[Federal Register Volume 60, Number 30 (Tuesday, February 14, 1995)]
[Proposed Rules]
[Pages 8313-8333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3537]
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
16 CFR Part 310
Telemarketing Sales Rule
AGENCY: Federal Trade Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: In this document, the Federal Trade Commission (``FTC'' or
``Commission'') proposes to implement the Telemarketing and Consumer
Fraud and Abuse Prevention Act (``Telemarketing Act'' or ``the Act'').
Section 3 of the Act directs the FTC to prescribe rules, within 365
days of enactment of the Act, prohibiting deceptive telemarketing acts
or practices and other abusive telemarketing acts or practices.
DATES: Written comments must be submitted on or before March 31, 1995.
Due to the time constraints of this rulemaking proceeding, the
Commission does not contemplate any extensions of this comment period
or any additional periods for written comment or rebuttal comment.
Following the period for written comments, Commission staff plan to
conduct a Public Workshop Conference to afford Commission staff and
interested parties an opportunity to explore and discuss issues raised
during the comment period. Notification of interest in representing an
affected, interested party at the Public Workshop-Conference must be
submitted on or before March 6, 1995. A list of affected interests
appears in Section D of the Supplementary Information section.
The Public Workshop-Conference will be held in Chicago, Illinois on
April 18 through 20, 1995, from 9 a.m. until 5 p.m. each day.
ADDRESSES: Five paper copies of each written comment should be
submitted to the Office of the Secretary, Room 159, Federal Trade
Commission, Washington, DC 20580. To encourage prompt and efficient
review and dissemination of the comments to the public, all comments
also should be submitted, if possible, in electronic form, on either a
5\1/4\ or a 3\1/2\ inch computer disk, with a label on the disk stating
the name of the commenter and the name and version of the word
processing program used to create the document. (Programs based on DOS
are preferred. Files from other operating systems should be submitted
in ASCII text format to be accepted.) Individuals filing comments need
not submit multiple copies or comments in electronic form. Submissions
should be captioned: ``Proposed Telemarketing Sales Rule,'' FTC File
No. R411001.
Notification of interest in the Public Workshop-Conference should
be submitted in writing to Carole Danielson, Division of Marketing
Practices, Federal Trade Commission, Washington, D.C. 20580.
The Public Workshop-Conference will be held in Chicago, Illinois,
at the Chicago Hilton Hotel, 720 South Michigan Avenue, Chicago,
Illinois 60605.
FOR FURTHER INFORMATION CONTACT: David M. Torok, (202) 326-3140, or
Judith M. Nixon, (202) 326-3173, Division of Marketing Practices,
Bureau of Consumer Protection, Federal Trade Commission, Washington, DC
20580.
SUPPLEMENTARY INFORMATION:
Section A. Background
On August 16, 1994, the President signed into law the Telemarketing
Act, Public Law No. 103-297. In enacting the Telemarketing Act,
Congress made the following findings, set forth in section 2 of the
Act:1
\1\15 U.S.C. 6101.
---------------------------------------------------------------------------
(1) Telemarketing differs from other sales activities in that it
can be carried out by sellers across State lines without direct contact
with the consumer. Telemarketers also can be very mobile, easily moving
from State to State.
(2) Interstate telemarketing fraud has become a problem of such
magnitude that the resources of the Federal Trade Commission are not
sufficient to ensure adequate consumer protection from such fraud.
(3) Consumers and others are estimated to lose $40 billion a year
in telemarketing fraud.
(4) Consumers are victimized by other forms of telemarketing
deception and abuse. [[Page 8314]]
(5) Consequently, Congress should enact legislation that will offer
consumers necessary protection from telemarketing deception and abuse.
Based on the above findings, Congress directed the Commission to
issue a rule, within 365 days from the date of enactment of the Act,
prohibiting deceptive and abusive telemarketing acts and
practices.2 The Act specifies that the rule shall contain a
definition of deceptive telemarketing acts or practices.3
According to the statute, this definition may include acts or practices
of entities or individuals that assist or facilitate deceptive
telemarketing, including credit card laundering.4 The Act further
specifies that, in order to prohibit other abusive acts or practices,
the rule shall include:
\2\15 U.S.C. 6102(b).
\3\15 U.S.C. 6102(a)(2).
\4\Id.
---------------------------------------------------------------------------
(1) A requirement prohibiting a pattern of unsolicited telephone
calls which the reasonable consumer would consider coercive or abusive
of such consumer's right to privacy;
(2) Restrictions on the hours when unsolicited telephone calls can
be made to consumers; and
(3) A requirement that telemarketers promptly and clearly disclose
to the person receiving the call that the purpose of the call is to
sell goods or services, and make any other disclosures the Commission
deems appropriate, including the nature and price of the goods or
services being sold.5 The Act also directs the Commission to
consider recordkeeping requirements.6
\5\15 U.S.C. 6102(a)(3).
\6\Id.
---------------------------------------------------------------------------
Enforcement actions for violations of the final rule will be
brought by the Commission in the same manner as for other rules with
respect to unfair or deceptive acts or practices under section 5 of the
FTC Act.7 In addition, Section 4 of the Telemarketing Act8
authorizes the attorneys general of the States to enforce compliance
with the final rule by instituting Federal court enforcement actions,
after serving prior written notice upon the Commission when feasible.
Moreover, Section 5 of the Telemarketing Act9 authorizes actions,
in Federal district court, by private persons adversely affected by any
pattern or practice of telemarketing which violates the final rule,
where the amount in controversy exceeds $50,000 in actual damages for
each such person. As with State actions, such private persons must give
prior written notice to the Commission, when feasible.
\7\15 U.S.C. 45. The Telemarketing Act provides that the FTC
rule shall be treated as a rule issued under section 18(a)(1)(B) of
the FTC Act, 15 U.S.C. 57a(a)(1)(B).
\8\15 U.S.C. 6103.
\9\15 U.S.C. 6104.
---------------------------------------------------------------------------
Section B of this notice discusses the proposed rule that the
Commission has drafted pursuant to the Telemarketing Act.
Section B. Discussion of the Proposed Rule
Section 310.1 Scope of the Regulations
Section 310.1 states that this part implements the Telemarketing
Act, and shall be referred to as the ``Telemarketing Sales Rule.''
Section 310.2 Definitions
Section 310.2 of the proposed rule defines the following terms:
Acquirer; attorney general; business venture; cardholder; Commission;
credit card; credit card sales draft; credit card system; customer;
goods or services; investment opportunity; material; merchant; merchant
agreement; person; premium; prize; prize promotion; seller; State;
telemarketer; telemarketing; telephone solicitation; and verifiable
retail sales price.
The definition of ``telemarketing'' sets the parameters of the
proposed rule's coverage. It tracks the definition of ``telemarketing''
included in the Telemarketing Act, with certain additions noted
below.10 As set forth in the Act, telemarketing is defined as any
plan, program, or campaign which is conducted to induce payment for
goods or services by use of one or more telephones and which involves
more than one interstate telephone call.11 One addition to the
definition in the proposed rule clarifies that telemarketing includes
the use of a facsimile machine, computer modem, or any other telephonic
medium.12 Another addition to the definition explicitly states
that telemarketing includes not just calls initiated by telemarketers,
but also calls initiated by persons in response to any form of
promotional messages used by or on behalf of the seller, including
postcards, brochures and advertisements.
\10\See 15 U.S.C. 6106(4).
\11\The Act's definition of the term ``telemarketing'' states
that the plan, program, or campaign must be conducted to induce the
purchase of goods or services. The proposed rule states that the
plan, program, or campaign must be conducted to induce payment for
goods or services. This change is intended to make clear that the
definition of telemarketing includes plans, programs, or campaigns
conducted to induce rentals or leases, as well as certain donations.
\12\Since telemarketing includes the use of computer modems and
other telephonic media, the proposed definition states that
telemarketing involves not just telephone calls, but also telephone
connections.
---------------------------------------------------------------------------
The Telemarketing Act and the proposed rule exempt from the
definition of telemarketing all solicitations of sales through the
mailing of a catalog,13 when the person making the solicitation
does not call customers but only receives calls from customers in
response to the catalog and only takes orders during those calls,
without further solicitation. The proposed rule states that during such
calls from customers, the person taking the order may provide further
information to the customer about, or may try to sell, any other item
included in the same catalog which prompted the customer's calls
without losing the exemption from the definition of ``telemarketing.''
\13\The Telemarketing Act and the proposed rule require catalogs
to include multiple pages of written descriptions or illustrations
of the goods or services being offered for sale, to include a
business address of the seller, and to be issued not less frequently
than once a year.
---------------------------------------------------------------------------
A number of terms are used in the proposed rule's prohibitions on
credit card laundering. The term ``acquirer'' is defined, in
Sec. 310.2(a) of the proposed rule, to include any business
organization, financial institution, or agent of such organization or
institution that has authority from an organization that operates or
licenses a credit card system to authorize merchants to accept,
transmit, or process payment by credit card through the credit card
system for anything of value. The term ``credit card'' is defined
expansively, in Sec. 310.2(f), to include any instrument or device,
however named, used by a cardholder to obtain money, goods, services,
or anything else of value. Sec. 310.2(g) defines a ``credit card sales
draft'' as any record or evidence, including a writing or an electronic
or magnetic transmission or record, of a credit card transaction. The
term ``credit card system'' is defined, in Sec. 310.2(h), as any method
or procedure used to generate, transmit, or process for payment a
credit card sales draft. For purposes of this rule, the term
``merchant'' is narrowly defined, in Sec. 310.2(m), to include only
those persons authorized under a written contract with an acquirer to
honor or accept, transmit, or process credit cards in payment for goods
or services. Finally, Sec. 310.2(n) defines the term ``merchant
agreement'' as the written contract between a merchant and an acquirer.
The proposed rule includes certain requirements for the
telemarketing sale of business ventures and investment opportunities.
The term ``business venture'' is defined, in Sec. 310.2(c) of the
[[Page 8315]] proposed rule, to include any written or oral business
arrangement, however named, including but not limited to
franchises,14 which consists of the payment of consideration for
(1) the right or means to offer, sell, or distribute goods or services,
and (2) the promise of more than nominal assistance in establishing,
maintaining or operating a new business, or an existing business that
is entering into a new line or type of business. The term ``investment
opportunity'' is defined, in Sec. 310.2(k), to include anything,
tangible or intangible, except a business venture, that is offered,
offered for sale, sold, or traded either for purposes of profit or
income or based on express or implied representations about income,
profit, or appreciation.15 In addition, these two definitions
state that any business arrangement in which persons acquire, or
purportedly acquire, government-issued licenses, or interests in one or
more businesses derived from the possession of such licenses, are
considered to be an ``investment opportunity,'' and not a ``business
venture.''
\14\The term ``franchise'' is defined in the FTC Franchise Rule,
formally entitled ``Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures,'' at 16
CFR 436.2(a).
\15\The application of the proposed rule to investment
opportunities is limited, to some extent, by sections 3(d) and (e)
of the Telemarketing Act, 15 U.S.C. 6102(d) and (e), which exclude
from rule coverage any of the following persons: A broker, dealer,
transfer agent, municipal securities dealer, municipal securities
broker, government securities broker, government securities dealer
(as those terms are defined in section 3(a) of the Securities and
Exchange Act of 1934, 15 U.S.C. 78c(a)), an investment adviser (as
that term is defined in Section 202(a)(11) of the Investment
Advisers Act of 1940, 15 U.S.C. 80b-2(a)(11)), an investment company
(as that term is defined in section 3(a) of the Investment Company
Act of 1940, 15 U.S.C. 80a-3(a)), any individual associated with
those persons, or any persons described in section 6(f)(1) of the
Commodity Exchange Act, 7 U.S.C. 8, 9, 15, 13b, 9a.
---------------------------------------------------------------------------
The term ``goods or services'' is defined expansively, in
Sec. 310.2(j), to cover virtually any item for which payment can be
induced over the telephone. A list of specific items is included in the
definition for illustrative purposes only.16
\16\The term ``goods or services'' specifically includes any
charitable service that is promoted in conjunction with any offer of
a prize, chance to win a prize, or opportunity to purchase any other
goods or services. Thus, plans, programs, or campaigns conducted to
induce payment for such charitable services are the only charitable
solicitations covered by the proposed rule. In addition, only
charitable solicitations conducted by an entity ``organized to carry
on business for its own profit or that of its members'' are within
the jurisdiction of the Commission. See 15 U.S.C. 44.
---------------------------------------------------------------------------
The proposed definition for ``material,'' in Sec. 310.2(l), is
taken from the Commission's deception statement.17 It states that
material means likely to affect a consumer's choice of, or conduct
regarding, goods or services.
\17\The Commission's Deception Statement, first set out in a
letter dated October 14, 1983, to the Honorable John D. Dingell,
Chairman, Subcommittee on Oversight and Investigations, Committee on
Energy and Commerce, is attached as an appendix to Cliffdale
Associates, 103 F.T.C. 110 (1984). See also Thompson Medical Co.,
104 F.T.C. 648, 816 (1984).
---------------------------------------------------------------------------
The proposed rule defines ``prize'' and ``premium'' in a relatively
parallel fashion. Section 310.2(q) states that a ``prize'' means
anything offered, or purportedly offered, to a person at no cost and
with no obligation to purchase goods or services and given, or
purportedly given, by chance. A ``premium,'' on the other hand, is
defined in Sec. 310.2(p) as anything offered or given, independent of
chance, to customers as an incentive to purchase goods or services
offered through telemarketing.
The proposed definition of ``prize promotion,'' set forth in
Sec. 310.2(r), includes the traditional sweepstakes or other game of
chance as well as any oral or written representation that a person has
won, has been selected to receive, or may be eligible to receive a
prize or purported prize. Thus, the definition of ``prize promotion''
covers not only legitimate contests or sweepstakes, but also fraudulent
representations that a consumer has won a prize, when no such prize is
to be distributed.
A ``seller'' is defined, in Sec. 310.2(s) of the proposed rule, as
any person who, in conjunction with telemarketing, provides or offers
to provide goods or services in exchange for consideration or a
donation. A ``telemarketer,'' on the other hand, is defined in
Sec. 310.2(u) as any person who, in connection with telemarketing,
initiates or receives a telephonic communication from a customer. Since
many of the provisions in the proposed rule apply to both the seller
and the telemarketer, these two definitions make clear that the
proposed rule's obligations run not only to the person making or
answering a telephone call or telephonic communication from a consumer,
but also to the business providing the goods or services to be sold
during that call.18
\18\It is possible for a person to be both a seller and a
telemarketer in the same transaction, if that person both provides
the goods or services in exchange for consideration or a donation
and engages in the telephone calls with consumers.
---------------------------------------------------------------------------
The definition of ``telephone solicitation,'' in Sec. 310.2(w) of
the proposed rule, is intended to include only out-bound sales calls,
i.e., telephone calls that are initiated by a telemarketer to a
customer to induce payment for goods or services.
Finally, the definition of ``verifiable retail sales price,'' in
Sec. 310.2(x), is based on the Commission's Guides Against Deceptive
Pricing.19 The term means the actual, bona fide price at which one
or more retailers, in the area of the seller's principal place of
business, has made a substantial number of sales. The seller must be
able to document such a retail sales price.
\19\16 CFR Part 233.
---------------------------------------------------------------------------
Section 310.3 Deceptive Telemarketing Acts or Practices
Section 310.3 of the proposed rule includes lists of specific,
deceptive telemarketing acts or practices prohibited under the rule. It
also sets forth prohibited acts or practices that assist and facilitate
deceptive telemarketing. This Section ends with prohibitions on the
practice of credit card laundering.
1. Prohibited Deceptive Telemarketing Acts or Practices
Section 310.3(a) of the proposed rule states that certain acts or
practices, when conducted by any seller or telemarketer, are considered
deceptive telemarketing acts or practices and violations of the rule.
The first subsection prohibits the failure to disclose certain
information before payment is requested for goods or services. The
second subsection lists a series of prohibited misrepresentations
covering all telemarketing transactions, while the third subsection
lists prohibited misrepresentations in connection with the offer, offer
for sale, or sale of any business venture. The final two subsections
prohibit obtaining funds without proper authorization.
Section 310.3(a)(1) of the proposed rule states that it is a
prohibited deceptive telemarketing practice for any seller or
telemarketer to fail to disclose certain material information before
payment is requested for goods or services offered.20 These
disclosures must be made in the same manner and form as the payment
request. The information required to be disclosed is as follows: First,
the total costs, terms and material restrictions, limitations, or
conditions of receiving any goods or services; second, the quantity of
any goods or services sold; and third, all material terms and
conditions of the seller's refund, cancellation, exchange, or
repurchase policies, including a [[Page 8316]] statement that no such
policies exist, if that is the case.
\20\The proposed rule permits sellers or telemarketers to
discuss the price of goods or services with potential customers
before disclosing the required information, but they may not ask
that payment be made until after the disclosures are made.
---------------------------------------------------------------------------
Section 310.3(a)(2) sets forth 24 different misrepresentations
prohibited in connection with telemarketing. The first five subsections
go to the heart of any telemarketing sales transaction, prohibiting
misrepresentations of the total costs, terms or material restrictions,
limitations, or conditions21 of receiving any goods or services.
These subsections also prohibit misrepresentations of the quantity of
any goods or services, or any material aspect of the performance,
efficacy, or central characteristics of any goods or services. In
addition, sellers and telemarketers are prohibited from misrepresenting
the duration of any offer made, as well as the nature or terms of the
seller's refund, cancellation, exchange, or repurchase policies.
\21\ Given the definition of the term ``material,'' in Section
310.2(l) of the proposed rule, any seller or telemarketer would be
prohibited from misrepresenting any restriction, limitation, or
condition that would be likely to affect a consumer's choice of, or
conduct regarding, goods or services.
---------------------------------------------------------------------------
Sections 310.3(a)(2) (vi) through (viii) of the proposed rule
prohibit misrepresentations about prizes. It is a violation of the
proposed rule to misrepresent that any person has been selected to
receive a prize, i.e. an item offered, or purportedly offered, at no
cost and with no other obligation to make a purchase and given, or
purportedly given, by chance. Therefore, a telemarketer could not claim
that a consumer has won a prize, when in fact the consumer must pay
shipping and handling charges to receive the prize. In addition, a
seller or telemarketer is prohibited from misrepresenting that a
premium is a prize. Thus, for example, a telemarketer could not claim
that a consumer has ``won'' an item, when in fact many consumers will
be given that item as an incentive to purchase goods or services,
without any element of chance involved in selecting the ``winners.''
Finally, a seller or telemarketer is prohibited from misrepresenting
the odds of winning any prize.
The next three prohibited practices, in Secs. 310.3(a)(2) (ix)
through (xi) of the proposed rule, deal with misrepresentations about
compliance with various laws or about an affiliation with law
enforcement authorities. Any seller or telemarketer is prohibited from
misrepresenting its compliance with any Federal, State, or local law,
statute, regulation, or ordinance, or from falsely claiming that such
compliance constitutes an endorsement or approval, by the government
agency, of the seller's or telemarketer's business or conduct. Thus, a
telemarketer cannot falsely claim that it is registered with a State,
or, even if registered, that such registration indicates that the State
had approved the telemarketer's method of operation. In addition, it is
also a violation of the proposed rule to misrepresent any affiliation,
association, connection, or relationship with law enforcement, a public
safety organization, or other Federal, State, or local government
agency.
Under Sec. 310.3(a)(2)(xii) of the proposed rule, any seller or
telemarketer is prohibited from misrepresenting the purpose for which
the seller or telemarketer will use information relating to a person's
checking, savings, share, or similar account number, credit card
account number, or social security number. This prohibits, for example,
a telemarketer from asking for a consumer's credit card number ``to
verify'' the consumer's identity, when in fact the telemarketer plans
to charge a fee to that account.
Sections 310.3(a)(2)(xiii) and (xiv) of the proposed rule prohibit
misrepresentations particularly common to certain charitable
solicitations.22 Any seller or telemarketer is prohibited from
misrepresenting the seller's or telemarketer's non-profit, tax-exempt,
or charitable status, purpose, affiliation, or identity. Also
prohibited are misrepresentations that a person is eligible or likely
to receive a tax deduction, loan, or other benefit if the person pays
money to the seller or telemarketer.
\22\Based on the definition of ``goods or services,'' in
Sec. 310.2(j) of the proposed rule, only charitable services
promoted in conjunction with an offer of a prize, chance to win a
prize, or opportunity to purchase any goods or services would be
covered by these provisions.
---------------------------------------------------------------------------
It is a prohibited deceptive telemarketing act or practice, under
Sec. 310.3(a)(2)(xv) of the proposed rule, for any seller or
telemarketer to misrepresent the nature, terms, or existence of any
prior affiliation, association, connection, or relationship with any
person. Under Sec. 310.3(a)(2)(xvi), neither a seller nor a
telemarketer may misrepresent the nature, terms, or existence of any
prior purchase or agreement to purchase by any person. These sections
prohibit, for example, claims that a telemarketer is calling to confirm
a prior order, when no such order exists, or claims that a telemarketer
is calling all of its customers to ask if they would like to purchase
additional products, when in fact the person called was not a prior
customer of that telemarketer.
Sections 310.3(a)(2)(xvii) through (xx) of the proposed rule
prohibit misrepresentations concerning investment opportunities. Any
seller or telemarketer is prohibited from misrepresenting key
attributes of any investment opportunity, such as the level of risk,
liquidity, markup over acquisition costs, past performance, earnings
potential, or market value. Any seller or telemarketer is also
prohibited from misrepresenting the likelihood that the market value
for an investment opportunity will either increase or decrease. In
addition, a seller or telemarketer cannot misrepresent the seller's
success in assisting persons to liquidate goods or services they
purchased from the seller, or the profit derived from such liquidation.
Thus, for example, false claims about an ability to resell an
investment opportunity for a profit are prohibited.
Sections 310.3(a)(2)(xxi) and (xxii) of the proposed rule address
the problem of deceptive credit repair or credit opportunity
telemarketing claims. Section 310.3(a)(2)(xxi) prohibits
misrepresentations that certain goods or services can or are likely to
improve a person's credit history, credit record, or credit rating, or
that certain goods or services can result in a person obtaining credit.
Section 310.3(a)(2)(xxii) prohibits misrepresentations about the
eligibility or likelihood that a person, regardless of that person's
credit history, will obtain a loan or other credit-related service.
Section 310.3(a)(2)(xxiii) of the proposed rule prohibits
misrepresentations that a seller or telemarketer can recover or
otherwise effect or assist in the return of money or any other item of
value to a person. This would prohibit, for example, telemarketers from
falsely claiming that for a fee, paid in advance, they can obtain a
refund for a consumer who has been victimized in the past by a
telemarketing scam.
Finally, Sec. 310.3(a)(2)(xxiv) of the proposed rule prohibits the
misrepresentation of any other information required to be disclosed
under this rule. For example, a telemarketer cannot misrepresent the
verifiable retail sales price of a prize or premium, or misrepresent
that the sales price of a prize or premium is less than $20.00, when
that information is required to be disclosed under Secs. 310.4(d)(3)
and (4) of the proposed rule.
The next section of the proposed rule, Sec. 310.3(a)(3), prohibits
any seller or telemarketer from misrepresenting important information
in connection with the offer, offer for sale, or sale of any business
venture. This information [[Page 8317]] includes the level of earnings
for the business venture, the extent or nature of the market for the
goods or services to be sold, and the nature or availability of any
territory. Thus, a seller of business ventures could not falsely
inflate the sales levels of previous owners, or incorrectly claim that
a purchaser would obtain exclusive rights to market goods or services
in a certain territory. The proposed rule also prohibits
misrepresentations about (1) the existence, availability, or provision
of retail outlets or accounts; (2) the locations or sites for vending
machines, rack displays, or any other sales display; or (3) the nature
or availability of any services offered to secure any such outlets,
accounts, locations, sites or displays. Also prohibited are
misrepresentations that any person owns or operates a business venture
purchased from the seller, or that a person can give an accurate,
independent description of his or her experience as an owner or
operator of such a business venture. These provisions prohibit, for
example, false claims that a shill--a phony reference that is paid to
tout a business opportunity he does not own or operate--has actually
purchased a business venture, or false claims about any person's
experience as a business venture owner.
Under Sec. 310.3(a)(4) of the proposed rule, it is a prohibited
deceptive telemarketing act or practice for a seller or telemarketer to
obtain or submit for payment from a person's checking, savings, share,
or similar account, a check, draft, or other form of negotiable paper
without that person's express written authorization. For example, a
telemarketer cannot submit an unsigned draft on a consumer's bank
account without that consumer's prior written authorization. Similarly,
Sec. 310.3(a)(5) of the proposed rule prohibits the collection of any
amount of money from a person through any means, unless such amount is
expressly authorized by the person. This section is intended to cover
other forms of payment, in addition to unsigned drafts, and to prohibit
misrepresentations of the amount collected. For example, if a consumer
pays for goods or services by credit card, no amount may be charged to
the consumer's account unless the consumer authorizes that charge. This
authorization does not have to be in writing, however.
2. Assisting and Facilitating
Section 310.3(b)(1) of the proposed rule sets forth a general
prohibition against assisting or facilitating deceptive telemarketing
acts or practices. This section states that it is a deceptive
telemarketing act or practice, and a violation of the rule, for a
person to provide substantial assistance or support to any seller or
telemarketer when that person knows or should know that the seller or
telemarketer is engaged in any act or practice that violates the rule.
Section 310.3(b)(2) of the proposed rule lists five specific types
of conduct that provide substantial assistance or support to
telemarketing. This list is not meant to limit, in any way, the general
scope of Sec. 310.3(b)(1) concerning assisting or facilitating
deceptive telemarketing acts or practices.23 Assistors who engage
in these activities will violate the rule if they know, or should know,
that the person they are assisting is engaged in an act or practice
that violates the rule.
\23\Thus, practices not included on this list could still be
found to provide substantial assistance or support to telemarketing.
---------------------------------------------------------------------------
The five types of assisting and facilitating activities listed in
the proposed rule are as follows: First, providing lists of customer
contacts to a seller or telemarketer (e.g., serving as a list broker);
second, receiving consideration in exchange for providing a
testimonial, endorsement, certification, appraisal, or financing, or
for serving as a reference, with respect to any business venture or
investment opportunity (e.g., acting as a paid shill or an art
appraiser, or providing financing for a business opportunity); third,
securing retail outlets or accounts for the sale of goods or services,
or locations or sites for vending machines, rack displays, or any other
sales displays, used in connection with any business venture (e.g.,
operating as a locating company); fourth, furnishing any certificate or
coupon which may later be exchanged for goods or services (e.g.,
producing generic vacation certificates used in prize promotion scams);
and fifth, providing any script, advertising, brochure, promotional
material, or direct marketing piece to be used in telemarketing.
3. Credit Card Laundering
Section 310.3(c) of the proposed rule prohibits credit card
laundering, or the practice of depositing into the credit card system a
sales draft that is not the result of a credit card transaction between
the cardholder and a merchant.\24\ For example, credit card laundering
involves a merchant with access to the credit card system deceiving an
acquirer by submitting for payment credit card transactions that are
not the merchant's own. This deception is crucial for telemarketers
engaged in fraud, since such telemarketers find it difficult, if not
impossible, to obtain merchant accounts to process their credit card
transactions. Credit card laundering facilitates deceptive
telemarketing acts or practices by providing fraudulent telemarketers
with ready access to cash through the credit card system.
\24\As defined in Sec. 310.2(m), a merchant is the person who is
under a contractual agreement with an acquirer to honor or accept,
transmit, or process credit cards in payment for goods or services.
---------------------------------------------------------------------------
This Section of the proposed rule is divided into three parts.
Section 310.3(c)(1) of the proposed rule deals with merchants who
engage in credit card laundering. Under this section, it is a deceptive
telemarketing act or practice, and a violation of the rule, for a
merchant to present to or deposit into the credit card system for
payment, a credit card sales draft generated by a telemarketing
transaction that is not the result of a telemarketing credit card
transaction between the cardholder and the merchant. It is also a
deceptive act or practice for a merchant to cause another person to
present to or deposit into the credit card system for payment such a
credit card sales draft.
Section 310.3(c)(2) of the proposed rule deals with telemarketers,
brokers, or others who employ merchants to engage in credit card
laundering. This section states that it is a deceptive telemarketing
act or practice, and a violation of the proposed rule, for any person
to employ, solicit, or otherwise cause a merchant or an employee,
representative, or agent of a merchant, to present to or deposit into
the credit card system for payment, a credit card sales draft generated
by a telemarketing transaction that is not the result of a
telemarketing credit card transaction between the cardholder and the
merchant.
Finally, Sec. 310.3(c)(3) prohibits joint ventures or other
business relationships between a merchant and a telemarketer for the
purpose of engaging in credit card laundering. Specifically, this
section prohibits any person from obtaining access to the credit card
system through the use of a business relationship or an affiliation
with a merchant, when such access is not authorized by the merchant
agreement.
Section 310.4 Abusive Telemarketing Acts or Practices
Section 310.4 of the proposed rule begins with a list of specific
abusive conduct that is prohibited. This section also prohibits
repeated telemarketing calls and calls to persons who have stated that
they do not wish to receive such calls. In addition, this section sets
[[Page 8318]] restrictions on the times when telemarketers may make
calls, and includes oral and written disclosures that must be made.
This Section of the proposed rule ends with a prohibition on the sale
or distribution of lists of customer contacts by persons found to have
violated certain provisions of this rule.
1. Abusive Conduct Generally
Section 310.4(a) of the proposed rule sets forth eight different
abusive telemarketing acts or practices that are violations of the
rule. The first such practice is the use of threats or intimidation in
connection with telemarketing. The second prohibited practice is
providing for or directing a courier to pick up a payment from a
customer. This prohibition is intended to address a prevalent practice
used by fraudulent telemarketers of sending an overnight courier to a
consumer's home to pick up cash or a check shortly after a successful
sales pitch. In this manner, the telemarketer obtains payment from the
consumer before the consumer has adequate time to think about the
transaction or obtain information about the telemarketer. The proposed
rule would prohibit this practice.
Section 310.4(a)(3) of the proposed rule restricts the
telemarketing of credit repair services. This section prohibits any
seller or telemarketer from requesting or receiving payment of any fee
or consideration for goods or services represented to improve a
person's credit history, credit record, or credit rating until the
contract for the services has expired and the promised results have
been achieved. Specifically, two events must occur before payment can
be requested or received for these services: first, either the term of
the contract or the time frame in which the seller has represented the
goods or services will be provided has expired; and second, the seller
has provided the purchaser with documentation showing that the promised
results have been achieved. This documentation may be either (1) from
the original furnisher or provider of the information to the consumer
reporting agency, confirming that the promised results have been
achieved; or (2) in the form of a consumer report from the consumer
reporting agency demonstrating that the promised results have been
achieved. Such a report must have been issued more than six months
after the results were achieved.\25\
\25\The proposed rule makes clear that nothing in the rule
alters the requirement in the Fair Credit Reporting Act, 15 U.S.C.
1681, that a consumer report may only be obtained for a specified
permissible purpose.
---------------------------------------------------------------------------
Recovery room scams are the focus of Sec. 310.4(a)(4). In these
operations, a telemarketer typically calls a consumer who has lost
money in a previous scam, promising that, for a fee paid up front, the
telemarketer can recover the money the consumer previously lost. After
the consumer pays the requested fee, the promised services are not
delivered. In fact, the consumer may never hear from the telemarketer
again. This Section of the proposed rule prohibits any seller or
telemarketer from requesting or receiving payment of any fee or
consideration for goods or services represented to recover or otherwise
effect or assist in the return of money or any other item of value to a
person until three days after such money or other item is delivered to
that person. The proposed rule states that this provision does not
apply to goods or services provided to a person by a licensed attorney
or licensed private investigator pursuant to a written agreement with
that person.
Section 310.4(a)(5) of the proposed rule is intended to limit
advance fee loan scams and similar practices, in which telemarketers
guarantee that they will obtain a loan or other credit-related service
for a consumer, if the consumer pays them a fee in advance. As with
recovery room scams, after the consumer pays the fee, the promised
services typically are not provided. Under this section of the proposed
rule, any seller or telemarketer is prohibited from requesting or
receiving payment of any fee or consideration in advance of obtaining a
loan or any credit service when the seller or telemarketer has
guaranteed or represented a high likelihood of success in obtaining or
arranging a loan or credit service for a person.
Prize promotions conducted through telemarketing are the subject of
Sec. 310.4(a)(6). Any seller or telemarketer conducting such promotions
must distribute all prizes or purported prizes offered within 18 months
of the initial offer to any person.
Section 310.4(a)(7) of the proposed rule addresses the problem of
reloading, the practice of offering to sell additional goods or
services to a person who previously has made a purchase from that
seller. In deceptive telemarketing scams, consumers may be victimized
numerous times by reloading that occurs prior to delivery of the first
items sold, before realizing they have been deceived. This serial
deception often occurs because consumers have not seen the goods or
services already purchased, and therefore do not know that they were
deceived in the previous transaction. The proposed rule prohibits any
seller or telemarketer from offering or selling goods or services
through a telephone solicitation to a person who previously has paid
the same seller for goods or services, until all terms and conditions
of the initial sales transaction have been fulfilled.\26\ The proposed
rule makes clear that all prizes or premiums offered in conjunction
with the initial transaction must also be distributed before a second
offer or sale can be made.
\26\By limiting this prohibition to offering or selling goods or
services through telephone solicitations, this Section does not
prevent consumers from calling telemarketers to make an additional
purchase before the first transaction is complete.
---------------------------------------------------------------------------
The final abusive telemarketing act or practice prohibited by the
proposed rule concerns the use of shills. Section 310.4(a)(8) of the
proposed rule prohibits any seller or telemarketer from identifying a
person as a reference for a business venture unless the following three
criteria are satisfied: (1) Such person has actually purchased the
business venture; (2) such person has operated the business venture for
at least six months or the seller or telemarketer has disclosed the
length of time the reference has operated the business venture; and (3)
such person does not receive consideration for any statements made to
prospective purchasers.
2. Pattern of Calls
Section 310.4(b) of the proposed rule deals with repeated
telemarketing calls, and calls to persons who have indicated an
unwillingness to receive such calls. This section prohibits a
telemarketer from engaging in such calls, or a seller from causing a
telemarketer to engage in such calls.\27\ Specifically, this Section
states that it is an abusive act or practice and a violation of the
rule to call a person's residence to offer, offer for sale, or sell, on
behalf of the same seller, the same or similar goods or services more
than once within any three-month period. This prohibition does not
apply if the person gives prior consent to more frequent calls,\28\ or
if the person is not reached during an earlier attempted call. It also
does not apply to verification calls--those calls made solely to verify
a previous telephone sale.
\27\A seller may cause a telemarketer to engage in such calls by
providing the telemarketer with a customer contact list that
includes customers that should not be called.
\28\The person may give prior consent either orally or in
writing.
---------------------------------------------------------------------------
The proposed rule also prohibits calls to a person's residence when
that person previously has stated that he or she does not wish to
receive telephone solicitations made by or on behalf of the
[[Page 8319]] seller whose goods or services are being offered.
Sellers and telemarketers are given a limited safe harbor against
liability for violating these provisions. Section 310.4(b)(2) of the
proposed rule states that a seller or telemarketer will not be liable
for such violations once in any calendar year per person called if the
following four requirements are met: (1) It has established and
implemented written procedures to comply with Secs. 310.4(b)(1)(i) and
(ii); (2) it has trained its personnel in those procedures; (3) the
seller, or the telemarketer acting on behalf of the seller, has
maintained and recorded lists of persons who may not be contacted, in
compliance with Secs. 310.4(b)(1)(i) and (ii); and (4) any subsequent
call is the result of administrative error.
3. Calling Time Restrictions
Under Sec. 310.4(c) of the proposed rule, any telemarketer is
prohibited from engaging in telephone solicitations\29\ to a person's
residence at any time other than between 8 a.m. and 9 p.m. local time
at the called person's location. This prohibition does not apply if the
person called gives his or her prior consent to receive a call at a
different time.\30\
\29\Based on the definition of ``telephone solicitation'' in
Sec. 310.2(w) of the proposed rule, these calling time restrictions
apply only to outbound telemarketing calls.
\30\As with the pattern of calls requirement in
Sec. 310.4(b)(1), the person may give prior consent either orally or
in writing.
---------------------------------------------------------------------------
4. Required Oral Disclosures
Section 310.4(d) of the proposed rule sets forth certain oral
disclosures that must be made in telemarketing.\31\ The preamble to
this section states that it is an abusive telemarketing act or
practice, and a violation of the rule, for a telemarketer to fail to
make any of these required oral disclosures.
\31\The disclosures required by this section are in addition to
the disclosures required under Sec. 310.3(a)(1) of the proposed
rule, which must be made before any payment is requested for goods
or services.
---------------------------------------------------------------------------
All telephone solicitations must begin by disclosing key
information to the person called. This information includes the
caller's true first and last name, the seller's name, and that the
purpose of the call is to sell goods or services. The proposed rule
does not require that the telemarketer's name be disclosed, if it is
different from the seller's. In addition, the proposed rule does not
set forth the exact language that must be used to convey the message
that the purpose of the call is to sell goods or services. The choice
of language is left to the telemarketer.
If the telephone solicitation includes a charitable solicitation,
slightly different and additional information must be disclosed at the
beginning of the call. Not only must the caller's true first and last
name and the name of the seller or charity be disclosed, but the
telemarketer's name also must be disclosed in these calls. In addition,
the telemarketer's status as a paid professional fundraiser must be
disclosed, as well as the fact that the purpose of the call is to
solicit charitable donations. If other goods or services are offered
for sale during the call, the caller must disclose that the purpose of
the call is also to sell goods or services.
Section 310.4(d)(2) of the proposed rule states that if a caller
verifies a telemarketing sale, either during the call containing the
original sales presentation or in a separate call, the caller verifying
the sale must repeat all of the disclosures required under
Sec. 310.3(a)(1).\32\ In this fashion, consumers will hear all of the
important terms and conditions of the sale at the time they are
verifying that purchase.
\32\These disclosures include the total costs, terms, and
material restrictions, limitations, or conditions of receiving any
goods or services, the quantity of any goods or services, and all
material terms and conditions of the seller's refund, cancellation,
exchange, or repurchase policies.
---------------------------------------------------------------------------
Section 310.4(d)(3) of the proposed rule requires three additional
oral disclosures for any telemarketing which includes a prize
promotion. The first disclosure is that no purchase or payment is
necessary to win.\33\ Second, the caller must disclose the verifiable
retail sales price of each prize offered, or a statement that the
retail sales price of the prize offered is less than $20.00.\34\ The
third required disclosure is the odds of winning each prize offered. A
true statement that the odds of winning cannot be determined in
advance, or that the odds of winning are determined by the number of
entrants, would satisfy this requirement.
\33\If a purchase or payment were required in a prize promotion
that by definition involves a game of chance, that promotion would
be an illegal lottery. See 18 U.S.C. 1301.
\34\Misrepresenting the retail sales price would be a violation
of Sec. 310.3(a)(2)(xxiv) of the proposed rule because such
information is required to be disclosed under the rule.
---------------------------------------------------------------------------
Under Sec. 310.4(d)(4) of the proposed rule, any telemarketing
which includes an offer of a premium must make the additional
disclosure of the verifiable retail sales price of such premium or
comparable item, or a statement that the retail sales price of the
premium is less than $20.00.
5. Written Disclosures/Acknowledgements
Section 310.4(e) of the proposed rule states that it is an abusive
telemarketing act or practice for a seller or telemarketer that
conducts a prize promotion or offers for sale any investment
opportunity to request or accept any payment from a person without
first providing the person with a written disclosure, in duplicate, and
receiving from the person a written acknowledgement that the person has
read the disclosure. The information required to be disclosed must be
printed in not less than 10-point type (unless otherwise noted), in a
color or shade that readily contrasts with the background of the
notice. The information in the investment opportunity disclosure must
be segregated from all other information that may be included in the
document, while the information in the prize promotion disclosure must
be on one page.
Both disclosures must be sent in an envelope that contains no other
enclosures except for a return envelope, if the seller or telemarketer
wishes to include such an envelope. The envelope for the prize
promotion disclosure may not contain any writing representing that the
person to whom the envelope is addressed has been selected or may be
eligible to receive a prize.
For prize promotions, the following information is required: (1)
The seller's legal name and telephone number, and the complete street
address of the seller's principal place of business; (2) if the seller
has been in operation under any other name(s), each such name and the
length of time the seller operated under each name; (3) the verifiable
retail sales price of each prize offered, or a statement that the
retail sales price of the prize offered is less than $20.00; (4) the
odds of winning each prize offered and the number of persons who will
receive each prize; (5) the total amount and description of any
shipping or handling fees or any other charges that must be paid to
receive or use a prize; (6) a complete description of any restrictions,
conditions, or limitations on eligibility to receive or use a prize,
including all steps a person must take to receive the most valuable
prize offered; (7) the statement: ``No purchase or payment is necessary
to win,'' with a description of the no-purchase entry method; (8) a
statement that a list of winners is available and the address to which
a person may write to obtain such a list; (9) a statement that it is a
violation of this rule for the seller to accept payment in any form
unless the [[Page 8320]] seller has received from the person a written
disclosure acknowledgement; and (10) the statement: ``I have read and
understand this disclosure.'' This final statement must be in at least
12-point bold face type, immediately preceding a signature block.
For investment opportunities, the following information must be
included in the written disclosure: (1) The seller's legal name and
telephone number, and the complete street address of the seller's
principal place of business; (2) if the seller has been in operation
under any other name(s), each such name and the length of time the
seller operated under that name; (3) the complete cost to make the
investment and a detailed list of all present charges and any
anticipated future charges; (4) a description of all known risks
associated with the investment opportunity, including the possibility
that additional payments might be required for a person purchasing the
investment opportunity to retain that person's interest in the
investment opportunity, to realize the projected or stated returns of
the investment opportunity, to prevent total loss of the investment
opportunity, or for any other reason; (5) the length of time the seller
has been in business and has offered the particular investment
opportunity; (6) a statement disclosing whether or not the seller is
licensed and, if so, with whom, the type of license, and the length of
time the seller has held such license; (7) a statement that it is a
violation of this rule for the seller to effect an investment
transaction unless the seller has received from the person a written
disclosure acknowledgement; and (8) the statement: ``I have read and
understand this disclosure.'' This final statement must be in at least
12-point bold face type, immediately preceding a signature block.
Additional written disclosures, provided in duplicate, are required
for certain types of investment opportunities. If a seller or
telemarketer offers for sale any investment opportunity involving
tangible assets, Sec. 310.4(e)(2)(ii) of the proposed rule requires the
following additional information to be included in the written
investment disclosure: (1) The percentage markup that the seller places
on the item above its own cost in acquiring the item; and (2) an
estimate of the value that persons would be likely to receive if they
were to liquidate the asset through a market sale immediately following
the purchase. The proposed rule makes clear that all such estimates
must be substantiated by competent and reliable evidence.
If sellers or telemarketers offer for sale any investment
opportunity involving tangible assets sold on credit or leverage, they
must include in the written disclosure all of the information set forth
in Secs. 310.4(e)(2)(i) and (ii) of the proposed rule, as well as the
following: (1) The percentage of a person's down payment that would be
devoted to fees and costs by the end of the first six months after the
investment is made; (2) the percentage of a person's down payment that
would be devoted to fees and costs by the end of the first year after
the investment is made; and (3) a statement that all such investment
opportunities are extremely risky.
Finally, if a seller or telemarketer offers for sale any investment
opportunity involving the acquisition of government-issued licenses or
interests in businesses derived from the possession of such licenses,
the following additional information must be included in the written
disclosure set forth in Sec. 310.4(e)(2)(i) of the proposed rule: (1)
All material terms and limitations of any government-issued license(s)
that serve as the basis for the investment opportunity, including
whether and to whom the license or licenses have been issued; (2) the
percentage of the person's payment that will be used to acquire any
applicable license(s) from the licensee(s) or from any person or entity
not affiliated in any way with the seller; and (3) the percentage of
the person's payment that will be used to capitalize any business
derived from such license(s).
6. Distribution of Lists
The final abusive practice set forth in Sec. 310.4 of the proposed
rule involves the distribution of lists of customer contacts. Section
310.4(f) states that it is an abusive telemarketing act or practice,
and a violation of the rule, for any person, subject to any federal
court order resolving a case in which the complaint alleged a violation
of Sec. 310.3, 310.4(a), or 310.4(e) of this rule,35 and the court
did not dismiss or strike all such allegations from the case, to sell,
rent, publish, or distribute any list of customer contacts from that
person. In other words, any such person will be prohibited from
circulating its customer contact lists in any fashion.
\35\The enumerated sections cover all of the prohibited
deceptive telemarketing acts or practices, the eight general abusive
telemarketing acts or practices, and the written disclosures and
acknowledgements required for prize promotions and investment
opportunities.
---------------------------------------------------------------------------
Section 310.5 Recordkeeping Requirements
Section 310.5 of the proposed rule requires any seller or
telemarketer to keep, for 24 months from the date the record is
produced, certain records relating to its telemarketing activities.
Failure to keep those records shall be considered a violation of the
rule. The seller and its telemarketer are not required to keep
duplicative records, if they have entered into a written agreement
allocating responsibility for the recordkeeping requirements of the
proposed rule. The terms of any such agreement shall govern, unless
those terms are unclear as to whom must maintain any required records.
In that case, the responsibility for recordkeeping shall fall on the
seller.
Section 310.5(c) of the proposed rule sets forth the parties
responsible for maintaining records at the end of, or after a change in
ownership of, the seller's or telemarketer's business. In the event of
dissolution or termination of such business, the principal of the
seller or telemarketer is required to maintain these records. On the
other hand, in the event of any sale, assignment, succession, or other
change in ownership of the seller's or telemarketer's business, the
successor business is required to maintain the records.
Section 310.6 Exemptions
Certain acts or practices are exempt from the proposed rule. The
first exemption, set forth in Sec. 301.6(a), is for incidental
telemarketing sales--that is, sales by any person who engages in fewer
than ten sales each year through the use of the telephone. Second,
telephonic contacts between businesses also are exempt, except for such
contacts that involve the sale of office or cleaning supplies, or the
inducement of payment for any charitable service promoted in
conjunction with (1) an offer of a prize, (2) a chance to win a prize,
or (3) the opportunity to purchase any goods or services. Finally, on
Sec. 310.6(c) of the proposed rule exempts any telephonic contact made
solely by a person, when there has been no initial sales contact
directed to that particular person, by telephone or otherwise, from the
seller or telemarketer. However, this exemption does not apply to calls
regarding employment services where the seller or telemarketer requests
or receives payment prior to providing the promised services, business
ventures, investment opportunities, prize promotions, or credit-related
programs.
Given the definition of ``telemarketing'' in Sec. 310.2(v) and the
[[Page 8321]] exemptions set forth in this section, the proposed rule
covers all outbound telephone calls intended to induce payment for
goods or services, except for calls made by a person who engages in
fewer than ten telephone sales each year, or for telephonic contacts
made from one business to another that do not involve the sale of
office or cleaning supplies or certain charitable solicitations. The
only inbound telemarketing calls covered are those received from a
person who is responding to an initial communication, other than a
catalog, from the seller or telemarketer that was directed to that
particular person. In addition, all inbound telemarketing calls related
to business ventures, investment opportunities, prize promotions, or
credit-related programs are covered.
Section 310.7 Actions by States and Private Persons
The Telemarketing Act permits certain State officials and private
persons to bring civil actions in an appropriate Federal district court
for violations of this rule.36 Section 310.7 of the proposed rule
sets forth the notice such parties must provide to the Commission
concerning those actions. Such parties must serve written notice of its
action on the Commission, if feasible, prior to initiating an action
under this rule. The notice must include a copy of the complaint and
any other pleadings to be filed with the court. If prior notice is not
feasible, the State official or private person must serve the
Commission with the required notice immediately upon instituting its
action.
\36\See 15 U.S.C. 6103 and 6104.
---------------------------------------------------------------------------
Section 310.8 Federal Preemption
Section 310.8 of the proposed rule states that nothing in the rule
shall be construed to preempt any State law that is not in direct
conflict with any provision of the rule. Thus, State statutes
concerning telemarketing that contain prohibitions or requirements that
are not imposed by this rule would remain in effect, as long as those
statutes do not conflict with this rule.
Section 310.9 Severability
Section 310.9 of the proposed rule sets forth the Commission's
intent that the provisions of this rule be separate and severable from
one another. Thus, if any provision is stayed or determined to be
invalid, the remaining provisions shall continue in effect.
Section C. Invitation to Comment
Before adopting this proposed rule as final, consideration will be
given to any written comments submitted to the Secretary of the
Commission on or before March 31, 1995. Comments submitted will be
available for public inspection in accordance with the Freedom of
Information Act (5 U.S.C. 552) and Commission regulations, on normal
business days between the hours of 8:30 a.m. and 5 p.m. at the Public
Reference Section, Room 130, Federal Trade Commission, 6th Street and
Pennsylvania Avenue, N.W., Washington, D.C. 20580.
Section D. Public Workshop-Conference
The FTC staff will conduct a Public Workshop-Conference to discuss
written comments received in response to the Notice of Proposed
Rulemaking. The purpose of the conference is to afford Commission staff
and interested parties a further opportunity to openly discuss and
explore issues raised in the rulemaking proceeding, and, in particular,
to examine publicly any areas of significant controversy or divergent
opinions that are raised in the written comments. The conference is not
intended to achieve a consensus opinion among participants or between
participants and Commission staff with respect to any issue raised in
the rulemaking proceeding. Commission staff will consider the views and
suggestions made during the conference, in conjunction with the written
comments, in formulating its final recommendation to the Commission
concerning the proposed rule.
Commission staff will select a limited number of parties, from
among those who submit written comments, to represent the significant
interests affected by the proposed regulations. These parties will
participate in an open discussion of the issues. It is contemplated
that the selected parties might ask and answer questions based on their
respective comments.
In addition, the conference will be open to the general public.
Members of the general public who attend the conference may have an
opportunity to make a brief oral statement presenting their views on
issues raised in the rulemaking proceeding. Oral statements of views by
members of the general public will be limited to a few minutes in
length. The time allotted for these statements will be determined on
the basis of the time allotted for discussion of the issues by the
selected parties, as well as by the number of persons who wish to make
statements.
Written submissions of views, or any other written or visual
materials, will not be accepted during the conference. The discussion
will be transcribed and the transcription placed on the public record.
To the extent possible, Commission staff will select parties to
represent the following affected interests: Sellers; telemarketers;
list providers; representatives of the credit card system; consumers;
Federal, State and local law enforcement and regulatory authorities;
and any other interests that Commission staff may identify and deem
appropriate for representation.
Parties to represent the above-referenced interests will be
selected on the basis of the following criteria:
1. The party submits a written comment during the 45-day comment
period.
2. The party notifies Commission staff of its interest and
authorization to represent an affected interest within 20 days of
publication of the Notice of Proposed Rulemaking.
3. The party's participation would promote a balance of interests
being represented at the conference.
4. The party's participation would promote the consideration and
discussion of a variety of issues raised in the rulemaking proceeding.
5. The party has expertise in activities affected by the proposed
regulations.
6. The party adequately reflects the views of the affected
interest(s) which it purports to represent, not simply a single entity
or firm within that interest.
7. The number of parties selected will not be so large as to
inhibit effective discussion among them.
A neutral third-party facilitator will be retained for the
conference. It will be held over the course of three consecutive days,
on April 18-20, 1995. Parties interested in participating and
authorized to represent an affected interest at the conference must
notify Commission staff by March 6, 1995. Prior to the conference,
parties selected to represent an affected interest will be provided
with computer disks containing copies of the comments received in
response to this notice.
Section E. Communications by Outside Parties to Commissioners or
Their Advisors
Pursuant to Commission Rule 1.26(b)(5), communications with respect
to the merits of this proceeding from any outside party to any
Commissioner or Commissioner advisor during the course of this
rulemaking shall be subject to the following treatment. Written
communications, including written communications from members of
Congress, shall be forwarded promptly to the Secretary for placement on
the public record. Oral communications, not including oral
[[Page 8322]] communications from members of Congress, are permitted
only when such oral communications are transcribed verbatim or
summarized at the discretion of the Commissioner or Commissioner
advisor to whom such oral communications are made and are promptly
placed on the public record, together with any written communications
and summaries of any oral communications relating to such oral
communications. Oral communications from members of Congress shall be
transcribed or summarized at the discretion of the Commissioner or
Commissioner advisor to whom such oral communications are made and
promptly placed on the public record, together with any written
communications and summaries of any oral communications relating to
such oral communications.
Section F. Regulatory Flexibility Act
The provisions of the Regulatory Flexibility Act relating to an
initial and final regulatory analysis (5 U.S.C. 603, 604) are not
applicable to this document because it is believed that these
regulations, if promulgated, will not have a significant economic
impact on a substantial number of small entities (5 U.S.C. 605).
The Telemarketing Act requires the Commission to issue regulations,
not later than 365 days after the date of enactment, prohibiting
deceptive telemarketing acts or practices and other abusive
telemarketing acts or practices. The Act limits the scope of the
regulations to entities that engage in telemarketing through one or
more interstate telephone calls; telemarketing sales by local companies
to local customers would most likely be intrastate calls and thus
outside the parameters of the proposed rule. The Act also exempts
certain catalog sales operations from the scope of the regulations. In
addition, the proposed rule exempts incidental telemarketing sales,
i.e., calls made by any person who engages in fewer than ten sales each
year through the use of the telephone. The proposed rule also exempts
certain contacts between businesses, and certain calls initiated by a
person when there is no initial sales contact directed to that
particular person from a seller or telemarketer.
As a result of these statutory and regulatory limitations, we
believe that many small entities will fall outside the scope of the
regulations. In addition, any economic costs imposed on small entities
remaining within the parameters of the rule are, in many instances,
specifically imposed by statute. Where they are not, efforts have been
made to make the proposed rule's requirements flexible, in part to
minimize any unforeseen burden on small entities, as described
elsewhere in this notice.
To ensure that no substantial economic impact is being overlooked,
public comment is requested on the effect of the proposed regulations
on the costs to, profitability and competitiveness of, and employment
in small entities. Subsequent to the receipt of public comments, it
will be decided whether the preparation of a final regulatory
flexibility analysis is warranted. Accordingly, based on available
information, the Commission hereby certifies under the Regulatory
Flexibility Act, 5 U.S.C. 605(b), that the proposed regulations will
not have a significant economic impact on a substantial number of small
entities. This notice serves as certification to that effect for the
purposes of the Small Business Administration.
Section G. Questions on the Proposed Rule
The Commission seeks comments on various aspects of the proposed
rule. Without limiting the scope of issues it seeks comment on, the
Commission is particularly interested in receiving comments on the
questions that follow. Responses to these questions should be itemized
according to the numbered questions in this Notice. In responding to
these comments, include detailed, factual supporting information
whenever possible.
Section 310.2 Definitions
1. The proposed rule defines the following terms for use in the
prohibition on credit card laundering: ``acquirer,'' ``cardholder,''
``credit card,'' ``credit card sales draft,'' ``credit card system,''
``merchant,'' and ``merchant agreement.''
a. Are these definitions clear, meaningful, and appropriate?
b. Are there other approaches to defining these terms that would be
more useful?
2. The proposed rule defines the term ``business venture.''
a. Is this definition clear, meaningful, and appropriate? What are
the advantages and disadvantages of defining the term in this manner?
b. Is the definition as drafted sufficiently comprehensive to
encompass the types of business ventures which have been, are, or may
be sold through telemarketing?
c. Are there other approaches to defining the term ``business
venture'' that would be more useful?
3. The proposed rule defines the term ``goods or services.''
a. Is this definition clear, meaningful, and appropriate? What are
the advantages and disadvantages of defining the term in this manner?
b. Is the definition as drafted sufficiently comprehensive to
encompass the types of products, services, or other offers which have
been, are, or may be sold through telemarketing?
c. Are there other approaches for defining the term ``goods or
services'' that would be more useful?
4. The proposed rule defines the term ``investment opportunity.''
a. Is this definition clear, meaningful, and appropriate? What are
the advantages and disadvantages of defining the term in this manner?
b. Is the definition as drafted sufficiently comprehensive to
encompass the types of investment opportunities which have been, are,
or may be sold or traded through telemarketing?
c. Are there other approaches to defining the term ``investment
opportunity'' that would be more useful?
5. The proposed rule defines the terms ``premium,'' ``prize,'' and
``prize promotion.''
a. Are these definitions clear, meaningful, and appropriate? Are
the distinctions between a ``premium'' and a ``prize'' clear,
meaningful, and appropriate? What are the advantages and disadvantages
of defining these terms in this manner?
b. Are the definitions as drafted sufficiently comprehensive to
encompass the types of premiums, prizes, and prize promotions which
have been, are, or may be offered through telemarketing?
c. Are there other approaches to defining these terms that would be
more useful?
6. The proposed rule defines the terms ``seller'' and
``telemarketer.''
a. Are these definitions clear, meaningful, and appropriate? Are
the distinctions between a ``seller'' and a ``telemarketer'' clear,
meaningful, and appropriate? What are the advantages and disadvantages
of defining these terms in this manner?
b. Are there other approaches to defining these terms that would be
more useful?
c. Since most of the provisions of the proposed rule apply to
sellers and/or telemarketers, do these definitions reflect the
appropriate scope of the rule?
7. The proposed rule states that the term ``telemarketing''
includes the use of a facsimile machine, computer [[Page 8323]] modem,
or any other telephonic medium, as well as calls initiated by persons
in response to postcards, brochures, advertisements, or any other
printed, audio, video, cinematic, or electronic communications by or on
behalf of the seller.
a. Is this definition clear, meaningful, and appropriate?
b. Is the definition of ``telemarketing'' sufficiently broad to
encompass current as well as future technology?
c. Are there other approaches to defining the term
``telemarketing'' that would be more useful?
8. The proposed definition of ``telemarketing'' includes within the
rule's coverage on-line information services which a person accesses by
computer modem.
a. Is such coverage appropriate?
b. Is the proposed rule as drafted sufficiently comprehensive to
regulate the types of plans, programs, or campaigns for the sale of
goods or services that have been, are, or may be conducted through such
computer information services?
9. The proposed definition of ``telemarketing'' tracks the
Telemarketing Act in exempting catalog sales from coverage under the
rule. One of the requirements of this exemption is that ``the person
making the solicitation * * * only receives calls initiated by
customers in response to the catalog and during those calls takes
orders only without further solicitation.'' The proposed rule states
that the term ``further solicitation'' does not include providing the
customer with information about, or attempting to sell, any other item
included in the same catalog which prompted the customer's call.
a. Does the proposed rule sufficiently clarify the types of
solicitation activities that are permitted in connection with catalog
sales?
b. How much will the additional flexibility provided by this
definition benefit catalog sellers? How will it affect law enforcement
efforts to stop fraudulent or deceptive telemarketers?
10. The proposed rule defines the term ``verifiable retail sales
price.''
a. Is this definition clear, meaningful, and appropriate?
b. Are there other approaches to defining this term that would be
more useful?
Section 310.3 Deceptive Telemarketing Acts or Practices
11. Section 310.3(a) of the proposed rule sets forth certain
conduct that will be considered a deceptive telemarketing act or
practice and a violation of the rule, including the failure to make
certain disclosures and the misrepresentation of certain information.
Questions 13 through 18 seek comments on the particular types of acts
and practices included in this Section of the proposed rule. Looking at
Sec. 310.3(a) as a whole:
a. Would it be appropriate to include in the final rule a general
prohibition against material misrepresentations or the failure to
disclose material information? What would be the advantages and
disadvantages to this approach?
b. Are there other approaches to prohibiting deceptive
telemarketing acts or practices that would be more useful to consumers?
That would be more useful to law enforcement authorities? If so, how
would these alternatives affect the burden the rule places on
businesses forced to comply with it?
c. Are there other approaches to prohibiting deceptive
telemarketing acts or practices that would reduce the burden imposed on
legitimate businesses attempting to comply with the rule's
requirements? If so, how would these alternatives affect the usefulness
of the rule to consumers? To law enforcement authorities?
12. Section 310.3(a) of the proposed rule makes both the seller and
the telemarketer equally liable for any deceptive telemarketing acts or
practices.
a. Are there parts of this Section that should apply only to the
seller or to the telemarketer? If so, what specific Sections should
apply only to sellers? To telemarketers? Why are such limitations
appropriate?
b. What are the benefits of making both sellers and telemarketers
jointly liable for violations?
c. What additional costs or other burdens will the rule impose on
sellers and/or telemarketers if the rule makes both liable for any
violations of this Section? If the rule makes telemarketers jointly
liable with sellers, will this reduce the ability of telemarketers to
respond to the needs of their clients in a timely fashion?
d. If telemarketers are not jointly liable for deceptive practices
of the sellers for whom they work, would some telemarketers simply seek
to avoid knowledge of any questionable practices of the sellers from
whom they work? Are there alternative ways to keep telemarketers from
taking such an approach, without imposing full liability for all of the
actions taken by their clients?
13. Section 310.3(a)(1) of the proposed rule requires that certain
disclosures be made before payment is requested for any goods or
services offered, and that the disclosures be made in the same manner
and form as the payment request.
a. Are there other disclosures that should be required? Are any of
the required disclosures unnecessary?
b. Is the description of the information to be disclosed clear,
meaningful, and appropriate?
c. What are the current practices of sellers and telemarketers
regarding such disclosures?
d. What costs will this disclosure requirement impose on legitimate
businesses?
e. What are the advantages or disadvantages of requiring these
disclosures before payment is requested? Is it more appropriate to
require these disclosures at some other time?
14. As part of the prohibition against deceptive telemarketing acts
or practices, Sec. 310.3(a)(2) of the proposed rule prohibits specific
misrepresentations in connection with telemarketing.
a. Are there other misrepresentations that should be included in
the prohibited list? Are any of the prohibited misrepresentations
unnecessary?
b. Is the description of the prohibited misrepresentations clear,
meaningful, and appropriate?
c. How will this section benefit consumers or law enforcement
efforts? What, if any, costs will this Section impose on legitimate
businesses?
15. As part of the prohibition against deceptive telemarketing acts
or practices, Sec. 310.3(a)(3) of the proposed rule prohibits specific
misrepresentations in connection with the offer, offer for sale, or
sale of any business venture.
a. Are there other misrepresentations that should be included in
the prohibited list? Are any of the prohibited misrepresentations
unnecessary?
b. Is the description of the prohibited misrepresentations clear,
meaningful, and appropriate?
c. How will this section benefit consumers or law enforcement
efforts? What, if any, costs will this Section impose on legitimate
businesses?
16. Section 310.3(a)(4) of the proposed rule prohibits obtaining or
submitting a check, draft, or other form of negotiable paper for
payment from a person's checking, savings, share, or similar account
without that person's express written authorization.
a. Is this prohibition clear, meaningful, and appropriate?
b. What are the advantages or disadvantages of this prohibition?
[[Page 8324]]
c. Is the proposed prohibition sufficiently broad to encompass all
forms by which a person's account could be debited in this manner for
payment of goods or services?
d. What will be the economic impact on sellers and telemarketers of
requiring express written authorization prior to debiting a person's
account in this manner?
e. What are the current practices of entities regarding
authorizations for debiting a person's checking, savings, share, or
similar account?
17. Section 310.3(a)(5) of the proposed rule prohibits obtaining
any amount of money from a person through any means unless the amount
is expressly authorized by the person.
a. Is this prohibition clear, meaningful, and appropriate?
b. What are the advantages or disadvantages of this prohibition?
c. Is the proposed prohibition sufficiently broad to encompass all
forms by which a seller or telemarketer could obtain unauthorized
amounts of money?
18. Under Sec. 310.3(b)(1) of the proposed rule, it would be a
deceptive telemarketing act or practice for any person to provide
substantial assistance or support to any seller or telemarketer when
that person knows or should know that the seller or telemarketer is
engaged in any act or practice that violates the rule.
a. What are the advantages or disadvantages to providing such a
general prohibition against ``assisting and facilitating?''
b. Is this general prohibition against ``assisting and
facilitating'' clear, meaningful, and appropriate?
c. Are there other approaches to prohibiting ``assisting and
facilitating'' that would be more useful to consumers? That would be
more useful to law enforcement authorities? If so, how would these
alternatives affect the burden the rule places on businesses forced to
comply with it?
d. Are there other approaches to prohibiting ``assisting and
facilitating'' that would reduce the burden imposed on legitimate
businesses attempting to comply with the rule's requirements? If so,
how would these alternatives affect the usefulness of the rule to
consumers? To law enforcement authorities?
19. Section 310.3(b)(2) of the proposed rule lists specific acts or
practices that provide substantial assistance or support to
telemarketing.
a. Is it appropriate to single out the acts and practices listed in
this section?
b. Are there other acts or practices which should be included in
this section?
c. Is the description of the listed acts or practices clear,
meaningful, and appropriate?
20. Under Sec. 310.3(c) of the proposed rule, certain acts or
practices that constitute ``credit card laundering'' will be considered
deceptive and a violation of the rule.
a. Is the description of prohibited acts or practices clear,
meaningful, and appropriate?
b. What are the advantages or disadvantages of this provision?
c. Is the proposed prohibition sufficiently comprehensive to
encompass all forms of credit card laundering which have been, are, or
may be used in connection with telemarketing?
d. Are there other approaches to prohibiting credit card laundering
that would be more useful to consumers? To law enforcement authorities?
If so, how would these alternatives affect the burden the rule places
on businesses required to comply with it?
e. Are there other approaches to prohibiting credit card laundering
that would reduce the burden imposed on legitimate businesses
attempting to comply with the rule's requirements? If so, how would
these alternatives affect the usefulness of the rule to consumers? To
law enforcement authorities?
f. Will the regulations against credit card laundering interfere
with current practices of legitimate businesses?
Section 310.4 Abusive Acts or Practices
21. Section 310.4(a) of the proposed rule lists specific activities
that will be considered to be abusive telemarketing acts or practices
and a violation of the Telemarketing Sales Rule. Is there other conduct
that should be included in Sec. 310.4(a)?
22. Section 310.4(a) of the proposed rule makes both the seller and
the telemarketer equally liable for engaging in the listed abusive
telemarketing acts or practices.
a. Are there parts of this Section that should apply only to the
seller or to the telemarketer? If so, what specific sections should
apply only to sellers? To telemarketers? Why are such limitations
appropriate?
b. What are the benefits of making both sellers and telemarketers
jointly liable for violations?
c. What additional costs or other burdens will the rule impose on
sellers and/or telemarketers if the rule makes both liable for any
violations of this Section? If the rule makes sellers and telemarketers
jointly liable, will this reduce the ability of telemarketers to
respond to the needs of their clients in a timely fashion?
d. If telemarketers are not jointly liable for abusive practices of
the sellers for whom they work, would some telemarketers simply seek to
avoid knowledge of any questionable practices of the sellers from whom
they work? Are there alternative ways to keep telemarketers from taking
such an approach, without imposing full liability for all of the
actions taken by their clients?
23. Section 310.4(a)(1) of the proposed rule prohibits any seller
or telemarketer from engaging in threats or intimidation.
a. Is it appropriate to include this practice as an abusive act or
practice?
b. Is the description of the prohibited activity clear, meaningful,
and appropriate?
c. Are there other approaches to prohibiting this type of activity?
d. Do the terms ``threats'' and ``intimidation'' need additional
definition in order to specify the type of behavior that would violate
the rule, or are the terms self-explanatory?
24. Section 310.4(a)(2) prohibits a seller or telemarketer from
providing for or directing a courier to pick up payment from a
customer.
a. Is it appropriate to include this practice as an abusive act or
practice?
b. Is the description of the prohibited activity clear, meaningful,
and appropriate?
c. Are there other approaches to prohibiting this type of activity?
d. What will be the economic impact, and the costs and benefits, of
this provision?
e. Do legitimate telemarketers use couriers to pick up payments? If
so, in what circumstances? How would these businesses be affected if
they could not use couriers to pick up payments?
f. Will a prohibition on courier pick-ups be effective in reducing
the consumer injury that results from telemarketing fraud? How will a
fraudulent telemarketer adjust his or her practices in response to this
prohibition?
25. Section 310.4(a)(3) of the proposed rule prohibits requesting
or receiving payment of any fee or consideration for ``credit repair''
goods or services until the time frame in which the seller has
represented the goods or services will be provided has expired and the
seller has provided documentation that the promised results have been
achieved.
a. Is it appropriate to include this practice as an abusive act or
practice?
b. Is the description of the prohibited activity clear, meaningful,
and appropriate? [[Page 8325]]
c. Are there other approaches to prohibiting this type of activity?
d. What will be the economic impact, and the costs and benefits, of
this provision?
e. Are there any legitimate services that could not be provided, or
would be more costly to provide, if this prohibition were promulgated?
If such services exist, how could the rule be crafted to prohibit
deceptive credit repair services while still permitting these
legitimate activities?
26. Section 310.4(a)(4) of the proposed rule prohibits requesting
or receiving payment of any fee or consideration for goods or services
represented to recover or otherwise assist in the return of money or
any other item of value to a person until three days after such money
or other item is delivered to that person. This provision does not
apply to a licensed attorney or licensed private investigator who has a
written agreement with that person.
a. Is it appropriate to include this practice as an abusive act or
practice?
b. Is the description of the prohibited activity clear, meaningful,
and appropriate?
c. Are there other approaches to prohibiting this type of activity?
d. What will be the economic impact, and the costs and benefits, of
this provision?
e. Are there any legitimate services that could not be provided, or
would be more costly to provide, if this prohibition were promulgated?
If such services exist, how could the rule be crafted to prohibit
deceptive recovery services while still permitting these legitimate
activities?
f. Is it necessary, useful, and appropriate to exempt licensed
attorneys and licensed private investigators from this provision?
g. Does this prohibition impact on legitimate businesses other than
licensed attorneys or licensed private investigators?
27. Section 310.4(a)(5) of the proposed rule prohibits requesting
or receiving payment of any fee or consideration in advance of
obtaining a loan or any credit service when the seller or telemarketer
has guaranteed or represented a high likelihood of success in obtaining
or arranging a loan or credit service for a person.
a. Is it appropriate to include this practice as an abusive act or
practice?
b. Is the description of the prohibited activity clear, meaningful,
and appropriate?
c. Are there other approaches to prohibiting this type of activity?
d. What will be the economic impact, and the costs and benefits, of
this provision?
e. Are there any legitimate services that could not be provided, or
would be more costly to provide, if this prohibition were promulgated?
If such services exist, how could the rule be crafted to prohibit
deceptive advance-fee loan schemes while still permitting these
legitimate activities?
28. Section 310.4(a)(6) of the proposed rule prohibits failing to
distribute all prizes or purported prizes offered in a telemarketing
prize promotion within 18 months of the initial offer to any person.
a. Is it appropriate to include this practice as an abusive act or
practice?
b. Is the description of the prohibited activity clear, meaningful,
and appropriate?
c. Are there other approaches to prohibiting this type of activity?
d. What will be the economic impact, and the costs and benefits, of
this provision?
e. What are the current practices of sellers or telemarketers
regarding the time frame within which prizes are distributed in
telemarketing prize promotions?
f. Is 18 months an appropriate period of time in which to require
that all prizes or purported prizes be distributed?
29. Section 310.4(a)(7) of the proposed rule prohibits offering or
selling goods or services through a telephone solicitation to a person
who previously has paid the same seller for goods or services, until
all terms and conditions of the initial transaction have been
fulfilled, including the distribution of all prizes and premiums
offered in conjunction with the initial transaction.
a. Is it appropriate to include this practice as an abusive act or
practice?
b. Is the description of the prohibited activity clear, meaningful,
and appropriate?
c. Are there other approaches to prohibiting this type of activity?
d. What will be the economic impact, and the costs and benefits, of
this provision?
e. What are the current practices of sellers and telemarketers
regarding making additional telephone solicitations before fulfilling
the terms and conditions of the initial sales transaction?
f. Are there telemarketing activities for which this prohibition
would not be feasible?
30. Section 310.4(a)(8) of the proposed rule prohibits identifying
a person as a reference for a business venture unless certain
requirements are met.
a. Is it appropriate to include this practice as an abusive act or
practice?
b. Are the descriptions of the prohibited activity and of the
stated requirements clear, meaningful, and appropriate?
c. Are there other approaches to prohibiting this type of activity?
d. What will be the economic impact, and the costs and benefits, of
this provision?
e. What are the current practices of telemarketers regarding the
use of references in the telemarketing of business ventures?
31. Section 310.4(b)(1) of the proposed rule prohibits more than
one telephone solicitation in any three-month period to a person's
residence to offer, offer for sale, or sell the same or similar goods
or services on behalf of the same seller, without the person's prior
consent. The requirement does not apply to calls made solely to verify
previous sales or attempted calls which do not reach a person. This
Section also would prohibit calling a person's residence when that
person has stated that he or she does not wish to receive further
telephone solicitations made by or on behalf of the seller.
a. Are the descriptions of the prohibited activities clear,
meaningful, and appropriate?
b. Are there other approaches to prohibiting this type of activity?
c. Should these prohibitions be extended to business-to-business
calls?
d. What will be the economic impact, and the costs and benefits, of
prohibiting more than one telephone solicitation within any three-month
period? Is a three-month period of time appropriate?
e. What will be the economic impact, and the costs and benefits, of
prohibiting further calls after a person has asked not to receive
telephone solicitations by or on behalf of the seller?
f. What are the current practices of sellers and telemarketers
regarding the number of calls to a person's residence within a
specified period of time for the same or similar goods or services on
behalf of the same seller?
g. What are the current practices of sellers and telemarketers
regarding identifying those persons who do not wish to receive further
telephone solicitations by or on behalf of the seller?
32. Section 310.4(b)(2) of the proposed rule sets forth certain
actions that a seller or telemarketer can take that would provide a
defense against liability for violating Secs. 310.4(b)(1).
[[Page 8326]]
a. Is it appropriate to provide a defense against potential
liability with regard to these activities?
b. Is it appropriate to limit this defense to one erroneous call
per person called in any calendar year?
c. Are there other requirements which should be included in the
list of practices which provide a defense against potential liability?
Are any of the activities required by the proposed rule inappropriate?
d. Is the description of the requirements to avoid liability clear,
meaningful, and appropriate?
e. Are there other approaches to providing a defense for potential
liability that would be more useful?
f. What will be the economic impact, and the costs and benefits, of
taking the actions set forth in Sec. 310.4(b)(2)?
g. What are the current practices of sellers or telemarketers with
respect to the activities set forth in Sec. 310.4(b)(2)?
33. Section 310.4(c) of the proposed rule prohibits telephone
solicitations to a person's residence at any time other than between
the hours of 8 a.m. and 9 p.m. local time at the called person's
location, without the prior consent of the person being called.
a. Is the description of the prohibited activity clear, meaningful,
and appropriate?
b. What will be the economic impact, and the costs and benefits, of
this provision?
c. What are the current practices of telemarketers regarding the
times during which telephone solicitations are made to residences?
d. Should the period when telephone solicitations are permitted be
narrowed or expanded? Why or why not?
e. Should this prohibition be extended to contacts between
businesses?
34. Section 310.4(d)(1) of the proposed rule requires that certain
oral disclosures be made at the beginning of all telephone
solicitations.
a. Are the descriptions of the required disclosures clear,
meaningful, and appropriate?
b. Are there other oral disclosures that should be required? Are
any of the required disclosures unnecessary?
c. What will be the economic impact of requiring these disclosures
at the beginning of the telephone solicitation? If these disclosures
are not required at the beginning of the telephone solicitation, when
should they be required? What are the advantages or disadvantages of
this alternative?
d. Are the disclosure requirements for those engaged in charitable
solicitations necessary? Will these disclosure requirements provide
useful information to consumers? If so, how will this information be
useful to consumers? What impact will these disclosure requirements
have on professional fundraisers? What impact will these disclosure
requirements have on charities that use these professional fundraisers?
e. Do telemarketers currently make the disclosures required by
Sec. 310.4(d)(1)? Why or why not?
f. The proposed rule would prohibit the use of aliases by persons
making telephone solicitations. Is this appropriate? What are the costs
and benefits of prohibiting the use of aliases? Is there an alternative
approach that would permit the use of aliases while still ensuring that
consumers and law enforcement authorities could identify a particular
caller? What are the costs and benefits of such an alternative?
35. Section 310.4(d)(2) of the proposed rule requires that certain
oral disclosures be made whenever a caller verifies a telemarketing
sale.
a. Are the descriptions of the required disclosures clear,
meaningful, and appropriate?
b. Are there other oral disclosures that should be required? Are
any of the required disclosures unnecessary?
c. What will be the economic impact of requiring these disclosures
in any verification call?
d. Do telemarketers currently make the disclosures required by
Sec. 310.4(d)(2)? Why or why not?
36. Sections 310.4(d)(3) and (4) of the proposed rule require
additional disclosures where telemarketing includes a prize promotion
or an offer of a premium.
a. Is it appropriate to classify the failure to make these
additional disclosures as an abusive act or practice?
b. Are the descriptions of the required disclosures clear,
meaningful, and appropriate?
c. Are there other oral disclosures that should be required? Are
any of the required disclosures unnecessary?
d. What will be the economic impact of requiring these additional
oral disclosures? Will these additional oral disclosures help consumers
protect themselves from fraudulent or deceptive telemarketers?
e. Is it appropriate to require that these disclosures be made both
orally and in writing, as is required by Sec. 310.4(e)(1), or would it
be sufficient to permit either an oral or a written disclosure alone?
How would the economic costs of this Section be affected if the latter
approach were adopted?
f. What are the current practices of telemarketers regarding the
disclosure of the information required by Secs. 310.4(d)(3) and (4)?
37. In addition to the oral disclosures required during telephone
solicitations, Sec. 310.4(e) of the proposed rule requires that written
disclosures be provided in duplicate in connection with telemarketing
involving a prize promotion or the offer for sale of any investment
opportunity.
a. What are the advantages and disadvantages of these required
disclosures? Are written disclosures appropriate or necessary?
b. Is it appropriate to include a failure to make these disclosures
as an abusive act or practice?
c. Are the descriptions of the required disclosures, their timing,
size, and other requirements clear, meaningful, and appropriate?
d. Are there other written disclosures that should be required? Are
any of the required written disclosures unnecessary?
e. Are there any forms of prize promotions or investment
opportunities for which the disclosures would not be feasible?
f. Section 310.4(e) specifies the size of the disclosures, what
else can be included in the envelope with the disclosure, and, for
prize promotions, what may appear on the face of the envelope. Are
these specifications necessary to ensure the clarity of the disclosures
and to ensure that consumers pay attention to them, or would a more
general standard (e.g., clear and conspicuous) be equally or more
effective? How would the costs of complying with the requirements of
this Section be affected if the more general standard were employed?
g. Section 310.4(e)(2)(iii) of the proposed rule requires, for the
sale of any investment opportunity involving tangible assets sold on
credit or leverage, the written disclosure of the percentage of the
purchaser's down payment that would be devoted to fees and costs by the
end of both the first six months and the first year after the
investment is made. Are these time frames useful and appropriate? Would
it be better not to have a time frame in this disclosure requirement?
h. What will be the economic impact, and the costs and benefits, of
requiring these disclosures? Of requiring a written acknowledgement
prior to payment?
i. What are the current practices of telemarketers regarding the
disclosures required in Sec. 310.4(e)? Regarding written
acknowledgement prior to payment? [[Page 8327]]
j. What will be the economic impact, and the costs and benefits, of
requiring that the written disclosures be provided in duplicate? Will
this requirement ensure that consumers retain a copy of the required
disclosure, or are there other approaches to achieve this goal? What
are the costs and benefits of these alternative approaches?
k. How many telemarketing campaigns per year will be required to
comply with the written disclosure requirements? How many prize
promotions per year are conducted as part of telemarketing campaigns?
How many people participate in the average prize promotion conducted
via telemarketing?
l. How many telemarketing campaigns per year involve sales of
investment goods? What particular investment goods are sold via
telemarketing by legitimate sellers? On average, how many people buy
investments as a result of a telemarketing campaign?
38. Section 310.4(f) of the proposed rule prohibits any person who
is subject to any federal court order resolving a case in which the
complaint alleged a violation of certain sections of the rule, and the
court did not dismiss or strike all such allegations from the case, to
sell, rent, publish, or distribute any list of customer contacts from
that person.
a. Is this prohibition appropriate? Is the description of the
prohibited activities clear, meaningful, and appropriate?
b. What will be the economic impact, and the costs and benefits, of
prohibiting the sale of lists by such persons?
c. What are the current practices of telemarketers regarding the
sale of lists? Specifically, under what circumstances do sellers or
telemarketers sell or otherwise distribute lists to others?
d. What would be the effect if this prohibition only applied for a
certain period of time after the court order was entered? How would
this limitation hinder law enforcement efforts? What would be an
appropriate period of time following the entry of an order to prohibit
list sales?
e. Should this prohibition extend to a broader class of rule
violations than that currently proposed? A narrower class?
39. In addition to or in lieu of some of the provisions in
Sec. 310.4 of the proposed rule, would it be more appropriate that
telemarketing sales be subject to a cooling-off rule, or a period of
time in which the purchaser can cancel a transaction? How would such a
rule be structured? Should all telemarketing sales be subject to such a
rule? What is an appropriate ``cooling-off'' time period? Should
payment be permitted at the time of sale, or should payment be
prohibited until the end of the cooling-off period? Would it be more
appropriate to impose a mandatory right to a refund in all
telemarketing sales? How long of a period would be appropriate for
consumers to examine a product before returning it?
Section 310.5 Recordkeeping Requirements
40. Section 310.5(a) of the proposed rule requires sellers or
telemarketers to keep certain records relating to their telemarketing
activities for a period of 24 months from the date the record is
produced.
a. Are the specified records appropriate to verify compliance with
the rule? Are any of the required records unnecessary to verify
compliance with the rule? Should any additional records be required?
Specifically, should sellers and telemarketers keep copies of any
consumer complaints they receive? How burdensome would it be to
maintain such complaints? How many consumer complaints will the average
legitimate firm have involving its telemarketing sales?
b. Is the 24-month record retention period appropriate? Why or why
not? If not, what period is appropriate?
c. Are there other approaches to recordkeeping requirements that
would be more useful?
d. What are the current record retention policies and practices of
sellers and telemarketers with respect to the records listed in
Sec. 310.5? Specifically, what records, required to be maintained by
Sec. 310.5(a), currently are maintained by sellers or telemarketers?
How long are they maintained?
e. What will be the economic impact, and the costs and benefits, of
these recordkeeping requirements?
f. If the records listed are not required to be retained, how would
rule compliance be verified?
g. What has been the experience of State and local law enforcement
agencies with respect to record retention requirements? Have such
requirements been useful? If yes, how? If no, why not? What types of
enforcement issues could arise if recordkeeping were not required?
h. What volume of records will have to be maintained to comply with
the requirements of Sec. 310.5(a)? In particular, how many
telemarketing campaigns will the average firm conduct on an annual
basis? How many different scripts are used during an average campaign?
How many consumers are called during an average telemarketing campaign,
and what percentage of the persons called agree to buy goods or
services? How many employee records will have to be maintained by the
average firm engaged in telemarketing?
41. Under Section 310.5(b) of the proposed rule, a seller and a
telemarketer calling on behalf of that seller need not keep duplicative
records, but can enter into a written agreement allocating
recordkeeping responsibilities between themselves. Section 310.5(c) of
the proposed rule sets forth the recordkeeping requirements in the
event of the dissolution, termination, or change in ownership of a
seller or telemarketer.
a. Are these provisions clear, meaningful, and appropriate?
b. What are the advantages or disadvantages to these provisions?
c. What are the current practices of sellers and telemarketers
regarding the distribution of responsibility for maintaining records?
Regarding the maintenance of records in the event of the dissolution,
termination, or change in ownership of a seller or telemarketer?
Section 310.6 Exemptions
42. The proposed rule exempts the solicitation of sales by any
person who engages in fewer than ten telephone sales per year.
a. Is this proposed exemption clear, meaningful, and appropriate?
b. Is the scope of the proposed rule sufficiently limited to exempt
those persons who do not regularly engage in telemarketing?
c. Are there other approaches to limiting the scope of the rule
that would be more useful?
d. Does this exemption pose problems for law enforcement efforts to
stop deceptive or abusive telemarketing acts or practices?
43. The proposed rule also exempts telephonic contacts between
businesses, except such contacts involving the sale of office or
cleaning supplies or certain charitable solicitations.
a. Is this proposed exemption clear, meaningful, and appropriate?
b. Are there other types of goods or services sold in business-to-
business contacts which should not be exempted from the rule?
c. Are there other approaches to limiting the scope of the rule
that would be more useful?
d. Does this exemption pose problems for law enforcement efforts to
stop deceptive or abusive telemarketing acts or practices?
44. Finally, the proposed rule exempts a telephonic contact made
solely by a person when there has been no initial sales contact
directed to that particular person by the seller or
[[Page 8328]] telemarketer, except for such contacts related to certain
employment services, business ventures, investment opportunities, prize
promotions, or credit-related programs.
a. Is this proposed exemption clear, meaningful, and appropriate?
b. Is the scope of the proposed rule sufficiently limited to exempt
businesses, such as restaurants, car rental companies, travel agents,
and providers of services, such as plumbers, that rely on the telephone
for the taking of orders or the scheduling of appointments?
c. Is it appropriate to exclude from this exemption contacts
related to employment services, business ventures, investment
opportunities, prize promotions, or credit-related programs? Are there
other types of goods or services sold through these types of contacts
that should not be exempted from the rule?
d. Is this exemption appropriate for on-line computer information
services? How would this exemption affect advertising on computer
bulletin boards? Is it more appropriate to include all contacts made
over computer information services in the rule?
e. Are there other approaches to limiting the scope of the rule
that would be more useful?
f. Does this exemption pose problems for law enforcement efforts to
stop deceptive or abusive telemarketing?
45. Are there other telemarketing activities, such as the sale of
particular products or other particular kinds of telemarketing,
currently covered by the proposed rule but which should be exempted?
How would the exemption of these firms or activities affect the ability
of law enforcement to stop deceptive or abusive telemarketing acts or
practices? How would such exemptions affect consumers? How would they
benefit the firms exempted from the rule's coverage? How many firms
would be exempted from the coverage of the rule if any proposed change
were adopted?
46. How many firms in the United States sell their products, either
in whole or in part, through telemarketing, as that term is defined in
the proposed rule? How many of these firms engage in telemarketing on
their own behalf? How many employ others to engage in telemarketing for
them? How would the number of firms subject to the rule be changed if
one or more of the exemptions in Sec. 310.6 were eliminated?
Section 310.8 Federal Preemption
47. Under Sec. 310.8 of the proposed rule, State laws are preempted
only when they are in direct conflict with any provision of the rule.
Is this preemption standard clear, meaningful, and appropriate?
Other
48. Is it appropriate for the proposed rule to take effect 30 days
after its date of publication in the Federal Register?
a. Would 30 days be sufficient time to come into compliance with
the rule? Why or why not?
b. For which specific provisions of the rule would compliance be
possible within 30 days, and for which specific provisions would
compliance take longer? Would a staggered effective date be more
appropriate?
c. If 30 days is an insufficient period of time, what time period
would be sufficient?
49. One of the findings which led Congress to pass the
Telemarketing Act was that telemarketing differs from other sales
activities because it can be carried out across State lines without
direct, face-to-face contact with the consumer. Are there new types of
technology by which sales can be made without direct contact between
the buyer and seller? Is the proposed rule broad enough to encompass
such forms of technology? Will the proposed rule requirements be
appropriate and/or feasible for such other technology?
50. What kinds of technological changes may be anticipated in the
area of telemarketing? Will the proposed rule requirements be
appropriate and/or feasible after these technological changes are
implemented?
51. As already noted in Section F, comment is invited on the effect
of the proposed rule with regard to costs, profitability,
competitiveness, and employment of small business entities.
52. To the extent not otherwise addressed by the questions above,
are there any regulatory alternatives that would reduce any adverse
economic impact of the proposed rule, yet fully implement the
Telemarketing Act?
53. What are the aggregate costs and benefits of the proposed rule?
Are there any provisions in the proposed rule that are not necessary to
implement the statute or that impose costs not outweighed by benefits?
Who will benefit and who will bear the cost? Can we expect either the
costs or benefits of the rule to dissipate over time?
54. Does the proposed rule overlap or conflict with other Federal,
State, or local government laws or regulations?
List of Subjects in 16 CFR Part 310
Telemarketing, Trade practices.
Accordingly, it is proposed that chapter I of 16 CFR be amended by
adding a new part 310 to read as follows:
PART 310--TELEMARKETING SALES RULE
Sec.
310.1 Scope of regulations in this part.
310.2 Definitions.
310.3 Deceptive telemarketing acts or practices.
310.4 Abusive telemarketing acts or practices.
310.5 Recordkeeping requirements.
310.6 Exemptions.
310.7 Actions by states and private persons.
310.8 Federal preemption.
310.9 Severability.
Authority: 15 U.S.C. 6101-6108.
Sec. 310.1 Scope of regulations in this part.
This part implements the Telemarketing and Consumer Fraud and Abuse
Prevention Act (15 U.S.C. 6101-6108).
Sec. 310.2 Definitions.
(a) Acquirer means a business organization, financial institution,
or an agent of a business organization or financial institution that
has authority from an organization that operates or licenses a credit
card system to authorize merchants to accept, transmit, or process
payment by credit card through the credit card system for money, goods
or services, or anything else of value.
(b) Attorney General means the chief legal officer of a State.
(c) Business venture means any written or oral business
arrangement, however denominated, including but not limited to a
``franchise,'' as that term is defined in the ``Franchise Rule,'' 16
CFR 436.2(a), which consists of the payment of any consideration for:
(1) The right or means to offer, sell, or distribute goods or
services (whether or not identified by a trademark, service mark, trade
name, advertising, or other commercial symbol); and
(2) The promise of more than nominal assistance to any person or
entity in connection with or incidental to the establishment,
maintenance, or operation of a new business or the entry by an existing
business into a new line or type of business.
The term ``business venture'' does not include any business
arrangement in which persons acquire, or purportedly acquire,
government-issued licenses or interests in one or more businesses
derived from the possession of such licenses.
(d) Cardholder means a person to whom a credit card is issued or
who is authorized to use a credit card on behalf of or in addition to
the person to whom the credit card is issued.
(e) Commission means the Federal Trade Commission.
(f) Credit card means any instrument or device, whether known as a
credit [[Page 8329]] card, credit plate, bank service card, banking
card, check guarantee card, charge card, or debit card, or by any other
name, issued with or without a fee for the use of the cardholder in
obtaining money, goods, services, or anything else of value.
(g) Credit card sales draft means any record or evidence of a
credit card transaction, including but not limited to any paper, sales
record, instrument, or other writing, or any electronic or magnetic
transmission or record.
(h) Credit card system means any method or procedure used to
generate, transmit, or process for payment a credit card sales draft.
(i) Customer means any person who is or may be required to pay for
goods or services offered through telemarketing.
(j) Goods or services means any goods or services, including but
not limited to: Any investment opportunity; any business venture; any
certificate or coupon which may be later exchanged for a product or
service; any membership; any license right; any timeshare or campground
interest; any offer to list a timeshare or campground interest for
sale; any real property interest; any offer to improve a person's
credit record, history, rating, or to obtain an extension of credit;
any charitable service promoted in conjunction with an offer of a
prize, chance to win a prize, or the opportunity to purchase any other
goods or services; any service promoted by an employment agency; any
multi-level marketing service; and any offer of advice or assistance to
a person.
(k) Investment opportunity means anything, tangible or intangible,
excluding a business venture, that is offered, offered for sale, sold,
or traded (1) to be held, wholly or in part, for purposes of profit or
income; or (2) based wholly or in part on representations, either
express or implied, about past, present or future income, profit, or
appreciation. The term ``investment opportunity'' includes, but is not
limited to, any business arrangement where persons acquire, or
purportedly acquire, government-issued licenses or interests in one or
more businesses derived from the possession of such licenses.
(l) Material means likely to affect a person's choice of, or
conduct regarding, goods or services.
(m) Merchant means a person who is authorized under a written
contract with an acquirer to honor or accept, transmit, or process
credit cards in payment for goods or services.
(n) Merchant agreement means a written contract between a merchant
and an acquirer authorizing the merchant to honor or accept, transmit,
or process credit cards in payment for goods or services.
(o) Person means any individual, group, unincorporated association,
limited or general partnership, corporation, or other business entity.
(p) Premium means anything offered or given, independent of chance,
to customers as an incentive to purchase goods or services offered
through telemarketing.
(q) Prize means anything offered, or purportedly offered, to a
person at no cost and with no obligation to purchase goods or services
and given, or purportedly given, by chance.
(r) Prize promotion means:
(1) A sweepstakes or other game of chance; or
(2) An oral or written representation that a person has won, has
been selected to receive, or may be eligible to receive a prize or
purported prize.
(s) Seller means any person who, in connection with telemarketing,
provides or offers to provide goods or services in exchange for
consideration or a donation.
(t) State means any State of the United States, the District of
Columbia, Puerto Rico, the Northern Mariana Islands, and any territory
or possession of the United States.
(u) Telemarketer means any person who, in connection with
telemarketing, initiates or receives a telephonic communication from a
customer.
(v) Telemarketing means a plan, program, or campaign which is
conducted to induce payment for goods or services by use of one or more
telephones (including the use of a facsimile machine, computer modem,
or any other telephonic medium) and which involves more than one
interstate telephone call or connection. The term includes, but is not
limited to, calls initiated by persons in response to postcards,
brochures, advertisements, or any other printed, audio, video,
cinematic or electronic communications by or on behalf of the seller.
The term does not include the solicitation of sales through the mailing
of a catalog which: Contains a written description or illustration of
the goods or services offered for sale; includes the business address
of the seller; includes multiple pages of written material or
illustrations; and has been issued not less frequently than once a
year, when the person making the solicitation does not solicit
customers by telephone but only receives calls initiated by customers
in response to the catalog and during those calls takes orders only
without further solicitation. For purposes of the previous sentence,
the term ``further solicitation'' does not include providing the
customer with information about, or attempting to sell, any other item
included in the same catalog which prompted the customer's call.
(w) Telephone solicitation means the initiation of a telephone call
by a telemarketer to induce payment for goods or services.
(x) Verifiable retail sales price means the actual, bona fide price
at which one or more retailers, in the area of the seller's principal
place of business, has made a substantial number of sales, which the
seller has documented.
Sec. 310.3 Deceptive telemarketing acts or practices.
(a) Prohibited deceptive telemarketing acts or practices.
It is a deceptive telemarketing act or practice and a violation of
this Rule for any seller or telemarketer to engage in the following
conduct:
(1) Before payment is requested for goods or services offered,
failing to disclose any of the following information in the same manner
and form as the payment request:
(i) The total costs, terms, and material restrictions, limitations,
or conditions of receiving any goods or services;
(ii) The quantity of any goods or services; and
(iii) All material terms and conditions of the seller's refund,
cancellation, exchange, or repurchase policies, including, if
applicable, a statement that no such policies exist;
(2) Misrepresenting, directly or by implication, any of the
following:
(i) The total costs, terms, or material restrictions, limitations,
or conditions of receiving any goods or services;
(ii) The quantity of any goods or services;
(iii) Any material aspect of the performance, efficacy, or central
characteristics of any goods or services;
(iv) The duration of any offer made;
(v) The nature or terms of the seller's refund, cancellation,
exchange, or repurchase policies;
(vi) That any person has been selected to receive a prize;
(vii) That a premium is a prize;
(viii) The odds of winning any prize;
(ix) That a seller or telemarketer is in compliance with any
Federal, State, or local law, statute, regulation, or ordinance;
(x) That compliance with any Federal, State, or local law, statute,
regulation, or ordinance constitutes an endorsement or approval of the
seller's or telemarketer's business or conduct;
(xi) Any affiliation, association, connection, or relationship with
law [[Page 8330]] enforcement, a public safety organization, or any
Federal, State, or local government agency;
(xii) The purpose for which the seller or telemarketer will use a
person's checking, savings, share, or similar account number, credit
card account number, social security number, or related information;
(xiii) The nonprofit, tax-exempt, or charitable status, purpose,
affiliation, or identity of the seller or telemarketer;
(xiv) A person's eligibility or likelihood to receive a tax
deduction, loan, or other benefit if the person pays money to the
seller or telemarketer;
(xv) The nature, terms, or existence of any prior affiliation,
association, connection, or relationship with any person;
(xvi) The nature, terms, or existence of any prior purchase or
agreement to purchase by any person;
(xvii) The level of risk, liquidity, markup over acquisition costs,
past performance, or earnings potential of any investment opportunity;
(xviii) The market value of any investment opportunity;
(xix) The likelihood that the market value for an investment
opportunity will either increase or decrease;
(xx) The seller's success in assisting persons to liquidate goods
or services they purchased from the seller, or the profit derived from
such liquidation;
(xxi) That goods or services can or are likely to improve a
person's credit history, credit record, or credit rating, or result in
a person obtaining credit;
(xxii) The eligibility of, or likelihood that, a person, regardless
of that person's credit history, will obtain a loan or other credit-
related service;
(xxiii) That a seller or telemarketer can recover or otherwise
effect or assist in the return of money or any other item of value to a
person; or
(xxiv) Any other information required to be provided under this
Rule;
(3) Misrepresenting, directly or by implication, in connection with
the offer, offer for sale, or sale of any business venture, any of the
following:
(i) The level of earnings;
(ii) The extent or nature of the market for the goods or services
to be sold;
(iii) The nature or availability of any territory;
(iv) The existence, availability, or provision of retail outlets or
accounts for the sale of goods or services;
(v) The existence, availability, or provision of locations or sites
for vending machines, rack displays, or any other sales display;
(vi) The nature or availability of any services offered to secure
any retail outlets, accounts, sites, locations, or displays;
(vii) That any person owns or operates a business venture purchased
from the seller; or
(viii) That a person can give an accurate, independent, description
of his or her experience as an owner or operator of a business venture
purchased from the seller;
(4) Obtaining or submitting for payment from a person's checking,
savings, share, or similar account, a check, draft, or other form of
negotiable paper without the person's express written authorization; or
(5) Obtaining any amount of money from a person through any means,
unless such an amount is expressly authorized by the person.
(b) Assisting and facilitating. (1) It is a deceptive telemarketing
act or practice and a violation of this Rule for a person to provide
substantial assistance or support to any seller or telemarketer when
that person knows or should know that the seller or telemarketer is
engaged in any act or practice that violates this Rule.
(2) Substantial assistance or support to telemarketing for purposes
of Sec. 310.3(b)(1) includes, but is not limited to, the following:
(i) Providing lists of customer contacts to a seller or
telemarketer;
(ii) Receiving consideration in exchange for providing a
testimonial, endorsement, certification, appraisal, or financing, or
for serving as a reference, with respect to any business venture or
investment opportunity offered by a seller;
(iii) Securing retail outlets or accounts for the sale of goods or
services, or locations or sites for vending machines, rack displays, or
any other sales displays, used in connection with any business venture;
(iv) Providing any certificate or coupon which may later be
exchanged for goods or services; or
(v) Providing any script, advertising, brochure, promotional
material, or direct marketing piece to be used in telemarketing.
(c) Credit card laundering. It is a deceptive telemarketing act or
practice, and a violation of this Rule, for:
(1) A merchant to present to or deposit into, or cause another to
present to or deposit into, the credit card system for payment, a
credit card sales draft generated by a telemarketing transaction that
is not the result of a telemarketing credit card transaction between
the cardholder and the merchant;
(2) Any person to employ, solicit, or otherwise cause a merchant or
an employee, representative, or agent of the merchant, to present to or
deposit into the credit card system for payment, a credit card sales
draft generated by a telemarketing transaction that is not the result
of a telemarketing credit card transaction between the cardholder and
the merchant; or
(3) Any person to obtain access to the credit card system through
the use of a business relationship or an affiliation with a merchant,
when such access is not authorized by the merchant agreement.
Sec. 310.4 Abusive telemarketing acts or practices.
(a) Abusive conduct generally. It is an abusive telemarketing act
or practice and a violation of this Rule for any seller or telemarketer
to engage in the following conduct:
(1) Threats or intimidation;
(2) Providing for or directing a courier to pick up payment from a
customer;
(3) Requesting or receiving payment of any fee or consideration for
goods or services represented to improve a person's credit history,
credit record, or credit rating until:
(i) The term of the contract, or time frame in which the seller has
represented all of the goods or services will be provided to that
person, has expired; and
(ii) The seller has provided the person with documentation:
(A) From the original furnisher or provider of the information to
the consumer reporting agency, confirming that the promised results
have been achieved; or
(B) In the form of a consumer report from the consumer reporting
agency demonstrating that the promised results have been achieved, such
report having been issued more than six months after the results were
achieved. Nothing in this Rule alters the requirement in the Fair
Credit Reporting Act, 15 U.S.C. 1681, that a consumer report may only
be obtained for a specified permissible purpose.
(4) Requesting or receiving payment of any fee or consideration for
goods or services represented to recover or otherwise assist in the
return of money or any other item of value to a person until three (3)
days after such money or other item is delivered to that person. This
provision shall not apply to goods or services provided to a person by
a licensed attorney or licensed private investigator pursuant to a
written agreement with that person;
(5) Requesting or receiving payment of any fee or consideration in
advance of obtaining a loan or any credit service when the seller or
telemarketer has guaranteed or represented a high likelihood of success
in obtaining or [[Page 8331]] arranging a loan or credit service for a
person;
(6) Failing to distribute all prizes or purported prizes offered in
a prize promotion, within 18 months of the initial offer to any person;
(7) Offering or selling goods or services through a telephone
solicitation to a person who previously has paid the same seller for
goods or services, until all terms and conditions of the initial
transaction have been fulfilled, including but not limited to the
distribution of all prizes or premiums offered in conjunction with the
initial transaction; or
(8) Identifying a person as a reference for a business venture
unless:
(i) Such person has actually purchased the business venture;
(ii) Such person has operated that business venture for a period of
at least six (6) months, or the seller or telemarketer discloses the
length of time the person has operated such business venture; and
(iii) Such person does not receive consideration for any statements
made to prospective business venture purchasers.
(b) Pattern of calls. (1) It is an abusive telemarketing act or
practice and a violation of this Rule for a telemarketer to engage in,
or for a seller to cause a telemarketer to engage in, the following
conduct:
(i) Without a person's prior consent, calling that person's
residence to offer, offer for sale, or sell, on behalf of the same
seller, the same or similar goods or services more than once within any
three (3) month period. This requirement does not apply to attempted
calls which do not reach a person or to calls made solely to verify a
previous telephone sale; or
(ii) Calling a person's residence when that person previously has
stated that he or she does not wish to receive telephone solicitations
made by or on behalf of the seller whose goods or services are being
offered.
(2) A seller or telemarketer will not be liable for violating
Sec. 310.4(b)(1) once in any calendar year per person called if:
(i) It has established and implemented written procedures to comply
with Sec. 310.4(b)(1) (i) and (ii);
(ii) It has trained its personnel in the procedures established
pursuant to Sec. 310.4(b)(2)(i);
(iii) The seller, or the telemarketer acting on behalf of the
seller, has maintained and recorded lists of persons who may not be
contacted, in compliance with Sec. 310.4(b)(1) (i) and (ii); and
(iv) Any subsequent call is the result of administrative error.
(c) Calling time restrictions. Without the prior consent of a
person, it is an abusive telemarketing act or practice and a violation
of this Rule for a telemarketer to engage in telephone solicitations to
a person's residence at any time other than between 8 a.m. and 9 p.m.
local time at the called person's location.
(d) Required oral disclosures. It is an abusive telemarketing act
or practice and a violation of this Rule for a telemarketer to fail to
make any oral disclosures set forth in this section.
(1) All telephone solicitations shall begin by disclosing:
(i) The caller's true first and last name, the seller's name, and
that the purpose of the call is to sell goods or services; or
(ii) If a telephone solicitation includes a charitable
solicitation, the caller's true first and last name, the telemarketer's
name, the telemarketer's status as a paid professional fundraiser, the
seller's name, that the purpose of the call is to solicit charitable
donations, and if other goods or services are offered, that the purpose
of the call is also to sell goods or services.
(2) If a caller verifies a telemarketing sale, the caller verifying
the sale must repeat the disclosures required under Sec. 310.3(a)(1).
(3) Any telemarketing which includes a prize promotion must
disclose, in addition to all other disclosures required under this
Section, the following information:
(i) That no purchase or payment is necessary to win;
(ii) The verifiable retail sales price of each prize offered or a
statement that the retail sales price of the prize offered is less than
$20.00; and
(iii) The odds of winning each prize offered.
(4) Any telemarketing which includes an offer of a premium must
disclose, in addition to all other disclosures required under this
Section, the verifiable retail sales price of such premium or
comparable item, or a statement that the retail sales price of the
premium is less than $20.00.
(e) Written disclosures/acknowledgements. It is an abusive
telemarketing act or practice and a violation of this Rule for a seller
or telemarketer to fail to make any written disclosures set forth in
this section.
(1) Prize promotions. If a seller or telemarketer conducts a prize
promotion, the seller or telemarketer may not request that a person pay
for goods or services, or accept a payment in any form from a person,
without first providing the person with a written disclosure, in
duplicate, and receiving from the person a written acknowledgement that
the person has read the disclosure. The information shall be disclosed
on one page, in not less than 10-point type (unless otherwise noted),
and of a color or shade that readily contrasts with the background of
the notice. This disclosure shall be sent in an envelope that contains
no writing representing that the person to whom the envelope is
addressed has been selected or may be eligible to receive a prize and
shall contain no other enclosures except for a return envelope, if the
seller or telemarketer wishes to include such an envelope. This
disclosure must contain the following information:
(i) The seller's legal name and telephone number, and the complete
street address of the seller's principal place of business;
(ii) If the seller has been in operation under any other name(s),
each such name and the length of time the seller has operated under
each name;
(iii) The verifiable retail sales price of each prize offered or a
statement that the retail sales price of the prize offered is less than
$20.00;
(iv) The odds of winning each prize offered and the number of
persons who will receive each prize;
(v) The total amount and description of any shipping or handling
fees or any other charges that must be paid to receive or use a prize;
(vi) A complete description of any restrictions, conditions, or
limitations on eligibility to receive or use a prize, including all
steps a person must take to receive the most valuable prize offered;
(vii) The statement: ``No purchase or payment is necessary to
win,'' with a description of the no-purchase entry method;
(viii) A statement that a list of winners is available and the
address to which a person may write to obtain such a list;
(ix) A statement that it is a violation of this Rule for the seller
to accept payment in any form unless the seller has received from the
person the written disclosure acknowledgment required pursuant to
Sec. 310.4(e)(1); and
(x) The statement: ``I have read and understand this disclosure,''
in at least 12-point bold face type immediately preceding a signature
block.
(2) Investment opportunities. (i) If a seller or telemarketer
offers for sale any investment opportunity, the seller or telemarketer
may not request that a person pay, or accept a payment in any form from
a person, for that investment opportunity without first providing the
person with a written disclosure, in [[Page 8332]] duplicate, and
receiving from the person a written acknowledgement that the person has
read the disclosure. The information shall be disclosed in not less
than 10-point type (unless otherwise noted), of a color or shade that
readily contrasts with the background of the notice, and segregated
from all other information. This disclosure shall be sent in an
envelope that contains no other enclosures except for a return
envelope, if the seller or telemarketer wishes to include such an
envelope. This disclosure must contain the following information:
(A) The seller's legal name and telephone number, and the complete
street address of the seller's principal place of business;
(B) If the seller has been in operation under any other name(s),
each such name and the length of time the seller has operated under
each name;
(C) The complete cost to make the investment and a detailed list of
all present charges and any anticipated future charges;
(D) A description of all known risks associated with the investment
opportunity, including the possibility that additional payments might
be required for a person purchasing the investment opportunity to
retain that person's interest in the investment opportunity, to realize
the projected or stated returns of the investment opportunity, to
prevent total loss of the investment opportunity, or for any other
reason;
(E) The length of time the seller has been in business and has
offered the particular investment opportunity;
(F) A statement disclosing whether or not the seller is licensed
and, if so, with whom, the type of license, and the length of time the
seller has held such license;
(G) A statement that it is a violation of this Rule for the seller
to effect an investment transaction unless the seller has received from
the person the written disclosure acknowledgement required pursuant to
Sec. 310.4(e)(2); and
(H) The statement: ``I have read and understand this disclosure,''
in at least 12-point bold face type immediately preceding a signature
block.
(ii) If a seller or telemarketer offers for sale any investment
opportunity involving tangible assets, the following additional
information must be included in the written disclosure set forth in
Sec. 310.4(e)(2)(i):
(A) The percentage markup that the seller places on the item above
its own cost in acquiring the item; and
(B) An estimate of the value that persons are likely to receive if
they were to liquidate the asset through a market sale immediately
following the purchase. All such estimates must be substantiated by
competent and reliable evidence.
(iii) If a seller or telemarketer offers for sale any investment
opportunity involving tangible assets sold on credit or leverage, the
following additional information, as well as the information set forth
in Sec. 310.4(e)(2)(ii), must be included in the written disclosure set
forth in Sec. 310.4(e)(2)(i):
(A) The percentage of a person's down payment that would be devoted
to fees and costs by the end of the first six months after the
investment is made;
(B) The percentage of a person's down payment that would be devoted
to fees and costs by the end of the first year after the investment is
made; and
(C) A statement that all such investment opportunities are
extremely risky.
(iv) If a seller or telemarketer offers for sale any investment
opportunity involving the acquisition of government-issued licenses or
interests in businesses derived from the possession of such licenses,
the following additional information must be included in the written
disclosure set forth in Sec. 310.4(e)(2)(i):
(A) All material terms and limitations of any government-issued
license(s) that serve as the basis for the investment opportunity,
including but not limited to whether and to whom the license or
licenses have been issued;
(B) The percentage of the person's payment that will be used to
acquire any applicable license(s) from the licensee(s) or from any
person or entity not affiliated in any way with the seller; and
(C) The percentage of the person's payment that will be used to
capitalize any business derived from such license(s).
(f) Distribution of lists. It is an abusive telemarketing act or
practice and a violation of this Rule for any person who is subject to
any federal court order resolving a case in which the complaint alleged
a violation of Secs. 310.3, 310.4(a) or 310.4(e) of this Rule, and the
court did not dismiss or strike all such allegations from the case, to
sell, rent, publish, or distribute any list of customer contacts from
that person.
Sec. 310.5 Recordkeeping requirements.
(a) Any seller or telemarketer shall keep, for a period of 24
months from the date the record is produced, the following records
relating to its telemarketing activities:
(1) All advertising, brochures, telemarketing scripts, and
promotional materials;
(2) The name and address of each prize recipient and the prize
awarded;
(3) The name and address of each customer, the goods or services
purchased, the date such goods or services were shipped or provided,
and the amount paid by the customer for the goods or services;
(4) The name, home address and telephone number, and job title(s)
for all current and former employees directly involved in telephone
sales; and
(5) Any written notices, disclosures, and acknowledgements required
to be provided or received under this Rule.
(b) Failure to keep all records required by Sec. 310.5(a) shall be
a violation of this Rule. The seller and telemarketer calling on behalf
of the seller are not required to keep duplicative records if the
seller and telemarketer have entered into a written agreement
allocating responsibility for the recordkeeping required by this
Section. When a seller and telemarketer have entered into such an
agreement, the terms of that agreement shall govern. If the agreement
is unclear as to whom must maintain any required record(s), the seller
shall be responsible for keeping such record(s).
(c) In the event of any dissolution or termination of the seller's
or telemarketer's business, the principal of that seller or
telemarketer shall maintain all records as required under this Section.
In the event of any sale, assignment, succession, or other change in
ownership of the seller's or telemarketer's business, the successor
business shall maintain all records required under this Section.
Sec. 310.6 Exemptions.
The following acts or practices are exempt from this Rule:
(a) The solicitation of sales by any person who engages in fewer
than ten (10) sales each year through the use of the telephone;
(b) Telephonic contacts between businesses, except such contacts
involving the sale of office or cleaning supplies or the inducement of
payment for any charitable service promoted in conjunction with an
offer of a prize, chance to win a prize, or the opportunity to purchase
any goods or services; and
(c) A telephonic contact made solely by a person when there has
been no initial sales contact directed to that particular person, by
telephone or otherwise, from the seller or telemarketer; provided,
however, that this exemption does not apply to such
[[Page 8333]] contacts related to employment services where the seller
or telemarketer requests or receives payment prior to providing the
promised services, business ventures, investment opportunities, prize
promotions, or credit-related programs.
Sec. 310.7 Actions by States and private persons.
Any attorney general or other officer of a State authorized by the
State to bring an action under the Telemarketing and Consumer Fraud and
Abuse Prevention Act, and any private person who brings an action under
that Act, shall serve written notice of its action on the Commission,
if feasible, prior to its initiating an action under this Rule. The
notice shall be sent to the Office of the Director, Bureau of Consumer
Protection, Federal Trade Commission, Washington, D.C. 20580, and shall
include a copy of the State's or private person's complaint and any
other pleadings to be filed with the court. If prior notice is not
feasible, the State or private person shall serve the Commission with
the required notice immediately upon instituting its action.
Sec. 310.8 Federal preemption.
Nothing in this Rule shall be construed to preempt any State law
that is not in direct conflict with any provision of this Rule.
Sec. 310.9 Severability.
The provisions of this Rule are separate and severable from one
another. If any provision is stayed or determined to be invalid, it is
the Commission's intention that the remaining provisions shall continue
in effect.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 95-3537 Filed 2-13-95; 8:45 am]
BILLING CODE 6750-01-P
