 3 For purposes of this Rule, the term ‘‘signature’’ are deducted; of obtaining a loan or other extension of shall include a verifiable electronic or digital form of signature, to the extent that such form of (5) Any material aspect of a prize credit when the seller or telemarketer signature is recognized as a valid signature under promotion including, but not limited to: has guaranteed or represented a high applicable federal law or state contract law. The odds of being able to receive a likelihood of success in obtaining or
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arranging a loan or other extension of of persons who do not wish to receive seller or charitable organization, has credit for a person; outbound telephone calls, unless the maintained and recorded the express (5) Receiving from any person other seller or charitable organization has verifiable authorization of those persons than the consumer or donor for use in obtained the express verifiable who have agreed to accept telemarketing telemarketing any consumer’s or donor’s authorization of such person to place calls by or on behalf of the seller or billing information, or disclosing any calls to that person. Such authorizations charitable organization, in compliance consumer’s or donor’s billing shall be deemed verifiable if either of with § 310.4(b)(1)(iii)(B); information to any person for use in the following means are employed: (vi) The seller or a telemarketer or telemarketing; provided, however, this (1) Express written authorization by another person acting on behalf of the paragraph does not apply to the transfer the consumer or donor which clearly seller or charitable organization, of a consumer’s or donor’s billing evidences his or her authorization that monitors and enforces compliance with information to process a payment for calls made by or on behalf of a specific the procedures established pursuant to goods or services or a charitable seller or charitable organization may be § 310.4(b)(2)(i); and contribution pursuant to a transaction in placed to the consumer or donor, and (vii) Any subsequent call otherwise which the consumer or donor has which shall include the telephone violating § 310.4(b)(1)(ii) or (iii) is the disclosed his or her billing information number to which the calls may be result of error. and has authorized the use of such placed and the signature of the (3) Within two years following the billing information to process such consumer or donor; or effective date of this Rule, the payment for goods or services or a (2) Express oral authorization which Commission shall review the charitable contribution. is recorded and which clearly evidences implementation and operation of the (6) Blocking, circumventing, or the authorization of the consumer or registry established pursuant to altering the transmission of, or directing donor that calls made by or on behalf of § 310.4(b)(1)(iii)(B). another person to block, circumvent, or a specific seller or charitable (c) Calling time restrictions. Without alter the transmission of, the name and/ organization may be placed to the the prior consent of a person, it is an or telephone number of the calling party consumer or donor; provided, however, abusive telemarketing act or practice for caller identification service that the recorded oral authorization and a violation of this Rule for a purposes; provided that it shall not be shall only be deemed effective when the telemarketer to engage in outbound a violation to substitute the actual name telemarketer receiving such telephone calls to a person’s residence of the seller or charitable organization authorization is able to verify that the at any time other than between 8:00 a.m. and the customer or donor service authorization is being made from the and 9:00 p.m. local time at the called telephone number of the seller or telephone number to which the person’s location. charitable organization which is consumer or donor, as the case may be, (d) Required oral disclosures in the answered during regular business hours, is authorizing access. sale of goods or services. It is an abusive for the phone number used in making (iv) Selling, purchasing or using a telemarketing act or practice and a the call. certified registry for any purposes violation of this Rule for a telemarketer (b) Pattern of calls. except compliance with in an outbound telephone call to induce (1) It is an abusive telemarketing act §§ 310.4(b)(1)(iii). the purchase of goods or services to fail or practice and a violation of this Rule (2) A seller or telemarketer will not be to disclose truthfully, promptly, and in for a telemarketer to engage in, or for a liable for violating § 310.4(b)(1)(ii) and a clear and conspicuous manner to the seller to cause a telemarketer to engage (iii) if it can demonstrate that, in the person receiving the call, the following in, the following conduct: ordinary course of business: (i) Causing any telephone to ring, or (i) It has established and implemented information: engaging any person in telephone written procedures to comply with (1) The identity of the seller; conversation, repeatedly or § 310.4(b)(1)(ii) and (iii); (2) That the purpose of the call is to continuously with intent to annoy, (ii) It has trained its personnel, and sell goods or services; abuse, or harass any person at the called any entity assisting in its compliance, in (3) The nature of the goods or number; the procedures established pursuant to services; and (ii) Denying or interfering in any way, § 310.4(b)(2)(i); (4) That no purchase or payment is directly or through an intermediary, or (iii) The seller or a telemarketer or necessary to be able to win a prize or directing another person to deny or another person acting on behalf of the participate in a prize promotion if a interfere in any way, with a person’s seller or a charitable organization uses prize promotion is offered and that any right to be placed on any registry of a process to prevent telemarketing calls purchase or payment will not increase names and/or telephone numbers of from being placed to any telephone the person’s chances of winning. This persons who do not wish to receive number included on the Commission’s disclosure must be made before or in outbound telephone calls established to do-not-call registry, employing a version conjunction with the description of the comply with § 310.4(b)(1)(iii); or of the do-not-call registry obtained from prize to the person called. If requested (iii) Initiating any outbound telephone the Commission not more than 30 days by that person, the telemarketer must call to a person when that person before the calls are made, and maintains disclose the no-purchase/no-payment previously has: records documenting this process; entry method for the prize promotion. (A) Stated that he or she does not (iv) The seller or a telemarketer or (e) Required oral disclosures in wish to receive an outbound telephone another person acting on behalf of the charitable solicitations. It is an abusive call made by or on behalf of the seller seller or charitable organization, has telemarketing act or practice and a whose goods or services are being maintained and recorded lists of violation of this Rule for a telemarketer, offered or the charitable organization on persons the seller or charitable in an outbound telephone call to induce whose behalf a charitable contribution organization may not contact, in a charitable contribution to fail to is being requested; or compliance with § 310.4(b)(1)(iii)(A) disclose truthfully, promptly, and in a (B) Placed his or her name and/or and (B); clear and conspicuous manner to the telephone number on a do-not-call (v) The seller or a telemarketer or person receiving the call, the following registry, maintained by the Commission, another person acting on behalf of the information:
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(1) The identity of the charitable telemarketer shall be responsible for solicitations via the U.S. Postal Service, organization on behalf of which the complying with § 310.5(a)(4). facsimile transmission, electronic mail, request is being made; and (d) In the event of any dissolution or and other similar methods of delivery in (2) That the purpose of the call is to termination of the seller’s or which a solicitation is directed to solicit a charitable contribution; telemarketer’s business, the principal of specific address(es) or person(s), that that seller or telemarketer shall maintain clearly, conspicuously, and truthfully § 310.5 Recordkeeping requirements. all records as required under this disclose all material information listed (a) Any seller or telemarketer shall section. In the event of any sale, in § 310.3(a)(1), for any goods or keep, for a period of 24 months from the assignment, or other change in services offered in the direct mail date the record is produced, the ownership of the seller’s or solicitation or any requested charitable following records relating to its telemarketer’s business, the successor contribution; provided, however, that telemarketing activities: business shall maintain all records this exemption does not apply to calls (1) All substantially different required under this section. initiated by a customer in response to a advertising, brochures, telemarketing direct mail solicitation relating to prize § 310.6 Exemptions. scripts, and promotional materials; promotions, investment opportunities, (2) The name and last known address The following acts or practices are business opportunities other than of each prize recipient and the prize exempt from this Rule: business arrangements covered by the awarded for prizes that are represented, (a) The sale of pay-per-call services Franchise Rule or any subsequent rule directly or by implication, to have a subject to the Commission’s ‘‘Trade covering business opportunities the value of $25.00 or more; Regulation Rule Pursuant to the Commission may promulgate, or goods (3) The name and last known address Telephone Disclosure and Dispute or services described in §§ 310.4(a)(2)– of each customer, the goods or services Resolution Act of 1992,’’ 16 CFR Part (4); and purchased, the date such goods or 308, provided, however, that this (g) Telephone calls between a services were shipped or provided, and exemption does not apply to the telemarketer and any business, except the amount paid by the customer for the requirements of § 310.4(a)(1) and 4 calls to induce a charitable contribution, goods or services; § 310.4(a)(6), (b), and (c); and those involving the sale of Internet (4) The name, any fictitious name (b) The sale of franchises subject to services, Web services, or the retail sale used, the last known home address and the Commission’s Rule entitled of nondurable office or cleaning telephone number, and the job title(s) ‘‘Disclosure Requirements and supplies; provided, however, that for all current and former employees Prohibitions Concerning Franchising § 310.5 Rule shall not apply to sellers or directly involved in telephone sales or and Business Opportunity Ventures,’’ 16 telemarketers of nondurable office or solicitations; provided, however, that if CFR Part 436, provided, however, that cleaning supplies, Internet Services, or the seller or telemarketer permits this exemption does not apply to the Web services. fictitious names to be used by requirements of § 310.4(a)(1) and employees, each fictitious name must be § 310.4(a)(6), (b), and (c); § 310.7 Actions by States and private traceable to only one specific employee; (c) Telephone calls in which the sale persons. and of goods or services or charitable (a) Any attorney general or other (5) All verifiable authorizations solicitation is not completed, and officer of a State authorized by the State required to be provided or received payment or authorization of payment is to bring an action under the under this Rule. not required, until after a face-to-face Telemarketing and Consumer Fraud and (b) A seller or telemarketer may keep sales presentation by the seller or Abuse Prevention Act, and any private the records required by § 310.5(a) in any charitable organization, provided, person who brings an action under that form, and in the manner, format, or however, that this exemption does not Act, shall serve written notice of its place as they keep such records in the apply to the requirements of action on the Commission, if feasible, ordinary course of business. Failure to § 310.4(a)(1) and § 310.4(a)(6), (b), and prior to its initiating an action under keep all records required by § 310.5(a) (c); this rule. The notice shall be sent to the shall be a violation of this Rule. (d) Telephone calls initiated by a Office of the Director, Bureau of (c) The seller or the telemarketer customer or donor that are not the result Consumer Protection, Federal Trade calling on behalf of the seller or may, by of any solicitation by a seller, charitable Commission, Washington, DC 20580, written agreement, allocate organization, or telemarketer; and shall include a copy of the State’s responsibility between themselves for (e) Telephone calls initiated by a or private person’s complaint and any the recordkeeping required by this customer or donor in response to an other pleadings to be filed with the section. When a seller or a telemarketer advertisement through any medium, court. If prior notice is not feasible, the have entered into such an agreement, other than direct mail solicitation; State or private person shall serve the the terms of that agreement shall govern, provided, however, that this exemption Commission with the required notice and the seller or telemarketer, as the does not apply to calls initiated by a immediately upon instituting its action. case may be, need not keep records that customer or donor in response to an (b) Nothing contained in this section duplicate those of the other. If the advertisement relating to investment shall prohibit any attorney general or agreement is unclear as to who must opportunities, business opportunities other authorized State official from maintain any required record(s), or if no other than business arrangements proceeding in State court on the basis of such agreement exists, the seller shall be covered by the Franchise Rule or any an alleged violation of any civil or responsible for complying with subsequent rule covering business criminal statute of such State. §§ 310.5(a)(1)–(3) and (5); the opportunities the Commission may promulgate, or advertisements involving § 310.8 Severability. 4 For offers of consumer credit products subject goods or services described in The provisions of this rule are to the Truth in Lending Act, 15 U.S.C. 1601 et seq., § 310.3(a)(1)(vi) or § 310.4(a)(2)–(4); separate and severable from one and Regulation Z, 12 CFR 226, compliance with the recordkeeping requirements under the Truth in (f) Telephone calls initiated by a another. If any provision is stayed or Lending Act, and Regulation Z, shall constitute customer or donor in response to a determined to be invalid, it is the compliance with § 310.5(a)(3) of this Rule. direct mail solicitation, including Commission’s intention that the
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remaining provisions shall continue in Manz—Manz, Matthias now proposes to declare additional effect. McCurdy—McCurdy, Bridget E. practices to be deceptive or abusive. I Menefee—Menefee, Marcie By direction of the Commission. wholeheartedly support the proposed Merritt—Merritt, Everett W. changes to the TSR, because they appear Donald S. Clark, Mey—Mey, Diana to strike the right balance by protecting Secretary. Mitchelp—Mitchelp NACHA—NACHA—The Electronic Payments consumers without unduly restricting Note: This Appendix is published for Association the practices of legitimate telemarketers. informational purposes only and will not be NAAG—National Association of Attorneys I want to emphasize two points codified in Title 16 of the Code of General concerning the Telemarketing Act and Regulations. NACAA—National Association of Consumer the TSR, however. The first point is that Agency Administrators the Commission’s regulatory scheme Appendix A—List of Commenters and NCL—National Consumers League would be more effective if it covered the Acronyms, February 28, 2000: Notice NFN—National Federation of Nonprofits NAA—Newspaper Association of America entire spectrum of entities engaged in and Comment; Telemarketing Sales telemarketing.1 Under the Rule Review NASAA—North American Securities Administrators Association Telemarketing Act and the TSR, Acronym/Commenter Nova53—Nova53 however, the Commission lacks AARP—AARP Nurik—Nurik, Margy and Irv jurisdiction in whole or in part over the Alan—Alan, Alicia PLP—Personal Legal Plans, Inc. calls of entities such as banks, telephone ARDA—American Resort Development Peters—Peters, John and Frederickson, companies, airlines, insurance Association Constance companies, credit unions, charities,2 ATA—American Teleservices Association Reese—Reese Brothers, Inc. Reynolds—Reynolds, Charles political campaigns, and political fund Anderson—Anderson, Wayne raisers. In addition, the Commission Baressi—Baressi, Sandy Rothman—Rothman, Iris Bell Atlantic—Bell Atlantic Runnels—Runnels, Mike also proposes to exempt from the TSR Bennett—Bennett, Douglas H. Sanford—Sanford, Kanija calls made on behalf of certain religious Biagiotti—Biagiotti, Mary Schiber—Schiber, Bill organizations. Bishop—Bishop, Lew & Lois Schmied—Schmied, R. L. A major objective of the Blake—Blake, Ted Strang—Strang, Wayne G. Telemarketing Act and the TSR is to Bowman-Kruhm—Bowman-Kruhm, Mary TeleSource—Morgan-Francis/Tele-Source protect consumers’ ‘‘right to be let Industries Braddick—Braddick, Jane Ann alone’’ in their homes, which is the Brass—Brass, Eric Texas—Texas Attorney General Thai—Thai, Linh Vien ‘‘most comprehensive of rights and the Brosnahan—Brosnahan, Kevin right most valued by civilized men.’’ Budro—Budro, Edgar Vanderburg—Vanderburg, Mary Lou Card—Card, Giles S. Ver Steegt—Ver Steegt, Karen Olmstead v. U.S., 277 U.S. 438, 478 Collison—Collison, Doug Verizon—Verizon Wireless (1928) (Brandeis, J., dissenting). From Conn—Conn, David Warren—Warren, Joshua the perspective of consumers, their right Conway—Conway, Candace Weltha—Weltha, Nick to be let alone is invaded just as much Croushore—Croushore, Amanda Worsham—Worsham, Michael C., Esq. by an unwanted call from an exempt Curtis—Curtis, Joel Concurring Statement of Commissioner entity (e.g., a bank or a telephone Dawson—Dawson, Darcy Orson Swindle in Telemarketing Sales company) as it is by such a call from a DMA—Direct Marketing Association Rule Review, File No. R411001 covered entity (e.g., a sporting goods DSA—Direct Selling Association manufacturer). The Commission’s Doe—Doe, Jane Telemarketing calls can provide regulatory scheme would be more ERA—Electronic Retailing Association consumers with valuable information effective in protecting the right of FAMSA—FAMSA—Funeral Consumers about goods and services. On the other consumers to be let alone if the Alliance, Inc. hand, telemarketing calls also can be Telemarketing Act and the TSR covered Gannett—Gannett Co., Inc. deceptive or can be an unwanted Garbin—Garbin, David and Linda the entire spectrum of entities that make intrusion into the homes of A. Gardner—Gardner, Anne telemarketing calls to consumers. consumers—an intrusion that many S. Gardner—Gardner, Stephen Covering the entire spectrum of consumers find difficult to prevent or Gibb—Gibb, Ronald E. entities also would result in a more Gilchrist—Gilchrist, Dr. K. James remedy. The challenge for government, Gindin—Gindin, Jim therefore, is to strike a balance that 1 I have expressed concern in the past that the Haines—Haines, Charlotte allows consumers, if they wish, to Commission’s effectiveness in regualting Harper—Harper, Greg receive telemarketing calls with useful telemarketing is significantly limited by our Heagy—Heagy, Annette M. information without being deceived or inability to reach the practices of entities that are Hecht—Hecht, Jeff abused. exempt in whole or in part from the Telemarketing Act and the TSR. See Concurring Statement of Hickman—Hickman, Bill and Donna In 1994, Congress passed the Hollingsworth—Hollingsworth, Bob and Pat Commissioner Orson Swindle in Miscellaneous Holloway—Holloway, Lynn S. Telemarketing Consumer Fraud and Matters—Director (BCP), File No. P004101 (June 13, Holmay—Holmay, Kathleen Abuse Prevention Act (‘‘Telemarketing 2000) (statement issued in conjunction with Act’’), giving the Commission the Commission testimony on The Telemarketing ICFA—International Cemetery and Funeral Victims Protection Act (H.R. 3180) and The Know Association authority to promulgate rules to prohibit Your Caller Act (H.R. 3100), before the Johnson—Johnson, Sharon Coleman ‘‘deceptive’’ or ‘‘abusive’’ telemarketing Subcommittee on Telecommunications, Trade and Jordan—Jordan, April practices. In 1995, the Commission Consumer Protection of the Committee on Kelly—Kelly, Lawrence M. issued the Telemarketing Sales Rule Commerce, United States House of KTW—KTW Consulting Techniques, Inc. Representatives). (‘‘TSR’’), which declared a number of 2 As discussed in the Notice of Proposed Lamet—Lamet, Jerome S. telemarketing practices to be deceptive Lee—Lee, Rockie Rulemaking, Congress recently enacted the USA LSAP—Legal Services Advocacy Project or abusive. In light of technological PATRIOT Act of 2001, which gives the Commission developments and changes in the new authority to regulate (under the Telemarketing LeQuang—LeQuang, Albert Act and the TSR] for-profit companies that make Lesher—Lesher, David marketplace since 1995 as well as our telephone calls seeking charitable donations. I Mack—Mack, Mr. and Mrs. Alfred law enforcement experience with applaud Congress for taking this important step to MPA—Magazine Publishers of America, Inc. telemarketing fraud, the Commission protect consumers.
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equitable regulatory scheme. For appropriate means of determining the year that it passed the Telemarketing example, telephone companies metes and bounds of abusive practices. Act, Congress presumably would have currently are exempt in whole or in part The Commission, however, also given some indication if it wanted us to from the Telemarketing Act and the TSR concludes that the transfer of pre- employ unfairness principles to decide because they are common carriers, yet acquired account information and which telemarketing practices are some vendors that compete with them certain other telemarketing practices are abusive.3 ‘‘abusive’’ for purposes of the apparently are not exempt from these Accordingly, I would ask for public Telemarketing Act and the TSR, because regulatory requirements, see Notice of comment addressing the legal, factual, Proposed Rulemaking at 16, which may they meet the Commission’s standards for ‘‘unfairness’’ under section 5 of the and policy issues implicated by the use confer a competitive advantage in of unfairness principles under Section 5 marketing on telephone companies. It FTC Act. The Commission’s interjection of unfairness principles into the of the FTC Act to determine whether would be more equitable if companies telemarketing practices are abusive for that compete with each other had to determination of which telemarketing practices are abusive is designed to purposes of the Telemarketing Act. I comply with the same regulatory provide greater certainty and to limit the would also seek comment specifically requirements when they engage in scope of what will be considered addressing whether the transfer of pre- telemarketing. abusive. Although these are laudable acquired account information meets the The second point that I want to raise objectives, I have reservations about standard for unfairness under Section 5 concerns how the Commission using unfairness principles under of the FTC Act. determines whether a practice is Section 5 to determine what is abusive [FR Doc. 02–1998 Filed 1–29–02; 8:45 am] ‘‘abusive’’ under the Telemarketing Act. for purposes of the Telemarketing Act. BILLING CODE 6750–01–P For the most part, the Commission has Nothing in the language of the used the examples of abusive practices Telemarketing Act or its legislative 3 In fact, when the Commission issued the TSR in that Congress provided in the history indicates that Congress intended 1995, it did not use unfairness principles to Telemarketing Act and principles drawn the Commission to use unfairness determine whether telemarketing practices are from these examples to determine principles to determine which practices abusive under the Telemarketing Act. Statement of whether we can declare a practice to be are abusive. Given that it amended the Basis and Purpose, Prohibition of Deceptive and abusive. I think that this is an FTC Act to define unfairness the same Abusive Telemarketing Practices; Final Rule, 60 FR 43842 (Aug. 23, 1995).
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