[Federal Register Volume 60, Number 110 (Thursday, June 8, 1995)]
[Proposed Rules]
[Pages 30406-30428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13814]
[[Page 30405]]
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Part III
Federal Trade Commission
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16 CFR Part 310
Telemarketing Sales Rule; Proposed Rule
Federal Register / Vol. 60, No. 110 / Thursday, June 8, 1995 /
Proposed Rules
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[[Page 30406]]
FEDERAL TRADE COMMISSION
16 CFR Part 310
Telemarketing Sales Rule
AGENCY: Federal Trade Commission.
ACTION: Revised notice of proposed rulemaking.
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SUMMARY: In this document, the Federal Trade Commission (``FTC'' or
``Commission'') issues a revised notice of proposed rulemaking to
implement the Telemarketing and Consumer Fraud and Abuse Prevention Act
(``Telemarketing Act'' or ``the Act''). Section 3 of that 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 June 30, 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.
ADDRESSES: Six paper copies of each written comment should be submitted
to the Office of the Secretary, Room 159, Federal Trade Commission,
Washington, D.C. 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 of comments in electronic form. Submissions should be
captioned: ``Proposed Telemarketing Sales Rule,'' FTC File No. R411001.
FOR FURTHER INFORMATION CONTACT: Judith M. Nixon, (202) 326-3173, or
David M. Torok, (202) 326-3140, Division of Marketing Practices, Bureau
of Consumer Protection, Federal Trade Commission, Washington, D.C.
20580.
SUPPLEMENTARY INFORMATION:
Section A. Background
On August 16, 1994, the President signed into law the Telemarketing
Act,\1\ which directs the Commission to prescribe rules, within 365
days of enactment of the Act, prohibiting deceptive and abusive
telemarketing acts or practices. The Commission published a notice of
proposed rulemaking (``NPR'') in the Federal Register on February 14,
1995.\2\
\1\ 15 U.S.C. 6101-08.
\2\ 60 FR 8313-33.
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In response to the NPR, the Commission received over 300 comments
from industry, law enforcement and consumer representatives, as well as
from individual consumers and businesses.\3\ In general, consumers
commented that the initially proposed Rule did not go far enough to
stop unwanted telemarketing calls. Law enforcement officials uniformly
praised the Commission's proposal for its thorough and useful treatment
of the various means employed by fraudulent telemarketers to get
consumers' money through deception or abuse. Finally, most industry
representatives generally maintained that the initially proposed Rule
unnecessarily burdened legitimate businesses, adding needless costs
through overbroad proposals that failed to aim specifically at
deceptive and abusive telemarketing practices.
\3\ A list of the commenters, and the acronyms which will be
used to identify each commenter in this notice, is appended to
Section A of this notice.
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Between April 18 and 20, 1995, staff of the Commission conducted a
public workshop conference in Chicago, Illinois. Twenty associations or
individual businesses, each with an affected interest and ability to
represent others with similar interests, were selected to engage in a
roundtable discussion.\4\ Howard Bellman served as the conference
facilitator. Participants discussed various aspects of the initially
proposed Rule, addressed each other's comments and questions, and
responded to questions from Commission staff members. The conference
was open to the public, and more than 150 observers attended. Oral
comments from members of the public were invited each day, and 37
individuals spoke during the course of the three-day conference. The
entire proceeding was transcribed, and the transcript was placed on the
public record.\5\
\4\ The selected participants were: AARP, ATA, ATFA, APAC, ANA,
DMA, DSA--Nev., DSA, EMA, ISA, ICTA, MPA, Monex, NAAG, NACAA, NAPA,
NCL, NRF, PMAA, and USPS.
\5\ References to the conference transcript are cited as ``Tr.''
followed by the appropriate page designation. References to comments
are cited as ``[acronym of commenter] at [page number].''
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On May 3, 1995, Commission staff briefed all the Commissioners, in
an open meeting, about the rulemaking process, the issues raised in the
written comments and the public workshop, and stated possible
approaches to address the issues commenters raised. The briefing was
transcribed and the transcript was placed on the public record. The
entire public record to date, including the comments, the conference
transcript, and the Commission open briefing transcript is available on
CD-ROM and has been placed on the Internet.\6\
\6\ The FTC gopher server address is CONSUMER.FTC.GOV 2416. For
World Wide Web access, the URL is GOPHER://CONSUMER.FTC.GOV:2416.
Based on the Act's legislative history, the written comments
received, and the information learned at the workshop conference, the
Commission has decided to modify its regulatory approach in this
revised proposed Rule. The Commission believes this modification is
necessary to effectuate appropriately Congress' directive that the FTC
in its rulemaking ``develop criteria of behavior'' and ``issue a * * *
rule [that is] flexible enough to encompass the changing nature of
[deceptive] activity, while at the same time providing telemarketers
with guidance as to the general nature of the prohibited conduct.'' \7\
The Commission's revised approach addresses many commenters' concerns
that the initially proposed Rule cast too broad a net and imposed
unnecessary burdens on the legitimate telemarketing industry without
adequately focussing on deceptive and abusive telemarketing practices.
Additionally, the revised proposed Rule addresses law enforcement
concerns that the Rule needs to provide enough enforcement flexibility
to reach deceptive and abusive telemarketing acts or practices
currently unknown. The Commission believes additional public comment on
a revised proposal will assist in producing a final Rule that most
effectively prohibits deceptive and abusive telemarketing practices,
while not unduly burdening legitimate businesses.
\7\ H. R. Rep. No. 20, 103rd Cong., 1st Sess. 8; S. Rep. No. 80,
103rd Cong., 1st Sess. 9 (hereinafter referred to as ``House
Report'' and ``Senate Report,'' respectively).
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Section B of this notice discusses, on a section-by-section basis,
the Commission's revised proposed Rule.
Appendix
List of Commenters and Acronyms
Acronym and Commenter
ADS ADS Teleservices
ADVANTA Advanta Corp.
ALIC Allstate Life Insurance Co.
AMCI Allstate Motor Club., Inc.
A-MARK A-Mark Precious Metals, Inc.
AAF American Advertising Federation [[Page 30407]]
AAAA American Association of Advertising Agencies, Inc.
AARP American Association of Retired Persons
ABA American Bankers Association
ACRA American Car Rental Association
ACA American Cemetery Association
ADC American Distributing Company
AMEX American Express Company
AFSA American Financial Services Association
AIG American Impact Group
APN American Publishers Network, Inc.
ARDA American Resort Development Association
ASAE American Society of Association Executives
ASTA American Society of Travel Agents
ATA American Telemarketing Association
ATFA American Telephone Fundraisers Association
AWMI American West Marketing, Inc.--Barry Engels
AWMI American West Marketing, Inc.--Sandra Sawyer
AMERINET AmeriNet, Inc.
ANDREWS Andrews Satellite & Home Theater
ANN ARBOR Ann Arbor News
APAC APAC TeleServices
ABI Archbold Buckeye, Inc.
AMOC Arizona Mail Order Company, Inc.
ARA Arizona Retailers Association
A&H Arter & Hadden
ACB Associated Credit Bureaus, Inc.
AAP Association of American Publishers
AITS Association of Independent Television Stations, Inc.
ANA Association of National Advertisers
ATLANTA Atlanta Journal & Atlanta Constitution
AT&T AT&T Corp.
AUTOSCRIBE AutoScribe Corporation
BAGGS Baggs, Andrew
BAGWELL Bagwell, Linda L.
BOB Bank of Boston
BAY CITY Bay City Times
BELLEVILLE Belleville News-Democrat
BMCA Beneficial Management Corporation of America
BNC Birmingham News Company
BRADLEY Bradley, MJP
BRANTLEY Brantley, Lamar
BREWSTER Brewster, The Honorable Bill K.
BFC Brown Forman Corporation
BPIA Business Products Industry Association
SAMPLER Business Sampler Advertising, Inc.
BSA Business Software Alliance
CAPITAL Capital Press
CAPUTO Caputo, Harriet Q.
CCA Career College Association
CME Center for Media Education
CHASE Chase Manhattan Bank (USA)
CHEMICAL Chemical Bank
CHERNIKOFF Chernikoff, J.D.
CDI Circulation Development, Inc
CITICORP Citicorp/Citibank
COALITION ``Coalition''--various companies
CPA Colorado Press Association
CHC Columbia House Company
COMCAST Comcast Corporation/Jones Intercable
CA Commercial Appeal
CBA Consumer Bankers Association
CFA Consumer Federation of America
CONWAY Conway National Bank
CORNELL Cornell Group
CMOR Council for Marketing and Opinion Research
COX Cox Newspapers, Inc.
CRILLY Crilly, Thomas W.
CUCI CUC International
DCR Daily Court Review
DAILY NEWS Daily News
DMBE Department of Marketing and Business Environment, Florida
International University
DMI DialAmerica Marketing, Inc.
DMT&H Dickinson, Mackaman, Tyler & Hagan, P.C.
DW&Z Dierman, Wortley & Zola, Inc.
DSA-NEV. Direct Sales Association of Nevada
DSI Direct Sales International (2 copies of letter, 1 of comment)
DMA Direct Marketing Association
DMSI Direct Marketing Services, Inc.
DSA Direct Selling Association
DIVERSIFIED Diversified Marketing Service, Inc.
DONREY Donrey Media Group
DOUBLEDAY Doubleday Book & Music
DOW JONES Dow Jones & Co., Inc.
OREGONIAN East Oregonian
BAUER Eddie Bauer, Inc.
EDMUND Edmund Scientific Company
EMA Electronic Messaging Association
EMMONS Emmons, Ethel B.
EQUIFAX Equifax Credit Information Services, Inc.
EHRLICH Ehrlich, The Honorable Robert L., Jr.
ERIE Erie Construction Mid-West, Inc.
ERNST Ernst, Michael
F&W F&W Publications
FedEx Federal Express
FRB Federal Reserve Banks
FRB-SF Federal Reserve Bank of San Francisco
FINGERHUT The Fingerhut Companies
FLINT Flint Journal
FORNEY Forney Messenger Inc.
FRANKLIN Franklin Mint
GABRIEL Gabriel, Mrs. Harry J., Jr.
GANNET Gannett Co., Inc.
GE GE Appliances
GA OCA Georgia Office of Consumer Affairs
GRA Georgia Retail Association
GIBSON Gibson, Stewart & Jean
GGP Gift Gallery Promotions
GCM Good Cents Marketing
GREENE Greene, Russ
GRIDER Grider, Felicia
GROLIER Grolier TeleMarketing, Inc.
GHA Group Health Association of America
GUTHY Guthy-Renker
HHDM Harte-Hanks Direct Marketing
HHMS Harte-Hanks Marketing Services
HAWES Hawes Center, Inc.
HEAD Head, W.L.
HEARST Hearst Magazines
HNM&T Hearst New Media & Technology
HELMS Helms, The Honorable Jesse
HERRERA Herrera, Barbara
HERTZ Hertz Corporation
HSN Home Shopping Network
HOUSEHOLD Household Bank
HFC Household Finance Corp.
HII Household International, Inc.
H&H Howe & Hutton, Ltd.--March 14 comment
H&H Howe & Hutton, Ltd.--March 30 comment
HUDSON Hudson City Savings Bank
HUNTINGTON Huntington National Bank
HUNTSVILLE Huntsville Times/Huntsville News
IDAG Idaho Attorney General
IMSP IMS Promotions
IRC Indiana Retail Council, Inc.
ICTA Industry Council for Tangible Assets
IMC InfoCision Management Corporation
INFOMALL Infomall TV Network
IMSI Infomercial Monitoring Service, Inc.
INSP Inspirational Network
ISA Interactive Services Association
IBM International Business Machines Corporation
IFI International Fabricare Institute
IFA International Franchise Association
IMS International Magazine Service of Northern California
IRL International Readers League of Indianapolis
IH Investment Hotlines
IA DOJ Iowa Department of Justice
ITI ITI Marketing Services, Inc.
PENNEY J.C. Penney Company, Inc.
JACKSON Jackson Citizen Patriot
RIVERS Joan Rivers Products, Inc.
JOHNSTON Johnston, Gloria
KALAMAZOO Kalamazoo Gazette
KAPLAN Kaplan, Jules
KIKENDALL Kikendall, Thomas J.
KLEID Kleid Company
KNIGHT Knight Ridder
KNOXVILLE Knoxville News Sentinel Co.--Mashburn
KNOXVILLE Knoxville News Sentinel Co.--Stevens
LANDMARK Landmark Community Newspapers, Inc.
LARK Lark In The Morning
LAURENZA Laurenza, Joseph
LCS LCS Direct Marketing Service
LEIBACHER Leibacher, Philip J. (2 copies)
LENOX Lenox, Inc.
LA TIMES The Los Angeles Times
LOWE'S Lowe's Studio
MPA Magazine Publishers of America
MSSC Magazine Subscription Sales Coalition
MRG Marketing Response Group & Laser Co., Inc.
MARKETLINK Marketlink
MARTIN Martin Direct
MASTERCARD Mastercard Int'l, Inc. & Visa USA, Inc.
MBNA MBNA America Bank, N.A.
MCI MCI Telecommunications Corporation
MCKNIGHT McKnight Management Company
MELLON Mellon Bank Corporation
MELTON Melton, Carol A.
MM Merchant Masters
MS Merchant Sampler
MGCB Merchants Gift Check Book
MGC Merchants Golden Checks
MP Merchants Promotions
M-I Messenger-Inquirer
MRA Michigan Retailers Association
MILLS Mills, Susan
MS PRESS The Mississippi Press [[Page 30408]]
MOPA Missouri Press Association
MORA Missouri Retailers Association
MOBILE Mobile Media
MPR Mobile Press Register
MONEX MONEX
WARD Montgomery Ward
MMC Moore Medical Corporation
MORSE Morse, Larry E.
MBAA Mortgage Bankers Association of America
MPG MPG Newspapers
MTD MTD Services
MURRAY Murray Ledger & Times
MUSKEGON Muskegon Chronicle
MUTUAL Mutual of Omaha Companies
NAAG National Association of Attorneys General
NACAA National Association of Consumer Agency Administrators
NAR National Association of Realtors
NAPA National Automated Payment Association
NAMA National Automatic Merchandising Association
NBR National Bank of the Redwoods
NCTA National Cable Television Association, Inc.
NCL National Consumers League
NCMC National Credit Management Corporation
NFIB National Federation of Independent Business
NFN National Federation of Nonprofits
NFA National Futures Association
NNA National Newspaper Association
NPS National Promotional Services
NRF National Retail Federation
NSF National Science Foundation
NB NationsBank
NIE Nationwide Insurance Enterprise
NPC Neighborhood Periodical Club
NETWORK Network Direct
NHI New Hampton, Inc.
NYSCPB New York State Consumer Protection Board
NYTC New York Times Company
NEWS News Publishing Company
NAA Newspaper Association of America
NIMA NIMA International
NORDSTROM Nordstrom
NARDA North American Retail Dealers Association
NASAA North American Securities Administrators Association
NYNEX NYNEX
OHIO Ohio Health Care Products, Inc.
OLAN Olan Mills, Inc.
GLOBE Old Globe
OPC Oregonian Publishing Company
ORKIN Orkin Lawn Care
ORKIN Orkin Maid
ORKIN Orkin Pest Control--March 23 comment
ORKIN Orkin Pest Control--March 30 comment
ORKIN Orkin Plantscaping
PACESETTER Pacesetter Corporation
PTG Pacific Telesis Group
PATRIOT Patriot News
PEPPERTREE Peppertree Resorts, Ltd.
PLP Personal Legal Plans
PETERSON,P Peterson, Phyllis G.
PETERSON,R Peterson, Rosie Marie
PPI Phone Programs Inc.
PLAIN Plain Dealer
Plantscaping (see Orkin)
PCI Private Citizen, Inc. (initial letter & comment)
Private Citizen (addendum)
PCH Programmers Clearing House
PMAA Promotional Marketing Association of America & Incentive
Federation
PRUDENTIAL Prudential Home Mortgage
PCH Publishers Clearing House
PDW Publishers Discount Warehouse--Barclay Fisher
PDW Publishers Discount Warehouse--Gina Lewis
PDW Publishers Discount Warehouse--J.B. Owen
PDW Publishers Discount Warehouse--David Rains
PDW Publishers Discount Warehouse--Jimmy Riggle
P&C Pullman & Comley
QUICKCARD QuickCard Systems
QVC QVC, Inc.
RDA Reader's Digest Association, Inc.
SEARCHLIGHT Record Searchlight--Kjellin
SEARCHLIGHT Record Searchlight--Dawson
REGAL COMM Regal Communications Corporation
REGAL GROUP Regal Group
REICHWEIN Reichwein, Kay
RPOA Resort Property Owners Association
RPI Resource Publications, Inc.
RICE Rice, Rodger D. and Barbara L.
RICH Rich, David G.
RITCHIE Ritchie Swimwear
RMH RMH Telemarketing
RODRIGUEZ Rodriguez, Ann
ROLLINS Rollins Inc. (2 copies)
RPS Rollins Protective Services
WEBER Ron Weber and Associates
ROTENBERG Rotenberg, Marion
SSI SafeCard Services, Inc.
SAGINAW Saginaw News
SFNA San Francisco Newspaper Agency
SEARS Sears Merchandise Group
SIASSR Securities Industry Association
SCIC Service Contract Industry Council (SCIC)
SHI Shop at Home
SHULMAN Shulman, Betty
SIGNATURE The Signature Group
S&S Simpson & Simpson, P.C.
SMITH Smith, R.
SDRA South Dakota Retailers Association
SBTC Southwestern Bell Telephone Company
SPIEGEL Spiegel, Inc.
SPRINT Sprint Corporation
STAR Star-Ledger
SIA Staten Island Advance
SMSI Strategic Marketing Specialists, Inc.
STUART Stuart News
S&W Sullivan & Worcester
SUN Sun Newspapers
SSE Superstar Satellite Entertainment
SUTTON Sutton Marketing
SYRACUSE Syracuse Newspapers
TALK800 Talk800
TMGI Telatron Marketing Group, Inc.
TELENATIONAL Telenational Marketing
TCPS Telephone Check Payment Systems
TPA Tennessee Press Association, Inc.
TEZANOS Tezanos, Maritza
TCI Thomas Cook, Inc.
TIEDT Tiedt, Thomas N.
TIMEWARNER Time Warner
T-I Times-Independent
TP Times Picayune
TITUS Titus, The Honorable Dina (2 letters)
TMG TMG (Television Marketing Group)
TMW TMW Marketing
TMO Total Marketing Outbound, Inc.
TUPPERWARE Tupperware Worldwide (2 copies)
TVMARKET TV Marketplace, Inc.
UCI United Color, Inc.
UPS United Parcel Service, Inc.
USTA United States Telephone Association
UMI Universal Media Inc.
USD University of San Diego, Center for Public Interest Law
USCE U.S. Coin Exchange
U.S. Coin Exchange (addendum)
USPS U.S. Postal Service
USWI US West, Inc.
VIACOM Viacom International
VINCENT Vincent, Chorey, Taylor & Feil
VIRGINIA Virginia State Corporation Commission
WACHOVIA
Wachovia Corporation
WASHINGTON The Washington Post
WAUGH Waugh, John C.
WTO West Telemarketing Outbound
WU Western Union
WESTVACO Westvaco, Corp.
WILLIAMS Williams Television Time
WTC Wilmington Trust Company
WILSON Wilson Daily Times
WINCHESTER Winchester Sun
WINDSOR Windsor Vineyards
WINONA Winona Post
WFNNB World Financial Network National Bank
YOUNGBERG Youngberg, Arthur D.
Section B. Discussion of the Revised Proposed Rule
Section 310.1 Scope of the Regulations
Section 310.1 of the revised proposed Rule makes clear that this
Rule does not apply to any activity excluded from the Commission's
jurisdiction.8 Thus, pursuant to the following jurisdictional
limitations set forth in Section 5(a)(2) of the Federal Trade
Commission Act [''FTC Act''],9 this Rule does not apply to:
\8\ The Telemarketing Act states that ``no activity which is
outside the jurisdiction of the [FTC] Act shall be affected by this
Act.'' 15 U.S.C. 6105(a).
\9\ 15 U.S.C. 45(a)(2).
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Banks, savings and loan institutions described in section
18(f)(3),[10] Federal credit unions described in section
18(f)(4),[11] common carriers subject to the Acts to regulate
commerce, air carriers and foreign air carriers subject to the
Federal Aviation Act of 1958, and persons, partnerships, or
corporations insofar as they are subject to the Packers and
Stockyards Act, 1921, as [[Page 30409]] amended, except as provided
in Section 406(b) of said Act.
\10\ Section 18(f)(3) of the FTC Act, 15 U.S.C. 57(f)(3),
describes ``savings associations as defined in section 3 of the
Federal Deposit Insurance Act,'' 12 U.S.C. 1811 et seq.
\11\ Section 18(f)(4) of the FTC Act, 15 U.S.C. 57(f)(4),
describes ``Federal credit unions under sections 120 and 206 of the
Federal Credit Union Act (12 U.S.C. 1766 and 1786).''
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In addition, this Rule does not apply to any entity that is not
``organized to carry on business for its own profit or that of its
members.'' 12 Finally, this Rule does not apply to any entity
engaged in the business of insurance to the extent that such business
is regulated by State law.13
\12\ See 15 U.S.C. 44.
\13\ See Section 2 of the McCarran-Ferguson Act, 15 U.S.C.
1012(b).
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Section 310.2 Definitions
The revised proposed Rule amends, adds, or deletes certain
definitions. The following definitions were deleted: ``business
venture,'' ``goods or services,'' ``premium,'' and ``verifiable retail
sales price.'' The Commission amended the definitions of: ``credit
card,'' ``credit card sales draft,'' ``credit card system,''
``investment opportunity,'' ``merchant,'' ``merchant agreement,''
``prize,'' ``prize promotion,'' ``seller,'' ``telemarketer,''
``telemarketing, and ``telephone solicitation.'' A definition for the
term ``credit'' was added. Each of these changes, as well as a
discussion of the definition of the term ``material,'' are discussed
below.
1. Business venture. Section 310.2(a) of the initially proposed
Rule defined the term ``business venture'' as any ``business
arrangement, however denominated, including * * * `a franchise' as * *
* defined in the Commission's Franchise Rule * * *'' 14 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, trade name, advertising, or other commercial
symbol); and (2) the promise of more than nominal assistance * * * 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.'' 15 This definition came into play
in Section 310.3(a)(3) of the initially proposed Rule, which prohibited
sellers or telemarketers from misrepresenting important information in
connection with the offer, offer for sale or sale of any business
venture. In addition, the initially proposed rule, at Section
310.4(a)(8), prohibited certain abusive practices concerning the use of
shills in the sale of business ventures.
\14\ The term ``franchise'' is defined in the FTC's ``Franchise
Rule,'' 16 CFR 436.2(a).
\15\ 60 FR 8328.
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The Commission's Franchise Rule contains requirements and
prohibitions that apply to franchises and business opportunities.
Subsequent to the publication of the NPR in this proceeding, the
Commission issued a request for comments on the Franchise Rule as part
of its periodic regulatory review of Commission trade regulation rules
and guides.16 The Commission believes it is more appropriate to
consider within the framework of that review process whether any new
regulatory action is needed to address the sale of business ventures.
Following this approach, the Commission ensures that any new regulatory
requirement or prohibition applicable to franchises or business
ventures will be codified in one regulation--the Franchise Rule--not
spread out over two separate Rules. Accordingly, the definition of
``business venture,'' as well as the Sections of the initially proposed
Rule prohibiting misrepresentations and abusive practices described
above, have been deleted from the revised proposed Rule.
\16\ 60 FR 17656 (April 7, 1995).
2. Credit-related definitions. The initially proposed Rule defined
various credit-related terms that are used primarily in Section
310.3(c) relating to credit card laundering. These terms include
``acquirer,'' ``cardholder,'' ``credit card,'' ``credit card sales
draft,'' ``credit card system,'' ``merchant,'' and ``merchant
agreement.'' Very few commenters expressed concern about the foregoing
proposed definitions, but some did suggest minor technical changes to
reflect more accurately the credit card industry's terminology and
practices.17 Based on those comments, the Commission proposes the
following changes.
\17\ See generally MasterCard; NAAG; USPS; NCL.
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The Commission proposes adding under Section 310.2(e) a definition
of the term ``credit'' to mean ``the right granted by a creditor to a
debtor to defer payment of debt or to incur debt and defer its
payment.'' This definition has been added to clarify the scope of
Section 310.3(c) relating to credit card laundering. It was apparent
from several comments that clarification was necessary. Some commenters
wanted to include all electronic payment systems under credit card
laundering.18 Based on the plain language of the statute and its
legislative history,19 however, Congress clearly meant to prohibit
credit card laundering predicated upon the definition of ``credit''
used throughout the consumer credit statutes, and did not contemplate
coverage of all electronic payment systems. Therefore, the proposed
definition of ``credit'' tracks the statutory definition of ``credit''
under the Truth in Lending Act [``TILA''],20 conforming the scope
of Section 310.3(c) to that intended by Congress.
\18\ See, e.g., MasterCard at 5.
\19\ See generally House Report at 2; Senate Report at 2, 10.
\20\ 15 U.S.C. 1603(e).
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Based on comments similar to those that prompted the addition of
the definition of the term ``credit,'' the Commission has modified the
term ``credit card'' in Section 310.2(f) to make it consistent with the
term as defined in the TILA, thereby explicitly limiting Section
310.3(c) to credit card laundering. The revised definition of ``credit
card'' states: ``Credit card means any card, plate, coupon book, or
other credit device existing for the purpose of obtaining money,
property, labor, or services on credit.'' The revised definition is
identical to the statutory definition of ``credit card'' contained in
the TILA.21
\21\ 15 U.S.C. 1603(k).
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The Commission has revised Section 310.2(g) defining the term
``credit card sales draft'' to drop any reference to specific forms of
records. The revised definition states: ``Credit card sales draft means
any record or evidence of a credit card transaction.'' This revision is
designed to be flexible enough to anticipate future technological
changes in how credit card transactions are handled. The modification
is not intended to contract the range of recordkeeping formats that
would be acceptable under the Rule.
The Commission also has modified the definition of the term
``credit card system'' in Section 310.2(h) to address concerns Visa and
MasterCard raised that the initially proposed definition could be
construed to cover any system put in place, including a system put in
place by a deceptive telemarketer.22 Visa and MasterCard suggested
language that would preclude such an outcome by clarifying the
intention to include only a credit card system to process credit card
transactions involving credit cards issued or licensed by the credit
card system operator. The Commission agrees with the observations and
suggested language advanced by Visa and MasterCard. The revised
proposed definition states: ``Credit card system means any method or
procedure used to process credit card transactions involving credit
cards issued or licensed by the operator of that system.''
\22\ See MasterCard at 6.
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In Sections 310.2 (l) and (m),23 the Commission has revised
the definitions of ``merchant'' and ``merchant agreement.'' In the
initially proposed Rule, these definitions used the phrase
[[Page 30410]] ``honor or accept, transmit or process credit cards in
payment for goods or services.'' Visa's and MasterCard's comments
pointed out that, according to prevailing industry usages, a merchant
``honors or accepts'' a credit card for payment, but does not
``transmit or process'' credit cards. By the same token, a merchant
``transmits or processes'' credit card payments, but does not ``honor
or accept'' credit card payments.24 Therefore, the language of
these definitions has been redrafted to reflect more precisely these
distinctions.
\23\ Initially proposed Rule Sections 310.2 (m) and (n),
respectively.
\24\ See MasterCard at 6.
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3. Goods or services. Many commenters expressed confusion over the
scope of the definition of the term ``goods or services.'' 25 The
Commission initially included a definition of ``goods or services''
26 intending to clarify that all tangible and intangible goods and
services are covered under the initially proposed Rule, including
leases, licenses, memberships, and certain charitable solicitations.
Based on the confusion that this attempt at ``clarification''
engendered, the Commission has deleted the definition of ``goods or
services'' from the revised proposed Rule. That deletion does not
reflect any intention to contract the scope of coverage of the Rule;
nor does it mean that any of the foregoing goods or services and
similar intangible goods or services are not covered under the Rule.
\25\ See, e.g., IFI at 1-2; ATFA at 8-12.
\26\ Initially proposed Rule Section 310.2(j).
4. Investment opportunity. The initially proposed Rule defined the
term ``investment opportunity'' 27 to include ``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.'' 28 A number of
commenters suggested that this definition should be based solely on the
objective test set forth in the second part of the definition; namely,
the representations made by the seller.29 In this way, sellers
will be given clear notice that their products are covered by the Rule.
These commenters believed that the first part of the definition, based
on the customer's subjective intent in making a purchase, should be
eliminated. The Commission agrees with this suggestion, and the revised
proposed definition is now based solely on the express or implied
representations about income, profit or appreciation.
\27\ Initially proposed Rule Section 310.2(k).
\28\ As noted in the NPR, Sections 3(d) and (e) of the
Telemarketing Act, 15 U.S.C. 6102(d) and (e), 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.
\29\ E.g., ICTA at 28-30; Monex at 6; A-Mark at 2-4.
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The initially proposed definition also expressly stated that 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.'' Upon further
consideration, the Commission believes this clause is unnecessary
because government-issued licenses or interests derived from such
licenses are indisputably within the jurisdiction of the Commission.
The Commission therefore has deleted the foregoing extraneous clause
from the revised proposed Rule, but has added clarification that the
definition of the term, ``investment opportunity'' does not include
``sales of franchises subject to the Commission's [Franchise Rule]
(cite omitted).''
5. Material. Some commenters expressed uncertainty as to what
specifically is meant by the term ``material,'' as used in Section
310.2(k).30 The Commission intends this term and its definition to
comport with the Commission's Deception Statement and established
Commission precedent. Cliffdale Associates, 103 FTC 110 (1984);
Thompson Medical Co., 104 FTC 648 (1984), aff'd, 791 F.2d 189 (D.C.
Cir. 1986), cert. denied, 107 S.Ct. 1289 (1987); and the Commission's
Deception Statement attached as an appendix to Cliffdale Associates.
The Commission believes that further explanation of the term in the
Rule is unnecessary given the comprehensible guidance in the cited case
law and policy statement.
\30\ See generally TMW; Monex. In the initially proposed Rule,
the definition of ``material'' was numbered Section 310.2(l).
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6. Premium. The Commission, in its revised proposed Rule, has
deleted the initially proposed Rule provisions relating to premiums.
The Commission believes that those deletions obviate the need to define
this term. The deletion of the definition of the term ``premium'' and
its associated provisions are not intended to be construed to eliminate
from the Rule's coverage the misrepresentation of a premium's value in
a telemarketing transaction.
7. Prize and prize promotion. Some modifications have been made to
the initially proposed definition of the term ``prize.'' 31 NAAG
suggested in its comment that the reference to ``no obligation to
purchase'' should be deleted from the definition.32 NAAG pointed
out that many fraudulent telemarketers seek to create the impression
that consumers must purchase something in order to receive a prize,
even though the promotion technically does not include such a
requirement. In such cases, it may be difficult for law enforcement
authorities to prove that there was ``no obligation to purchase,''
making inapplicable the definition of ``prize'' and the protections the
revised proposed Rule would provide for consumers with respect to prize
promotions. The Commission believes this is a valid concern and,
because the limiting language about an obligation to purchase is not
necessary to accomplish the definition's purpose, has deleted the
language from the definition.
\31\ The initially proposed Rule defined ``prize'' as ``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.'' Initially proposed Rule Section 310.2(q).
\32\ NAAG at 9. See also IA DOJ at 20.
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Another concern addressed in the revised proposed Rule involves the
element of chance in the definition of ``prize.'' USPS noted that a
typical deceptive prize scheme will involve a solicitation listing four
or five items, with the consumer being told, without specificity, that
he or she is guaranteed to receive one of them.33 Because a
consumer is ``guaranteed'' to receive one of the stated items, it could
be construed that there is no element of ``chance'' involved in the
offer and the item therefore is not a ``prize.'' The Commission
believes this concern should be addressed and has therefore clarified
the term ``chance'' included in the revised proposed definition of
``prize.'' The revised definition of the term ``prize'' states that
``chance exists if a person is guaranteed to receive an item and, at
the time of the offer or purported offer, the telemarketer does not
identify the specific item that the person will receive.''
\33\ USPS at 3.
The initially proposed Rule defined ``prize promotion'' 34 to
include [[Page 30411]] traditional sweepstakes or other games 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. The currently proposed definition has been
revised slightly, (Section 310.2(q) of the revised proposed Rule), to
make clear that the representations about winning may be either express
or implied. This addresses a concern, raised by NAAG,35 that
fraudulent telemarketers often artfully craft their sales pitches to
avoid express representations while delivering an implied message that
a consumer has won a prize.
\34\ Initially proposed Rule Section 310.2(r).
\35\ NAAG at 10.
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8. Seller and telemarketer. Another definition that elicited
comments was the term ``seller.'' 36 Many commenters expressed the
view that the definition needed clarification as to what constitutes a
``seller'' under the Rule, particularly with respect to its application
to diversified companies or divisions within one parent organization.
For example, as it explained during the workshop conference, ANA
represents many members that have divisions of large diversified
companies, such as Orkin.37 ANA explained that in addition to pest
and termite control that people are familiar with, Orkin also offers a
number of other services unrelated to pests and termites.38
\36\ Initially proposed Rule Section 310.2(s).
\37\ Tr. at 666.
\38\ Id.
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After careful consideration, the Commission believes that the
definition of the term ``seller'' is clear. The Commission intends that
this definition encompass distinct corporate divisions as separate
``sellers.'' The determination as to whether distinct divisions of a
single corporate organization will be treated as separate sellers will
depend on such factors as: (1) Whether there exists substantial
diversity between the operational structure of the division and other
divisions or the corporate organization and (2) whether the nature or
type of goods or services offered by the division are substantially
different from those offered by other divisions or the corporate
organization.
The term ``telemarketer,'' included in revised Section
310.2(t),39 also elicited numerous requests for clarification. The
Commission believes that the definition is clear. The Commission
intends that the definition of the term ``telemarketer'' apply to
persons making a telephone call to, or receiving a telephone call from,
a customer 40 in connection with or about the purchase of goods or
services. It does not include persons making or receiving customer
service calls or similar tangential telephone contacts unless a sales
offer is made and accepted during such calls. To provide industry with
further guidance as to the intended scope of the term ``telemarketer,''
the Commission has substituted the phrase ``telephone calls to'' in
place of ``telephonic communication.''
\39\ Initially proposed Rule Section 310.2(u).
\40\ Revised Section 310.2(i) defines ``customer'' as ``any
person who is or may be required to pay for goods or services
offered through telemarketing.''
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Commenters also raised concerns about whether sellers and
telemarketers should be held jointly liable under the Rule for the
actions of the other. The Commission finds nothing in the statute or
legislative history to support the view that it is the intent of
Congress to impose joint and several liability between a seller and a
telemarketer. Nor does the Commission intend such a result. However,
the revised proposed Rule's provisions state that a seller or a
telemarketer can be held liable for violating various parts of the Rule
if either engages in the prohibited acts or practices. Additionally,
liability can be imposed on a seller or telemarketer for assisting and
facilitating a Rule violation if either meets the standard set forth in
Section 310.3(b). Therefore, although the Rule does not impose joint
and several liability, a seller or telemarketer can be held liable if
either engages directly, or substantially assists or facilitates the
other, in any violation of this Rule.
9. Telemarketing. The definition of ``telemarketing,'' in Section
310.2(u),41 engendered more comments by far than any other
definition. Based on the comments submitted by law enforcement and
industry representatives, the Commission proposes a revised definition
of ``telemarketing.'' The revised definition states:
\41\ Initially proposed Rule Section 310.2(v).
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Telemarketing means a plan, program, or campaign which is conducted
to induce the purchase of goods or services by use of one or more
telephones and which involves more than one interstate telephone
call. 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 or in a substantially similar catalog.
The revised definition of ``telemarketing'' follows more closely
the statutory definition set forth by Congress in the Telemarketing
Act.42 The Commission has carefully considered suggestions that
the initially proposed definition exceeded the Commission's statutory
authority and has determined that closer adherence to the statutory
language is the more appropriate approach.43 This change also
limits the definition of ``telemarketing'' to telephone calls and
excludes from coverage other ``telephonic mediums.'' After considering
many comments that objected to the Rule's coverage of on-line services,
the Commission acknowledges that it does not have the necessary
information available to it to support coverage of on-line services
under the Rule.44
\42\ 15 U.S.C. 6106(4).
\43\ The Commission, however, does not adopt the view that the
definition of ``telemarketing'' in the initially proposed Rule went
beyond the Telemarketing Act. In enacting the Telemarketing Act,
Congress clearly intended to cover purchases of tangible as well as
intangible goods or services, including leases and licenses. House
Report at 11; Senate Report at 8. In any ``purchase'' there is an
exchange of consideration, in other words a ``payment.'' Because
deceptive telemarketers could construe the term ``purchase'' to
apply only to the acquisition of a ``tangible'' good or service, the
Commission substituted the term ``payment'' for ``purchase.'' The
Commission intended to clarify that sales of intangible goods or
services were included in the term ``telemarketing,'' as they still
are under the revised proposed Rule.
\44\ Such media remain subject to the Commission's jurisdiction
under the FTC Act, 15 U.S.C. 41 et seq. See, e.g., FTC v. Corzine,
dba Chase Consulting No. CIV-S-94-1146-DFL JFM (E.D. Cal. Dec.
1994).
The revised definition of ``telemarketing'' also eliminates
specific language relating to coverage of inbound calls. Many
commenters expressed concern that inclusion of such calls went beyond
the Commission's statutory authority.\45\ As will be discussed further
in the discussion of Section 310.6, given the abundant, unambiguous
legislative history on this point,\46\ and the omission from the
statute of any indication that inbound calls are not within its ambit,
the Commission rejects this view. Other commenters \47\ stated that
including inbound calls in the proposed definition caused confusion
about the applicability [[Page 30412]] of the proposed general
advertising exemption contained in Section 310.6 of the initially
proposed Rule. Because the definition of ``telemarketing'' encompasses
coverage of inbound calls under the Rule, it is no longer necessary to
include such calls explicitly within the revised definition of
``telemarketing.'' Furthermore, the inbound call exemption has been
clarified in Section 310.6 to eliminate the confusion expressed in the
comments. The revised proposed Rule's coverage, however, extends to
inbound calls.
\45\ See, e.g., DSA at 6; NRF at 20-21.
\46\ House Report at 2; Senate Report at 7-8.
\47\ E.g., DMA at 17-18; MPA at 8-9.
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Many industry comments addressed the term ``further solicitation''
used in the part of the ``telemarketing'' definition that exempts from
coverage solicitation of sales through the mailing of a catalog.\48\
Numerous industry commenters suggested that reputable catalog companies
have substantially similar catalogs in the public domain that mirror
each other but may also be targeted to a particular season, activity,
or product. For example, a mail order clothing seller may have summer
and spring catalogs that include many of the same products, but they
are different catalogs nevertheless. Commenters suggested that offering
a caller goods or products contained in a catalog substantially similar
to the catalog that generated the call should not trigger Rule coverage
for a catalog seller.\49\ Counterbalancing this point is the
Commission's concern that exemptions from coverage be narrowly drawn to
discourage exploitation of a perceived loophole by unscrupulous
telemarketers. The revised proposed Rule therefore is modified to
accommodate legitimate industry's practice of regularly mailing
seasonal and similar catalogs, at the same time limiting the exemption
to those catalogs that are ``substantially similar'' to the catalog
that generated the customer's call.
\48\ See, e.g., APAC at 9; NRF at 23-25; MPA at 10.
\49\ E.g., NRF at 24.
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Several commenters also expressed uncertainty as to whether
``telemarketing'' included calls to schedule appointments for
subsequent face-to-face sales presentations and calls to inform persons
about upcoming store sales or promotions.\50\ The Commission believes
that the definition clearly reflects the intention to cover those
telephone calls that result in the sale of goods or services over the
telephone without any opportunity by the customer to examine the goods
or services. Obviously, a face-to-face sales presentation provides such
an opportunity and the notification of upcoming sales or promotions
inviting a customer to come into a store or other in-person setting
does not culminate in a telephone sale.
\50\ See, e.g., WFNNB at 1.
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10. Telephone solicitation. The initially proposed Rule included a
definition of the term ``telephone solicitation.'' As noted in the NPR,
the definition was ``intended to include only outbound sales calls,
i.e., telephone calls that are initiated by a telemarketer to a
customer to induce payment for goods or services.'' \51\ Based on the
comments received about other Sections of the initially proposed Rule
that used the term ``telephone solicitation,'' the intended coverage of
only outbound sales calls was not clear.\52\ In order to clarify this
point, the revised proposed Rule now defines the term ``outbound
telephone call'' in Section 310.2(n) to mean ``a telephone call
initiated by a telemarketer to induce the purchase of goods or
services,'' and uses it in every instance where the initially proposed
Rule used the term ``telephone solicitation.''
\51\ 60 FR at 8315.
\52\ See, e.g., MPA at 19; NRF at 35.
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11. Verifiable retail sales price. The initially proposed Rule
defined the term ``verifiable retail sales price.'' \53\ The Commission
has deleted all references to ``verifiable retail sales price'' in the
revised proposed Rule. The Commission does not believe including a
definition of ``verifiable retail sales price'' is necessary in this
revised proposed Rule. Where appropriate, the Commission has used the
term ``value'' in the Rule. The Commission intends that any represented
value have a reasonable basis in fact.
\53\ Initially proposed Rule Section 310.2(x).
Section 310.3 Deceptive Telemarketing Acts or Practices
1. Prohibited Deceptive Telemarketing Acts or Practices. Revised
Section 310.3(a) continues to require affirmative disclosures and
prohibits misrepresenting material information. As in the initial
version of the proposed Rule, Section 310.3(a)(1) requires affirmative
disclosures of general categories of material information. Many
industry commenters, however, expressed concern about the uncertain
scope of the affirmative disclosure obligation embodied in Section
310.3(a)(1).\54\ The Commission has carefully considered these concerns
and revised the proposed Rule accordingly. Specifically, the initially
proposed rule required disclosure of ``the total costs, terms, and
material restrictions, limitations, or conditions of receiving any
goods or services.'' Revised Section 310.3(a)(1) now requires
disclosure of ``the total costs * * * [and] all material restrictions,
limitations, or conditions to purchase, receive or use any goods or
services that are the subject of the sales offer.'' This revision is
intended to narrow and clarify the scope of the disclosure obligation.
The initially proposed rule also specified that the disclosures
required by Section 310.3(a)(1) be made ``before payment is requested *
* * and in the same manner and form as the payment request.'' In
response to strong industry urging for greater flexibility in the
manner and timing of essential disclosures,\55\ the revised proposed
rule specifies only that the disclosures be made ``before a customer
pays'' and that they be made ``in a clear and conspicuous manner.''
These disclosures may be made either orally or in writing. The
determining factor for when a customer pays, regardless of whether by
cash, check, credit card, demand draft, or otherwise, is when a
customer sends funds by any means or provides credit card or bank
account information to the seller or telemarketer to purchase goods or
services. Additionally, Section 310.3(a)(1) no longer requires an
affirmative disclosure of a seller's refund, cancellation, exchange, or
repurchase policies, unless the seller or telemarketer chooses to make
representations relating to such policies a part of the sales offer. If
a seller or telemarketer chooses to make such policies a part of the
sales offer, then the seller or telemarketer must disclose all the
material aspects of the terms and conditions of such policies, orally
or in writing, before a customer pays for the goods or services
offered. Finally, a seller or telemarketer must disclose that no
purchase is necessary to win if a prize promotion is offered in
conjunction with a sales offer of goods or services.
\54\ See NIMA at 11; ACAR at 12; TR. at 292 (Monex), 296-97
(PMAA), 303-05 (ICTA)
\55\ See PMAA at 80; OPC at 2-3; ADS at 1; MORA at 1.
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Section 310.3(a)(2) continues to prohibit misrepresentations of
several categories of material information. The information deemed
material under Section 310.3(a)(2) is based on established case law and
the Commission's deception policy statement. The Commission, however,
has determined to drop the lengthy enumeration of specific prohibited
misrepresentations contained in Sections 310.3(a)(2)(viii)-(xxiv) of
the initially proposed Rule. These specific prohibited
misrepresentations, each of [[Page 30413]] which was based on
allegations in complaints filed in recent years by the Commission under
Section 13(b) of the FTC Act,\56\ are no longer necessary because they
are subsumed in the general prohibitions against misrepresentations set
forth in Section 310.3(a)(2) of the revised proposed Rule. No inference
should be drawn that these deletions in any way alter the Commission's
view that the misrepresentations enumerated initially in proposed
Sections 310.3(a)(2)(viii)-(xxiv) would violate the FTC Act as well as
the revised proposed Rule. The Commission believes that this more
concise regulatory approach effectuates Congress' legislative intent
and addresses the concerns of many commenters, consumer groups,\57\ law
enforcement,\58\ and industry \59\ alike, who asserted that a general
standard of deception was necessary either in addition to or instead of
the enumerated acts or practices.
\56\ 15 U.S.C. 53(b).
\57\ See, e.g., AARP at 10.
\58\ See, e.g., USPS at 4.
\59\ See, e.g., APAC at 2; ATA at 5; DMA at 19; Monex at 8-9.
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Sections 310.3(a)(2)(i)-(ii) prohibit misrepresenting information
required to be disclosed under Section 310.3(a)(1). The scope of
Sections 310.3(a)(2)(i)-(ii) has been delineated more precisely than
their counterparts in the initially proposed Rule Sections
310.3(a)(2)(i)-(iii). Revised Sections 310.3(a)(2)(i)-(ii) now include
the limiting phrases ``to purchase, receive, or use'' and ``that are
the subject of a sales offer.'' The same clarifying phrases have been
added to revised Section 310.3(a)(2)(iii), which specifies that
misrepresenting ``any material aspect of the performance, efficacy,
nature, or central characteristics of goods or services that are the
subject of the sales offer'' violates this Rule. Commission case law
and policy are clear that such information is material to a person's
choice of or conduct regarding the purchase of goods or services.
Similarly, representations as to a seller's refund, cancellation,
exchange, or repurchase policies are material to a person's purchase
decision. Section 310.3(a)(2)(iv) (identical to Section 310.3(a)(2)(v)
of the initially proposed Rule) therefore prohibits misrepresenting the
latter category of information.
Section 310.3(a)(2)(v) of the revised proposed Rule prohibits
misrepresenting ``any material aspect of a prize promotion, including
but not limited to the odds of winning, the nature or value of a prize,
or that payment is required to receive a prize.'' The Commission has
enumerated specific examples of material aspects of a prize promotion
based on misrepresentations that the Commission has alleged in
complaints filed under Section 13(b) of the FTC Act. The Commission
believes that treating prize promotions as a separate general category
is warranted given the great number of deceptive prize promotions and
the distinct characteristics associated with such promotions.60
Moreover, the legislative history clearly shows that Congress
specifically intended that the Rule cover prizes or awards.61
Because there are certain aspects of a prize promotion that could be
construed to be outside the scope of provisions narrowly limited to
``the subject of a sales offer,'' the Commission believes that it is
necessary to include revised Section 310.3(a)(2)(v). The prohibitions
against prize promotion misrepresentations under Section 310.3(a)(2)(v)
are in addition to the other prohibitions set forth in Section
310.3(a)(2).
\60\ Almost 32% of the 141 telemarketing cases brought by the
Commission since 1991 related to deceptive prize promotions.
\61\ See Senate Report at 8.
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Similarly, Section 310.3(a)(2)(vi) prohibits misrepresenting
material aspects of an investment opportunity. The legislative history
reflects Congress' recognition that deceptive investment opportunities
account for a considerable percentage of deceptive
telemarketing.62 Moreover, since 1991, deceptive investment scams
account for approximately 43% of the Commission's telemarketing cases.
The amount at risk for a consumer is generally far greater in
investment scams than in deceptive schemes involving other types of
consumer goods or services. Thus, investment opportunities are an area
of heightened concern for consumers and the Commission. The revised
proposed rule includes Section 310.3(a)(2)(vi), prohibiting
misrepresentation of specified aspects of investment opportunities.
This provision is included to obviate any possible construction that
might exclude investment opportunities from the scope of Sections
310.3(a)(2)(i)-(iii). These general initial provisions are designed to
embrace a limitless range of goods or services but are narrowly drawn
to prohibit misrepresentations centered on purchase, receipt or use, or
upon ``performance, efficacy, nature, or central characteristics,''
which are unlike investment-specific attributes such as risk,
liquidity, earnings potential, or profitability. The prohibitions on
misrepresentations under Section 310.3(a)(2)(vi) are in addition to,
not in lieu of, other provisions under Section 310.3(a)(2).
\62\ See Senate Report at 8.
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Finally, the Commission has included Section 310.3(a)(2)(vii) that
prohibits misrepresenting ``a seller's or telemarketer's affiliation
with, or endorsement by, any government or third-party organization.''
The Commission believes that this Section is necessary based on its own
experience in law enforcement actions against deceptive telemarketers
as well as the information state law enforcement agencies provided.
Based on the Commission's enforcement experience, deceptive
telemarketers bolster their credibility by misrepresenting that they
are endorsed by or affiliated with charitable, police, civic, or
similar organizations. A separate category is required because these
types of misrepresentations, again, could be construed as outside the
apparent scope of Sections 310.3(a)(2)(i)-(iii). However, Section
310.3(a)(2)(vii) is in addition to, not in lieu of, other provisions
under Section 310.3(a)(2).
The Commission has deleted Section 310.3(a)(3) relating to business
ventures. The Commission, as stated in Section 310.2, believes it is
more appropriate to consider business ventures in the context of the
Commission's recently-initiated Franchise Rule review. This should not
be construed to mean, however, that if a business venture is sold
through telemarketing and does not meet the coverage requirements under
the Franchise Rule as currently in effect, it is exempt under this
Rule. Such a ``business venture'' will still be deemed to be covered
under this Rule as a good or service and be subject to the Rule's
disclosure requirements and prohibitions.
Revised Section 310.3(a)(3) generally prohibits ``making a false or
misleading statement to induce any person to pay for goods or
services.'' This general provision subsumes Sections 310.3(a)(4) and
(5) of the initially proposed Rule. Former Section 310.3(a)(4) required
written authorization before taking any funds from a consumer's
checking, savings, or similar account. Former Section 310.3(a)(5)
required express authorization before ``obtaining any amount of money
from a person through any means.'' The revised Section, through more
economical means, reflects how deceptive sellers and telemarketers gain
access to consumers' money through false and misleading statements
regardless of the payment system used. While addressing those deceptive
practices, revised Section [[Page 30414]] 310.3(a)(3) also avoids
unduly burdening legitimate industry's nondeceptive use of various
payment systems.63
\63\ Several commenters and workshop participants provided
information tending to refute the proposition that demand drafts are
characteristic solely of deceptive telemarketers. See, e.g., NAPA;
Autoscribe; Olan.
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2. Assisting and Facilitating. Section 310.3(b) received
substantial attention from commenters. Law enforcement and consumer
groups generally were favorable but some suggested including a more
general prohibition against assisting and facilitating.64 Industry
comments raised concerns that the knowledge standard in the initially
proposed Rule was too vague or harsh and that the liability for
assisting and facilitating should attach only where the assistance or
support is directly linked and material to the Rule violation.65
Some industry commenters suggested that the Rule include exemptions for
certain practices and that this Section not impose any affirmative
duties on third parties.66 All commenters raised valid and
important issues that the Commission has considered.
\64\ See generally NCL at 8; USPS at 7-8.
\65\ See, e.g., WFNNB at 2; MPA at 11-13; ATA at 6; DMA at 22-
24; NRF at 29; Monex at 11-13.
\66\ See generally PMAA; ADS; LCS; DMA; ISA.
To address concerns that the ``knew or should have known'' standard
initially proposed may have swept too broadly and exposed those only
casually associated with deceptive telemarketing to liability as
assistors or facilitators, the Commission now proposes the ``actual
knowledge or conscious avoidance'' standard advanced by a number of
participants in the public workshop.67 This standard is similar to
the knowledge standard applicable in actions under Section 13(b) of the
FTC Act governing individual liability to pay restitution to consumers
for injury resulting from law violations of a corporation controlled by
the individual 68--a type of vicarious liability somewhat
analogous to assistor and facilitator liability. The Commission intends
that this revision delineate the scope of assistor and facilitator
liability more clearly and more narrowly than did the ``know or should
have known'' standard.
\67\ See e.g., Tr. at 372-73 (Monex); 382-85 (DMA).
\68\ Under these cases, the knowledge requirement is well-
established and can be fulfilled by showing either actual knowledge,
reckless indifference to the truth or falsity of the representation,
or an awareness of a high probability of fraud coupled with an
intentional avoidance of the truth. E.g., FTC v. American Standard
Credit Systems, Inc., CV 93-2623 LGB (JRx) (C.D. Cal. Aug. 15,
1994); FTC v. Amy Travel Serv., 875 F.2d 564, 573-74 (7th Cir.),
cert. denied, 493 U.S. 954 (1989); FTC v. Kitco of Nevada, Inc., 612
F. Supp. 1282, 1292 (D. Minn 1985); FTC v. International Diamond
Corp., 1983-2 Trade Cas. (CCH)
65,725 at 69,707 (N.D. Cal. 1983). This knowledge standard has
not imposed any unduly onerous problems of proof on the Commission
in its Section 13(b) telemarketing fraud cases and has not impeded
the Commission's ability to obtain restitution from individual
defendants.
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The Commission also believes it appropriate to specify that there
be some connection between the substantial assistance provided to a
deceptive telemarketer and resulting violations of core provisions of
the revised proposed Rule. Revised proposed Section 310.3(b) therefore
requires that there be substantial assistance related to the commission
or furtherance of a core rule violation. The provision now reads as
follows:
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 consciously
avoids knowing that the seller or telemarketer is engaged in any act
or practice that violates Secs. 310.3 (a) or (c) or 310.4 of this
Rule and such substantial assistance is related to the commission or
furtherance of that act or practice.
Section 310.3(b)(2) of the initially proposed Rule set forth five
specific examples of conduct deemed to meet the ``substantial
assistance'' prong of the two-prong test for ``assisting and
facilitating'' set forth in Section 310.3(b)(1), which, when coupled
with knowledge required by the second prong, would constitute a
violation of this Rule. The prevailing view among industry commenters
was that this list of examples would be interpreted as condemning a
range of commercial activities that, in and of themselves, are not
injurious to consumers or unlawful.69 The resulting chilling
effect could result in unnecessary costs to industry, which, of course,
would ultimately be borne by consumers. This detrimental effect,
combined with the potential for the Section to be construed as limiting
the scope of assisting and facilitating to only the listed activities,
and thus hindering effective law enforcement efforts, outweighed any
benefits such intended guidance could likely provide. The Commission
has eliminated examples from the prohibition, but still considers the
acts or practices enumerated in former Section 310.3(b)(2) to be
illustrative of those that provide substantial assistance to Rule
violators when coupled with knowledge and a relationship to a specified
Rule violation. Acts of substantial assistance that could meet the
Section 310.3(b) liability standard include: providing lists of
contacts to a seller or telemarketer that identify persons over the age
of 55, persons who have bad credit histories, or persons who have been
victimized previously by deceptive telemarketing or direct sales;
providing any certificate or coupon which may later be exchanged for
travel-related services; providing any script, advertising, brochure,
promotional material, or direct marketing piece used in telemarketing;
or providing an appraisal or valuation of a good or service sold
through telemarketing when such an appraisal or valuation has no
reasonable basis in fact or cannot be substantiated at the time it is
rendered.
\69\ See generally DMA; PMAA.
3. Credit Card Laundering. The Commission received very few
comments that offered changes or that were critical of Section
310.3(c), which pertains to credit card laundering. Comments that did
address this Section suggested that agents, licensees, and independent
contractors and subcontractors be included under the definition of
``merchant.'' 70 Visa and MasterCard stated that they believed
this Section to be ``well designed to attack a critical link in
telemarketing fraud,'' but proposed adding language that would not
prohibit access to the credit card system if the credit card system
permits such access through means other than a written merchant
agreement.71
\70\ E.g., DMA at 24; NRF at 30.
\71\ See MasterCard at 10-11.
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The Commission believes that the distinction between ``launderers''
and others who exploit the credit card system, and ``merchants'' and
others who make legitimate use of such systems, rests on whether the
operator of the system has given permission for such access. For
example, some merchants have the permission of their credit card system
operator to permit lessees to deposit their sales transactions through
the merchant's account. On the other hand, the hallmark of prohibited
laundering is providing access to a merchant account to an entity not
authorized by the system operator to have such access. Based on the
foregoing, the Commission does not believe it is wise to broaden the
definition of ``merchant.'' An underlying purpose of this Section is to
delineate clearly, in accordance with legitimate industry standards,
those persons who are deemed to properly have access to the credit card
system. However, the comments of Visa and MasterCard point out a way
that the provision can be modified to allow for situations where a
credit card system expressly permits access to the applicable system,
other than through a [[Page 30415]] written merchant agreement. Because
such a modification will give rise to no foreseeable problems of proof
to law enforcement efforts, the Commission concludes that this
modification is appropriate.72 The Commission therefore has
determined that the modifications needed to Section 310.3(c) are to add
language to the preamble to state that ``except where expressly
permitted by the applicable credit card system * * *'' and to add
similar language to the end of Section 310.3(c)(3).
\72\ NCL requested in its comments pertaining to credit card
laundering that the Commission consider protections relating to the
use of ``credit card checks'' and ``credit card cash advances.'' See
NCL at 31. NCL expressed concern that credit card protections
contemplated in Section 310.3(c) and the Fair Credit Billing Act
[``FCBA''], 15 U.S.C. 1666, do not extend to those alternative
credit methods. There is no indication in the legislative history or
the Telemarketing Act that Congress intended to include under credit
card laundering the alternative credit methods NCL describes.
Moreover, the Commission does not have the authority under the Act
to expand or affect the scope of the FCBA. The Commission believes,
however, that transactions effected through the use of the
alternative credit methods NCL described are adequately protected
under the FCBA dispute procedures. Id.
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Section 310.4 Abusive Telemarketing Acts or Practices
1. Abusive Conduct Generally. Section 310.4(a) of the initially
proposed Rule set forth eight different prohibited abusive
telemarketing acts or practices. The revised proposed Rule deletes four
of those provisions, and amends the other four prohibited practices.
Each of these practices will be discussed in turn.
(a) Threats, intimidation, or the use of profane or obscene
language. The initially proposed Rule prohibited threats or
intimidation in Section 310.4(a)(1). The Commission believes such acts
are clearly abusive in telemarketing transactions, and this prohibition
remains in the revised proposed Rule. Commenters noted that threats are
a means of perpetrating a fraud on vulnerable victims, and that many
older people can be particularly vulnerable to threats and
intimidation.73 Other commenters expressed the view that the terms
``threats'' and ``intimidation'' are vague and need to be
defined.74 The Commission does not believe further definition of
these terms is necessary in the text of the Rule; as drafted, this
Section clearly contemplates that all threats be covered, including
those particularly stressed by NCL--threats of bodily injury and
financial ruin and threats to ruin credit. It also prohibits
intimidation--acts which put undue pressure on a consumer or which call
into question a person's intelligence, honesty, reliability, or concern
for family. Repeated calls to an individual who has declined to accept
an offer may also be an act of intimidation.75
\73\ IA DOJ at 13; AARP at 14.
\74\ ADC at 1; ARDA at 21.
\75\ NCL at 32-33. Accord, USPS at 11.
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The Commission has also added under this Section a prohibition
against the use of profane or obscene language. The legislative history
of the Telemarketing Act indicates that the Commission should consider
prohibiting such abusive practices, and should ``draw upon its
experience in enforcing standards established under the Fair Debt
Collection Practices Act [``FDCPA''], 15 U.S.C. 1692, in defining these
terms.'' 76 The FDCPA includes a specific prohibition on the use
of profane or obscene language,77 and the Commission believes such
a prohibition is equally appropriate in this Rule.
\76\ See, e.g., House Report at 8.
\77\ Section 806(2) of the FDCPA, 15 U.S.C. 1692d(2).
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(b) Courier pickups. The initially proposed Rule prohibited any
seller or telemarketer from providing for or directing a courier to
pick up payment from a customer.78 Law enforcement and consumer
representatives generally applauded this provision.79 IA DOJ
noted: ``A critical component of a fraudulent telemarketing scheme is
getting the victim's money before the victim has the opportunity to
reconsider, or before a third party, such as a relative, banker, or law
enforcement authority becomes involved.'' 80 In addition, NCL
stated that over 45% of all telemarketing complaints it receives
involve shipment by private courier, and almost all of these shipments
contain personal checks. According to NCL, a personal check sent via a
private courier is the single most popular method of removing money
from the pockets of victims.81
\78\ Initially proposed Rule Section 310.4(a)(2).
\79\ See, e.g., NAAG at 23-24; USPS at 11-12; CFA at 3; AARP at
14-15.
\80\ IA DOJ at 6.
\81\ NCL at 33-35.
On the other hand, many industry representatives opposed this
provision.82 Commenters noted various ways this prohibition would
harm legitimate businesses, including: prohibiting C.O.D. transactions;
83 preventing newspaper carriers from making door-to-door
collections on their paper routes; 84 eliminating the merchant
coupon book industry; 85 and precluding cable operators and others
from using couriers to pick up payments from customers who are in
arrears and who wish to avoid disconnection of their service.86
\82\ See, e.g., Monex at 13-14; A-Mark at 10.
\83\ DMA at 25; PMAA at 84; DMSI at 5; MRG at 4; UPS at 2.
\84\ CDI at 1; CA at 3; Cox at 11; Gannet at 6; NAA at 15;
Washington at 17.
\85\ AWMI at 1; GGP at 2; GCM at 1; MGC at 1; MP at 1.
\86\ Comcast at 5, n.5.
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After reviewing these comments, the Commission agrees that a ban on
the use of courier pickups of consumer payments is unworkable. There is
nothing inherently deceptive or abusive about the use of couriers by
legitimate business, and the comments show that many legitimate
businesses use them. While fraudulent telemarketers often use couriers
to obtain quickly the spoils of their deceit, such telemarketers engage
in other acts or practices that clearly are deceptive or abusive, and
that are prohibited by this Rule. Thus, the prohibition of courier use
is unnecessary, and it has been deleted from the revised proposed Rule.
(c) Credit repair services. Section 310.4(a)(3) of the initially
proposed Rule prohibited 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 had expired and the
promised results had been achieved.87 A number of commenters
strongly supported this prohibition as a necessary limitation on the
telemarketing of deceptive credit repair services.88 The
Commission agrees, and is retaining this provision in the revised
proposed Rule, with the following two amendments suggested by
commenters.
\87\ Revised proposed Rule Section 310.4(a)(2).
\88\ NAAG at 24; CFA at 3; USD at 4; NCL at 37; USPS at 12. ABA
``commends'' the Commission for this provision. ABA at 9.
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First, NCL suggested, and the Commission agrees, that the
prohibition on advance payments should extend to services that promise
to remove derogatory information from a consumer's credit record, in
addition to those services that simply promise to improve a person's
credit history, record or rating.89 Second, the revised proposed
Rule will not permit, as documentation that the promised results have
been achieved, records from the original furnisher or provider of the
derogatory information to the consumer reporting agency. As noted by
NYSCPB, the original furnisher of such information cannot control the
actions of the consumer reporting agencies.90 [[Page 30416]] Thus,
for a variety of reasons, a consumer's credit report may not be
changed, even though the original furnisher has documentation
requesting such a change to occur. The Commission, therefore, has
revised the initially proposed Rule to require the examination of a
consumer's credit report, to determine if the services have been
provided, before the seller or telemarketer may request or receive
payment from the customer.
\89\ NCL at 38.
\90\ NYSCPB at 8.
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A number of commenters suggested amending this Section to clarify
that it does not apply to credit monitoring services.91 The
Commission did not intend to limit the actions of such legitimate
services, and does not believe this Section would prohibit such
services.
\91\ ATA at 7; CUCI at 7; DMA at 25; Spiegel at 4.
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Other commenters stated that this provision may inadvertently
prohibit the telemarketing of secured credit cards, harming consumers
who use such cards to develop a satisfactory credit record.92 In
fact, these commenters suggested an exemption to this provision for the
telemarketing of secured credit cards by depository institutions. The
Commission does not believe such an exemption is necessary, because
banks, savings and loans, and Federal credit unions are outside of the
jurisdiction of the FTC, and are therefore not covered by the
Rule.93
\92\ ABA at 8; Citicorp at 8-9; MasterCard at 11.
\93\ See 15 U.S.C. 45(a)(2); revised proposed Rule Section
310.1.
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(d) Recovery room services. The next abusive practice prohibited by
the initially proposed Rule involved recovery room scams.94 In
these operations, a fraudulent telemarketer will call a consumer who
has lost money in a previous scam and make false promises that the
telemarketer can recover that money, in exchange for a fee paid in
advance. After the fee is paid, the promised services are never
provided. As law enforcement commenters noted, the recovery scheme is
especially abusive, targeting particularly vulnerable victims,
including the elderly.95
\94\ Initially proposed Rule Section 310.4(a)(4); revised
proposed Rule Section 310.4(a)(3).
\95\ See, e.g., IA DOJ at 13-15; USPS at 13; NAAG at 24. In
fact, NACAA believes there should be an outright prohibition against
contacting any consumer to offer these services. NACAA at 4.
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A number of financial institutions requested clarification that
this Section does not apply to legitimate debt collection
activities.96 In addition, another commenter opined that this
Section, as proposed, could impair the ability of newspapers to accept
classified ads for lost and found items.97 The Commission believes
that changing the phrase ``induce payment'' to ``induce purchase'' in
the definition of ``telemarketing'' clarifies that debt collection
practices are not the types of telemarketing practices at issue in this
Rule. Furthermore, the Commission is revising this Section to make it
applicable only to recovery services that promise the return of money
or other items of value paid for or promised to the consumer in a
previous telemarketing transaction. Thus, this Section will not apply
to attempts to recover money or items lost outside of telemarketing.
\96\ Chase at 4; Chemical at 6; MasterCard at 11.
\97\ Washington at 17.
The initially proposed Rule prohibited sellers or telemarketers
from requesting or receiving payment of any fee for recovery services
until three days after the recovered money or other item is delivered
to the consumer. AARP noted that the three-day period may be
insufficient to protect consumers, and asked that the Rule allow the
minimum time necessary for out-of-state checks to clear.98 The
Commission agrees, and has lengthened the time period that must elapse
before providers of such services can request payment from consumers to
seven business days after delivery of the recovered money or other item
of value.
\98\ AARP at 15-16. Fraudulent recovery rooms may use checks,
not backed by sufficient funds for them to be paid by the out-of-
town banks on which they are drawn, to show consumer victims that
the money has been ``recovered.''
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Finally, the initially proposed Rule provided an exemption from
this Section for licensed attorneys or licensed private investigators
pursuant to a written agreement with the consumer. Some commenters
believed that private investigators should not be exempt, because such
an exemption would only lead to fraudulent recovery services signing up
with unscrupulous private investigators as a method of evading this
prohibition.99 The Commission agrees, and has removed the
exemption for private investigators.
\99\ NAAG at 24; DSA-Nev., Tab B at 8; NCL at 39-40. Both DSA-
Nev. and NCL also believed that licensed attorneys should not be
exempt from this Section of the Rule. The Commission does not wish
to hinder legitimate activities by licensed attorneys to recover
funds lost by consumers through fraudulent telemarketing, and thus
does not believe this prohibition should be applied to their
services.
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(e) Advance fee loans. Section 310.4(a)(5) of the initially
proposed Rule prohibited any seller or telemarketer 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.100 DMA urged that
the Commission clarify that this Section does not apply to services,
such as monitoring or counseling, that are not represented to improve a
person's credit history.101 The Commission did not intend for such
services to be covered, and is changing the phrase ``credit service,''
used in the initially proposed Rule, to ``extension of credit.'' In
this manner, the application of this prohibition only to loans or other
extensions of credit will be clearer.102
\100\ Revised proposed Rule Section 310.4(a)(4).
\101\ DMA at 25.
\102\ Prudential noted that this Section could cover a bank's
offer to a consumer of pre-approved loans. The Commission believes
that revised Section 310.1 will address Prudential's concerns by
clarifying that banks are excluded from coverage of the Rule because
they are outside of the Commission's jurisdiction under the FTC Act,
15 U.S.C. 45(a)(2).
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(f) Prize distribution. The next prohibited abusive practice
included in the initially proposed Rule concerned the distribution of
prizes during a prize promotion. Section 310.4(a)(6) of the initially
proposed Rule required any seller or telemarketer conducting such
promotions to distribute all prizes or purported prizes offered within
18 months of the initial offer to any person. The Commission believes
that this practice is adequately covered by the prohibition against
misrepresenting any material aspect of a prize promotion in Section
310.3(a)(2)(v) of the revised proposed Rule. Because the practices
included in this Section of the initially proposed Rule are addressed
by other prohibitions, it has been deleted from the revised proposed
Rule.
(g) Reloading. Section 310.4(a)(7) of the initially proposed Rule
prohibited 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 transaction have been fulfilled, including
but not limited to the distribution of all prizes or premiums offered
in conjunction with the initial transaction.
This provision of the initially proposed Rule elicited nearly
unanimous negative comments from industry representatives. The
Commission learned from these comments that many legitimate businesses
call their customers before full satisfaction has been made on a prior
transaction. Indeed, cultivating established customers in this way is
regarded as one of the most effective selling techniques by legitimate
sellers. Commenters noted that the Section as proposed would preclude a
seller or [[Page 30417]] telemarketer from calling customers to renew
subscriptions, warranties, service contracts, and a host of other
ongoing services prior to their expiration.103 Commenters also
noted that this prohibition would be particularly burdensome for large,
diversified companies with multiple divisions, sales offices and
product lines.104
\103\ ATA at 7-8; ANA at 14; DMA at 27-28; MPA at 14-15; Cox at
9-10; DMSI at 6; Hearst at 2; MSSC at 20; NAA at 13-14; AMCI at 2
(motor club memberships); CUCI at 8; ASAE at 15-16 (association
memberships); GE at 4-6; IBM at 19-22 (computer leases); NCTA at 11-
12 (cable services); Viacom at 10-11.
\104\ ANA at 15; DMA at 27; NRF at 31; AmEx at 1-2.
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Given the fact there is nothing about this practice, in and of
itself, that is inherently injurious to consumers, and given the
widespread use of this practice by legitimate telemarketers, the
Commission has dropped from the revised proposed Rule any attempt to
restrict this practice. Reloading is a problem when there is deception
in the sales offer. Because such deception is prohibited by the revised
proposed Rule under Section 310.3(a), a separate prohibition of
``reloading'' is unnecessary. Accordingly, it has been deleted from the
revised proposed Rule.
(h) The Use of Shills. Section 310.4(a)(8) of the initially
proposed Rule prohibited identifying a person as a reference for a
business venture unless: (1) Such person actually purchased the
business venture; (2) such person operated that business venture for at
least six months, or the seller or telemarketer disclosed the length of
time the person operated such business venture; and (3) such person did
not receive consideration for any statements made to prospective
business venture purchasers. As stated in the discussion of Section
310.2 of the definition of ``business venture,'' the Commission
believes that consideration of such a prohibition is more appropriately
included as part of its regulatory review of the Franchise Rule.
2. Pattern of Calls. Section 310.4(b)(1)(i) of the proposed Rule
prohibited a seller or telemarketer from making a sales call to a
person's residence more than once within any three month period. Many
commenters stated that this was an unreasonable and arbitrary
prohibition that was difficult to comply with, and that should be
eliminated.105 In addition, commenters noted that consumers
already have the protections of the Telephone Consumer Protection Act
[``TCPA''] rules, which require telemarketers to establish and maintain
a ``do not call'' list of consumers who do not wish to be contacted by
that seller.106 Given the fact that calls more frequent than once
per month are not, in and of themselves, injurious to consumers, and
given the consumer protections afforded by the ``do not call''
requirements of the TCPA 107 and this Rule, the Commission agrees
that this provision is unnecessary and has therefore deleted it.
\105\ ATA at 8; APAC at 6; DMA at 28; DSA at 15; MPA at 16-18;
NRF at 33; PMAA at 75-77; CUCI at 8; Fingerhut at 25; ADS at 1; AmEx
at 1-2; AT&T at 20; NCL at 45-46; APAC at 6; AMCI at 1; IBM at 23;
ANA at 17.
\106\ See, e.g., ANA at 17; Franklin at 1; Olan at 13. The FCC's
rules, established pursuant to the TCPA, 47 U.S.C. 227, are codified
at 47 CFR 64.1200. The revised proposed Rule includes similar ``do
not call'' protections at Section 310.4(b)(1)(ii), discussed infra.
\107\ 47 U.S.C. 227.
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In its place, the Commission proposes in revised Rule Section
310.4(b)(i) to prohibit any seller or telemarketer to cause any
telephone to ring, or engage any person in telephone conversation,
repeatedly or continuously with intent to annoy, abuse, or harass any
person at the called number. Such a prohibition is included in the
FDCPA, 108and the legislative history of the Telemarketing Act
states that the Commission should consider the FDCPA in establishing
prohibited abusive acts or practices.109
\108\ 15 U.S.C. 1692d(5).
\109\ See, e.g., House Report at 8. Moreover, commenters
suggested that such a provision would be approprate. See, e.g., NAA
at 20; Cox at 10 (abusive conduct involves multiple calls over a
short period of time, such as five calls in a day, or ten calls in a
week).
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Section 310.4(b)(1)(ii) of the initially proposed Rule set forth
the prohibition on calling a person's residence when that person
previously has stated that he or she does not wish to receive such a
call made by or on behalf of the seller whose goods or services are
being offered. The Commission continues to believe that such a
limitation, which is fully consistent with and complementary to similar
provisions under the TCPA,110 will effectively implement the
Telemarketing Act's directive to include in this Rule ``a requirement
that telemarketers may not undertake a pattern of unsolicited telephone
calls which the reasonable consumer would consider coercive or abusive
of such consumer's right to privacy.'' 111 This Section did not
elicit many comments; the only change made to this Section responds to
the comments suggesting that the prohibition should apply to a
particular person or telephone number, not to a residence (as the
initially proposed version of this provision stated), because a
residence may have more than one person who is a customer of a
particular seller.112 The revised proposed Rule states that the
prohibition applies to calls made to a person, rather than a person's
residence.
\110\ See 47 U.S.C. 227; 47 CFR 64.1200(e).
\111\ 15 U.S.C. 6102(a)(3)(A).
\112\ See, e.g., NRF at 33; Pacesetter at 4.
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Section 310.4(b)(2) of the initially proposed Rule provided a
limited safe harbor against liability for violating the ``do not call''
prohibitions included in Section 310.4(b)(1)(ii). This Section stated
that a seller or telemarketer will not be liable for such violations
once in any calendar year per person called if: (1) It has established
and implemented written procedures to comply with the ``do not call
provisions''; (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; and
(4) any subsequent call is the result of administrative error.
Two changes have been made to this Section. First, some commenters
suggested that the safe harbor should not be limited to a certain
number of violations per consumer or per year.113 These commenters
maintained that if the other enumerated steps are taken by a
telemarketer in a reasonable manner, and a call is made erroneously, a
Rule violation should not be found. The Commission agrees, and has
deleted this limitation to the safe harbor. Second, the safe harbor
will apply if the subsequent call is the result of any error, not just
an administrative error. This responds to concerns raised that
unintentional or accidental calls should also be covered by the safe
harbor.114
\113\ See, e.g., IBM at 24; SBTC at 10-11.
\114\ NRF at 35; PMAA at 83; MSSC at 21. Other commenters
suggested that the term ``administrative error'' was too broad, and
that a clear definition should be provided. NACAA at 5; NAAG at 27;
USD at 5. The Commission believes that any error should be excused
here, as long as the seller or telemarketer is complying in good
faith with the other requirements of the safe harbor.
3. Calling Time Restrictions. The initially proposed Rule
prohibited any telemarketer from calling a person's residence, without
the prior consent of the person, at any time other than between 8:00
a.m. and 9:00 p.m. local time at the called person's location. The
Commission included this provision in the initially proposed Rule in
response to the Telemarketing Act's directive that the Rule should
include ``restrictions on the hours of the day and night when
unsolicited telephone calls can be made to consumers.'' 115 While
some commenters suggested different time
[[Page 30418]] restrictions,116 the FCC has established these
calling time hours in its regulations implementing the TCPA,117
and the Commission has been presented with no compelling reasons to
change them. Accordingly, no substantive changes to Section 310.4(c)
are proposed.118
\115\ 15 U.S.C. 6102(a)(3)(B).
\116\ DSA-Nev Tab B at 11 (7 a.m. to 10 p.m.); Monex at 15 (no
restrictions for the precious metals market); NACAA at 5 and GA OCA
at 2 (5:00 p.m. to 9:00 p.m. to protect vulnerable older consumers);
NAAG at 27 (no calls before noon on Sunday).
\117\ See 47 CFR 64.1200(e)(1).
\118\ Certain commenters suggested that the safe harbor
provisions of Section 310.4(b)(2) should apply to the calling time
restrictions as well as the ``do not call'' requirements. See, e.g.,
NRF at 35; ARDA at 31. The Commission believes that the calling time
restrictions do not present the administrative compliance
difficulties that the ``do not call'' restrictions impose, and
therefore does not believe a safe harbor is necessary here.
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4. Required Oral Disclosures.
(a) All outbound telephone calls. The Telemarketing Act requires
the Commission to include in this Rule the following:
A requirement that any person engaged in telemarketing for the sale
of goods or services shall promptly and clearly disclose to the
person receiving the call that the purpose of the call is to sell
goods or services and make other such disclosures as the Commission
deems appropriate.119
\119\ 15 U.S.C. 6102(a)(3)(C).
The initially proposed Rule, at Section 310.4(d)(1)(i), implemented
this legislative directive by requiring all outbound telephone calls
(or telephone solicitations, as they previously were called), to begin
with the disclosure of the caller's true first and last name, the
seller's name, and a statement that the purpose of the call is to sell
goods or services. The divergence between the statutory language and
that of the initially proposed Rule elicited significant comment.
Many industry representatives objected to these disclosures being
required ``at the beginning,'' rather than ``promptly and clearly.''
120 According to these commenters, requiring disclosures at the
beginning disturbs the normal flow of a telephone call,121 allows
no time for a seller to establish, or reestablish, a relationship with
the consumer,122 infringes on the seller's ability to design and
implement effective telemarketing sales presentations,123 and is
in effect a ``kill message'' that will result in most consumers hanging
up when they hear the required disclosures.124
\120\ ATA at 9; ANA at 21; NRF at 36; DMA at 30; Chemical at 7;
CUCI at 9; Gannet at 4; Olan at 16.
\121\ See, e.g., NRF at 36.
\122\ See, e.g., ADS at 2.
\123\ Ann Arbor at 2 (with numerous other newspapers submitting
a substantially similar comment).
\124\ See, e.g., Citicorp at 8; Time Warner at 37-38. Not all
industry representatives agreed. One telemarketer stated that
requiring the disclosures at the beginning is very reasonable.
``Rather than impeding business, disclosure of the information
proposed by the Commission adds credibility to the legitimacy of the
caller and increases consumer confidence [and] responsiveness to its
telemarketing calls.'' TMGI at 2, 4.
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After considering these comments, the Commission has determined
that requiring these disclosures ``at the beginning'' may be too rigid
a standard for achieving the statutory purpose of providing important
information to consumers while permitting the use of the telephone in
making sales.125 The revised proposed Rule adheres to the
statutory requirement that the disclosures be prompt and clear. By
adhering more closely to the statutory language, the Commission intends
to permit some flexibility in the seller's telemarketing presentation.
For example, a prompt disclosure would not preclude the seller or
telemarketer from establishing some initial rapport with the customer
before stating the purpose of the call. However, in ``multiple purpose
calls,'' where one purpose is to sell goods or services, the sales
purpose must be disclosed promptly.
\125\ The Senate Report stated that the ``prompt'' disclosure
requirement was added to the Telemarketing Act to address concerns
raised by the market research industry (those who conduct surveys
and public opinion polls without selling goods or services) that
telemarketing calls should not be made under the guise of being
calls solely for survey research or similar purposes. See Senate
Report at 4.
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The requirement that all outbound telephone calls include the
disclosure of the caller's true first and last name also elicited
significant comment. Commenters noted that ``desk names'' are commonly
used in the industry to protect the safety and privacy of employees,
and to protect against potential prejudice or harassment.126 Upon
reconsideration, the Commission has determined that disclosure of the
seller's identity is sufficient. Therefore, disclosure of the caller's
identity need not be included in this Rule.
\126\ See, e.g., ANA at 21; Cox at 7-8; APAC at 6; ADS at 2.
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In addition to the disclosure of the identity of the seller and the
fact that the purpose of the call is to sell goods or services, Section
310.4(d) of the revised proposed Rule now requires the prompt and clear
disclosure of the nature of the goods and services that are the subject
of the call. The Commission revised the language of Section 310.4(d) to
more accurately reflect language from Section 3(a)(3)(C) of the
Telemarketing Act setting forth those additional disclosures.
Section 310.4(d)(1)(ii) of the initially proposed Rule required a
number of disclosures in any telephone solicitation that included a
charitable solicitation.127 Upon careful review of the comments,
it is clear that separate treatment of such charitable solicitations is
unnecessary. As ATFA suggested at the workshop, the sale of goods or
services that includes a representation that a portion of the money
paid for such goods or services will go to charity could be treated
under the Rule as a sale of goods or services, rather than a charitable
solicitation.128 As a result, such a sale would be covered under
the Rule without having to expressly cover charitable solicitations or
donations. Because the initially proposed Rule attempted to encompass
these specific types of sales, and given that such sales will be
covered under the Rule's definition of ``telemarketing,'' the
Commission has decided to delete Section 310.4(d)(1)(ii) from the
revised proposed rule.
\127\ The definition of ``goods or services'' in Section
310.2(j) of the initially proposed Rule included a statement that
the term included ``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.''
\128\ See Tr. at 188-93 (ATFA).
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Additionally, many comments indicated that former Section
310.4(d)(1)(ii) engendered a great deal of confusion on the part of
nonprofit entities as to their coverage under the Rule. In including
former Section 310.4(d)(1)(ii), the Commission did not intend to
regulate nonprofit entities.129 The Commission is mindful of the
limitations on its jurisdiction in this area. Specifically, Section 4
of the FTC Act gives the Commission jurisdiction over corporations that
are operated for their own profit or that of their members and over the
business aspects of the activities of organizations serving both
nonprofit and for-profit purposes.130 Federal courts have
construed this to bar the Commission from suing any bona fide nonprofit
organization under the FTC Act, thereby removing most charitable
organizations from the scope of the FTC's authority.131 Section
6(a) of [[Page 30419]] the Telemarketing Act states that ``no activity
which is outside the jurisdiction of [the FTC Act] shall be affected by
this Act.'' 132 Accordingly, as explicitly stated in Section 310.1
of the revised proposed rule, the jurisdictional limitations of Section
4 of the FTC Act, including those regarding nonprofit organizations,
will apply to the Telemarketing Sales Rule.
\129\ See generally ATFA; NFN.
\130\ See American Medical Ass'n v. FTC, 94 F.T.C. 701, 982-93,
aff'd, 638 F.2d 443, 448 (2d Cir. 1980), aff'd mem. by equally
divided court, 455 U.S. 676 (1982).
\131\ This jurisdictional limitation, however, does not prevent
the Commission from suing a for-profit company that engages in
deceptive practices to solicit charitable contributions from
consumers. To this end, the Commission has recently sued several
allegedly deceptive ``telefunders''--companies that solicit
charitable contributions by telephone--which allegedly
misrepresented the use to which donations would be directed and
allegedly misrepresented the value of certain prizes. See FTC v. The
Baylis Co., No. 94-0017-S-LMB (D. Idaho 1994); FTC v. NCH, Inc., No.
CV-S-94-00138-LDG (LRL) (D. Nev. 1994); FTC v. International Charity
Consultants, No. CV-S-94-00195-DWH (LRL) (D. Nev. 1994); FTC v.
Heritage Publishing, No. LR-C-94-416 (E.D. Ark. 1994). In addition,
the Commission may sue a sham charity that is actually a for-profit
enterprise. FTC v. Voices for Freedom, No. 91-1542-A (E.D. Va. July
13, 1992) (consent decree entered).
\132\ 15 U.S.C. 6105(a).
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(b) Verification calls. The initially proposed Rule stated that if
a caller verifies a telemarketing sale, that caller must repeat certain
disclosures.133 Many commenters argued forcefully that this
Section was unnecessary and unduly burdensome, requiring duplicative
disclosures that would add to the cost of the call and annoy potential
customers.134 In addition, commenters stated that this disclosure
would discourage firms from making verification calls, due to increased
costs.135 After considering these comments, the Commission has
determined that requiring duplicative verification disclosures is
unnecessary and would unfairly burden legitimate telemarketers. It has
therefore deleted this Section from the revised proposed Rule.
\133\ Section 310.4(d)(2) of the initially proposed Rule.
\134\ ATA at 9; MPA at 20-21; ARDA at 33; NAA at 19; Spiegel at
5; ALIC at 3; MSSC at 22.
\135\ AT&T at 22-23; MCI at 12; PCH at 4; SBTC at 13.
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(c) Outbound telephone calls that include a prize promotion. The
initially proposed Rule required the following three additional oral
disclosures for any telemarketing that includes a prize promotion: (1)
The fact that no purchase or payment is necessary to win; (2) 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 (3) the odds of winning each prize offered.136
\136\ Initially proposed Rule Section 310.4(d)(3).
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The comments elicited by these requirements stressed the
unnecessary costs that would result from duplicative disclosure
requirements.137 The Commission wishes to avoid imposing
unnecessary requirements for oral disclosures that increase both the
length and the cost of calls without a very clear consumer
benefit.138 Because the benefit to be derived from repeated
disclosures of the same information is questionable, the Commission has
narrowed the amount of information that must be disclosed orally. Oral
disclosures now encompass only information that promises a clear-cut
consumer benefit and that is not outweighed by the costs it imposes on
legitimate industry. The revised proposed Rule requires a telemarketer
making an outbound telephone call which includes a prize promotion to
disclose clearly, in addition to the other disclosures required under
revised proposed Rule Section 310.4(d), the fact that no purchase is
necessary to win.
\137\ See generally PMAA, DMA; IMSP.
\138\ See, e.g., MPA at 21-22.
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The Commission believes that this disclosure is so critical to
consumer protection in a prize promotion that it should be stated
during an outbound telephone call. In addition, the Commission, in
response to concerns raised by NAAG, has specified in the revised
proposed Rule that this disclosure must be made before the prize is
described to the person called.139 Such a disclosure will clearly
inform consumers that a true, legitimate ``prize'' awarded in a game of
chance does not require any purchase.140 This disclosure will help
dispel the false information provided during fraudulent prize
promotions that a consumer must purchase some item in order to win the
``fabulous'' prize offered. In order to make this ``no purchase
necessary'' disclosure meaningful, the revised proposed Rule also
requires the telemarketer to disclose the no-purchase entry method for
the prize promotion, if requested by the person called.
\139\ NAAG at 28-29.
\140\ See e.g., 18 U.S.C. 1301. Additionally, PMAA, stated
during the workshop that such a requirement would not be overly
burdensome and would accurately distinguish deceptive prize
promotions from legitimate prize promotions. Tr. at 608-10 (PMAA).
(d) Outbound telephone calls that include a premium. The initially
proposed Rule required any telemarketing that includes an offer of a
premium to 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 $20.00.141 A number
of commenters stated that this Section should be eliminated. They
claimed that many premiums offered by legitimate telemarketers
generally are not available for retail sale, and attempting to
determine a retail sales price may be difficult and costly. They also
predicted that this added cost may result in the elimination of
premiums being offered, to the detriment of consumers.142
\141\ Initially proposed Rule Section 310.4(d)(4).
\142\ See, e.g., MPA at 22-23; NAA at 19-20; MasterCard at 13-
14; MBNA at 1.
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The Commission is persuaded by these arguments; in and of itself,
non-disclosure of the value of an offered premium is not likely to be
injurious to consumers, and imposition of the potential costs
associated with such a disclosure requirement is not justified. The
prohibition against misrepresentations in Section 310.3 is sufficient
to protect consumers against false and misleading claims about the
value of a premium.
5. Other Required Disclosures. The initially proposed Rule
prohibited any seller or telemarketer conducting a prize promotion from
requesting or accepting any payment from a person without first
providing that person with a written disclosure, in duplicate, and
receiving from that person a written acknowledgement that the person
has read the disclosure.143 Numerous commenters stated that such a
written acknowledgement requirement would effectively ban prize
promotions in telemarketing sales by increasing costs and negating the
efficiency of those sales.144 The Commission is persuaded that
such an outcome would limit consumers' choices and would be
inconsistent with Commission policy. Prize promotions in telemarketing,
in and of themselves, are not deceptive, do not cause injury to
consumers, and may, in fact, provide consumer benefits. The Commission
has determined that these requirements would likely produce nominal
consumer benefits that would be outweighed by the potential detrimental
effects, and has therefore dropped them from the revised proposed Rule.
\143\ Initially proposed Rule Section 310.4(e)(1).
\144\ See, e.g., DMA at 33; MPA at 23-24; NRF at 38; PMAA at 49-
51; CUCI at 10; IBM at 26; ITI at 8-10; Spiegel at 5-6; ADS at 3;
SDRA at 1. In fact, one commenter noted that 73 percent of prize
winners do not return an affidavit permitting the distribution of
prizes to them. DW&Z at 2.
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The initially proposed Rule also imposed written disclosure
requirements on investment opportunities very similar to those for
prize promotions. Specifically, any seller or telemarketer selling an
investment opportunity was prohibited from requesting or accepting any
payment from a person without first providing that person with a
written disclosure, in duplicate, and receiving from that person a
written acknowledgement that the person had read the
disclosure.145 Industry [[Page 30420]] representatives again
stated that a signed acknowledgement from consumers is unjustifiably
burdensome in advance of all investment transactions.146 They also
stated that the delay caused by this requirement is unfair to both the
customer and the seller in certain volatile markets.147
\145\ Initially proposed Rule Section 310.4(e)(2).
\146\ See, e.g., A-Mark at 2, 11-12; AFSA at 7-8.
\147\ See, e.g., Monex at 16-17.
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After reviewing the comments in this area, and upon further
reflection, the Commission, for reasons similar to those that prompted
deletion of the written prize promotion disclosures, has deleted
requirements for additional written disclosures for telemarketing
investment opportunities. While the Commission is mindful that both
prize promotions and investment opportunities are a major area of
telemarketing fraud,148 the costs imposed on legitimate industry
by these mandatory disclosures is not justified. In addition, the
prohibitions on misrepresentations, as well as the disclosures required
before a customer pays for goods or services, included in Section 310.3
are sufficient to prohibit the deceptive conduct found in the
telemarketing of prize promotions and investment opportunities.
\148\ Approximately 60 percent of all telemarketing complaints
received by NCL involve prize offers, while investment opportunities
account for the greatest dollar volume of losses reported. NCL at
49-51.
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6. Distribution of Lists. The initially proposed Rule prohibited
any person who is subject to any federal court order resolving a case
in which the complaint alleged a violation of certain provisions of the
Rule, and in which the court did not dismiss or strike all such
allegations from the case, from selling, renting, publishing, or
distributing any list of customer contacts from that person.149
Industry commenters stated that the original proposal was too great a
penalty for Rule violations, would preclude settlements of law
enforcement actions, and should be eliminated.150 On the other
hand, law enforcement and consumer representatives commented that the
proposed provision does not go far enough, and should extend to all
rule violations and to FTC enforcement actions.151
\149\ Initially proposed Rule Section 310.4(f).
\150\ APAC at 7; DMA at 34; MSSC at 24-25; Spiegel at 6; Monex
at 19; NRF at 38-39.
\151\ AARP at 22; NACAA at 5 (apply it to state orders as well);
GA OCA at 2.
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After considering the comments, the Commission believes that such a
prohibition is better left to the discretion of law enforcement
agencies to seek, and the courts to order, in individual law
enforcement actions. This Section therefore has been deleted from the
revised proposed Rule.
Section 310.5 Recordkeeping Requirements
The initially proposed Rule required any seller or telemarketer to
keep certain records relating to telemarketing activities for a period
of 24 months from the date the record is produced.
Many industry commenters stated that the 24-month retention period
was burdensome and suggested that the period be shortened.152
Others suggested that the recordkeeping provision be dropped altogether
because Congress did not mandate that records be kept,153 and
because fraudulent telemarketers will most likely ignore the
requirements. Those commenters suggested that recordkeeping
requirements would only burden legitimate business.154 On the
other hand, law enforcement and consumer representatives commented that
the recordkeeping provisions would be extremely helpful in preserving
evidence of compliance, in identifying customers who may have been
injured, and in identifying persons who might have been involved in any
deceptive or abusive telemarketing practices.155 In fact, several
commenters suggested that the record retention period be lengthened to
36 months, which would parallel the IRS retention requirements.156
\152\ See, e.g., DMA at 35; ANA at 24; IBM at 27; Olan at 14;
NRF at 40; MSSC at 25; Ann Arbor at 2.
\153\ Section 3(a)(3) of the Telemarketing Act authorizes the
Commission to include recordkeeping requirements in the Rule. 15
U.S.C. 6102(a)(3).
\154\ See, e.g., RPI at 1; BSA at 14.
\155\ See, e.g., NCL at 54; USPS at 24; AARP at 23; NAAG at 36;
CFA at 6.
\156\ See, e.g., NAAG at 36-37; CFA at 6.
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After careful consideration of the comments, the Commission has
decided to keep a recordkeeping requirement in the revised proposed
Rule. Without the required records, it would be difficult to ensure
that sellers and telemarketers are complying with the requirements of
the revised proposed Rule, or identify persons who are involved in the
practices, or identify customers who may have been injured.
The Commission also has decided to leave the record retention
period at 24 months in the revised proposed Rule. A record retention
period shorter than a two-year period would be inadequate for the
Commission and the States to complete investigations of noncompliance.
Consumers who complain to an agency about alleged deceptive or abusive
telemarketing practices often do not do so immediately. Therefore,
there may already be a substantial ``lag time'' between the time the
alleged violations occur and the time the Commission learns of the
alleged violations. A two-year record retention period allows the
Commission and State law enforcement agencies to gather information
needed to pursue enforcement actions and to identify those persons who
have most recently suffered injury from the alleged deceptive or
abusive telemarketing practices.
The Commission is mindful, however, of the burden on business in
maintaining these records. Therefore, the revised proposed Rule
incorporates many of the suggestions from industry on how to minimize
the recordkeeping burden.
First, the revised proposed Rule specifies that the records may be
kept ``in any form.'' This language addresses the suggestions from many
commenters that the burden could be reduced if the sellers and
telemarketers could keep the required records in electronic
storage.157
\157\ See, e.g., ANA at 24; NRF at 40; Olan at 14; NCL at 54;
IBM at 27-28; USPS at 24.
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Second, the revised proposed Rule specifies that sellers and
telemarketers need to retain only substantially different advertising,
brochures, telemarketing scripts, and promotional materials. Several
commenters proposed this change in order to reduce the paper burden of
maintaining large quantities of virtually identical documents.158
\158\ See, e.g., DMA at 35; Tr. at 761, 767, and 769.
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Third, the revised proposed Rule incorporates the suggestions of
many commenters by requiring sellers and telemarketers to maintain a
record only of the last known address of prize recipients, customers,
and of current and former employees.159
\159\ See, e.g., ATA at 9-10; NRF at 40; Olan at 14; SCIC at 6;
IBM at 27.
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Fourth, the revised proposed Rule sets a de minimis amount of $25
for record retention on prizes, as was suggested by at least one
commenter.160 Sellers and telemarketers will not have to maintain
records on prize recipients and prizes awarded for prizes that have a
value less than $25.00.
\160\ See ARDA at 36-37.
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Fifth, the revised proposed Rule adds the requirement that sellers
and telemarketers maintain a record of any fictitious name used by any
current or former employee directly involved in telemarketing sales.
This requirement would prevent deceptive telemarketers from hiding
behind a fictitious identity and would aid law enforcement agencies in
identifying possible defendants.
Some commenters requested clarification of certain recordkeeping
[[Page 30421]] requirements in order to reduce the burden on business.
For example, several parties read the recordkeeping requirements to
require them to maintain records of all customer contacts, regardless
of whether the customer actually made a purchase.161 They
recommended that businesses only be required to maintain records
relating to customers who actually made a purchase of goods or
services. The Commission did not add clarifying language addressing
this concern because it believes that the plain language in Section
310.5(a)(3) of the revised proposed Rule is sufficiently clear that
only records relating to actual sales need be maintained. That Section
specifically requires information to be maintained regarding the sales
transaction: the identity of the goods or services purchased, the
fulfillment, and the amount paid by the customer.
\161\ See, e.g., Wachovia at 3; ARDA at 37; IBM at 27.
Other commenters asked that, in connection with the requirement to
maintain employee records, the revised proposed Rule more clearly
define who is ``directly involved in telephone sales'' in order to
minimize the burden of maintaining records on employees who might be
only tangentially involved in telemarketing activities.162 In
addition, some commenters asked that the Commission clarify that
records on former employees be kept only on those persons who are
employees on or after the effective date of the final Rule.163
\162\ See, e.g., DMA at 35-36; ARDA at 37.
\163\ See, e.g., NB at 5; Citicorp at 9; ARDA at 37.
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The revised proposed Rule does not add clarifying language
addressing these concerns. The Commission believes that the Rule is
sufficiently clear about the types of telemarketing activities that
would be subject to the Rule's provisions as to minimize the number and
type of employees on whom records must be maintained. In addition, the
Commission intends that any Rule requirements, including recordkeeping
requirements, will commence with the effective date of the final Rule.
Therefore, any records relating to employees and former employees would
be required only for those persons who are or become employees or
former employees on or after the effective date of the Rule.
The revised proposed Rule incorporates suggestions from some
commenters to clarify that the seller and telemarketer need not
duplicate those records that are already maintained in the ordinary
course of business.164 Additionally, Section 310.5(c) of the
revised Rule permits a seller and telemarketer to allocate between
themselves, by written agreement, responsibility for complying with the
recordkeeping requirements. The revised proposed Rule further clarifies
a seller's and a telemarketer's recordkeeping responsibilities. Under
revised Section 310.5(d), absent a written agreement described in
Section 310.5(c), a seller is responsible for complying with Sections
310.5(a) (1)-(3) and a telemarketer is responsible for complying with
Section 310.5(a)(4). Revised Section 310.5(d) allows sellers and
telemarketers to keep the required records in any manner, format, or
place as they keep such records in the ordinary course of business.
\164\ See, e.g., Comcast at 6.
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Several commenters expressed concern that sellers and telemarketers
may not have access to all of the information required to be
maintained, and requested that the Rule set out which parties should
have responsibility for maintaining certain types of records.165
After considering these comments, the Commission has determined that
the language in Section 310.5(b) is already sufficiently clear to
convey that the parties may enter into a written agreement allocating
responsibility for maintaining records. Thus, there is nothing in
Section 310.5(b) that would prohibit the parties from maintaining only
those records to which they would normally have access, as long as each
of the required types of information is maintained by at least one of
the parties. Indeed, several commenters supported this Section, noting
that it strikes a reasonable balance between maintaining necessary
documentation and avoiding overly burdensome requirements, as well as
noting that it is consistent with the contractual nature of the
relationship between sellers and telemarketers.166
\165\ See, e.g., MPA at 25; DSA at 21; OPC at 4.
\166\ See, e.g., NRF at 41; ARDA at 37-38.
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Finally, the Commission has deleted former Section 310.5(a)(5) that
required that ``any written notices, disclosures, and acknowledgements
required to be provided or received under this Rule'' be kept. The
Commission deleted this Section because the revised proposed Rule no
longer requires specific written disclosures and acknowledgements.
Section 310.6 Exemptions
Section 310.6 of the initially proposed Rule exempts certain acts
or practices from the Rule's provisions. This Section prompted
considerable comment.
Law enforcement and consumer groups cautioned against any
exemptions because of the additional burden of proof exemptions place
on law enforcement and because of the potential danger that deceptive
telemarketers will seize upon any perceived loophole to avoid coverage
under the Rule.167 At the workshop conference, DSA-Nev. explained
Nevada's negative experience with legislative exemptions. DSA-Nev.
stated that Nevada's telemarketing legislation exempted charitable
solicitations. Shortly after its enactment, Nevada saw fraudulent
telemarketers rushing to switch their operations to fraudulent
``telefunding'' in order to take advantage of that exemption.168
\167\ See, e.g., NCL at 54-55; NAAG at 37. See also Tr. at 254-
256, 704, and 725.
\168\ Tr. at 82-84.
The business community, however, suggested that the Commission
formulate exemptions that specifically differentiate between deceptive
and legitimate telemarketing because of the broad coverage of the
initially proposed Rule.169 Industry suggested that the Commission
take one or both of the following courses: (1) narrow the definition of
``telemarketing'' to include only outbound telephone calls; 170 or
(2) if the Commission decides to continue including inbound telephone
calls, set forth additional exemptions that would allow the legitimate
telemarketing industry to operate without the restraints of additional
regulation.171
\169\ See, e.g., NRF at 9; Time Warner at 4-7; DMA at 10-12. See
also Tr. at 79-81, 702-703, and 710-711.
\170\ See, e.g., MPA at 8-10; MSSC at 9-10; Olan at 19-20; ANA
at 10; ACRA at 6-7.
\171\ See, e.g., NRF at 20-21; ICTA at 31-35; Time Warner at 28.
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After careful consideration, the Commission has decided that
narrowly-tailored exemptions are necessary to avoid unduly burdening
legitimate businesses and sales transactions that Congress specifically
intended not to cover under the Rule. Section 310.6 enumerates these
exemptions. The Commission determined the advisability of each
exemption after considering the following factors: (1) Whether the
conduct or business in question already is regulated extensively by
Federal or State law; (2) whether Congress intended that a certain type
of telemarketing activity be exempt under the Rule; (3) whether, based
on the Commission's enforcement experience, the conduct or business
lends itself easily to deception or abuse; and (4) whether requiring
businesses to comply with the Rule would be unduly burdensome when
weighed against the likelihood that deceptive sellers or telemarketers
would use an exemption to circumvent the Rule's coverage.
[[Page 30422]]
The revised proposed Rule incorporates the suggestions of numerous
commenters and exempts transactions that are subject to extensive
requirements under other Commission rules.172 Section 310.6(a)
exempts pay-per-call services subject to the FTC's 900 Number
Rule.173 Additionally, the Commission has clarified the definition
of ``investment opportunity'' in Section 310.2(j) of the revised
proposed Rule to expressly state that the term does not include sales
of franchises subject to the FTC's Franchise Rule.174
\172\ See, e.g., IFA at 4; Time Warner at 44-45; CHC at 7; ISA
at 20-27; PMAA at 34-38.
\173\ ``Trade Regulation Rule Pursuant to the Telephone
Disclosure and Dispute Resolution Act of 1992,'' 16 CFR Part 308.
\174\ ``Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures,'' 16 CFR Part 436.
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Many commenters suggested exemptions based on other FTC rules,
statutes, and regulations, for example, the Negative Option Rule, 16
CFR Part 425, FDCPA, 15 U.S.C. 1692, and the TILA, 15 U.S.C. 1601 et
seq.).175 The Commission believes that changing the phrase
``induce payment'' to ``induce purchase'' in the definition of
``telemarketing'' clarifies that debt collection practices are not
covered by this Rule. With regard to credit statutes such as the TILA
and the Consumer Leasing Act [``CLA''], 15 U.S.C. 1667, the Commission
believes that the revised proposed Rule's disclosure requirements do
not conflict or overlap with those statutes. It is therefore
unnecessary to specifically exempt transactions subject to the TILA and
CLA from the provisions of this Rule. Similarly, the Commission
believes that the disclosure provisions of the Negative Option Rule do
not conflict or overlap with the provisions of this Rule and therefore
there is no need to exempt those transactions.
\175\ See, e.g., BOB at 2; ANA at 14; ABA at 3; ACA at 1;
Advanta at 2; MBNA at 1.
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Other commenters asked that the Commission exempt those entities
that are not subject to the FTC Act.176 The revised proposed Rule
has added language to Section 310.1 that clarifies the scope of the
Rule in accordance with those comments. Many of these commenters,
however, also asked that agents of exempt entities or of entities
engaging in exempt activities similarly be exempted from the Rule's
provisions.177 The Commission rejects such an extension.
Exemptions under the FTC Act are either based on ``status,'' or a
specific activity.178 Exempting agents is contrary to the
Commission's assertion of its jurisdiction under established case law.
This Rule will cover sellers and telemarketers who do not fall within
those status or activity-based exemptions of the FTC Act. Moreover, the
Commission's decision is consistent with Congressional intent that the
Telemarketing Act neither expand nor contract the Commission's
authority.179
\176\ See, e.g., GHAA at 3; AT&T at 6-13; AmEx at 3; ABA at 1;
BOB at 1; ASAE at 2; SCIC at 7.
\177\ See, e.g., ABA at 1; Advanta at 1; Chase at 2; Citicorp at
3; NFN at 2.
\178\ See 15 U.S.C. 44 and 45(a)(2). For examples of status
exemptions, see FTC v. Green Tree Acceptance Corp., No. CA-4-86-469-
K, slip op. (N.D. Tx. Sep. 30, 1987); Official Airlines Guides, Inc.
v. FTC, 630 F.2d 920 (2d Cir. 1980); FTC v. Miller, 549 F.2d 452
(7th Cir. 1977); Breen Air Freight, Ltd. v. Air Cargo, Inc., 470
F.2d 767 (2d Cir. 1972). For an example of an activity exemption,
see Community Blood Bank of Kansas City, Inc. v. FTC, 405 F.2d 1011
(8th Cir. 1969).
\179\ See Senate Report at 14.
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Section 310.6(b) of the revised proposed Rule exempts ``telephone
calls in which the sale of goods or services is not completed, and
payment or authorization of payment is not required, until after a
face-to-face sales presentation by the seller during which the customer
has the opportunity to examine the goods or services offered.'' In
addition to Congress' clear intent not to cover such
transactions,180 numerous commenters explained how face-to-face
sales are not the type of telemarketing transactions that Congress was
concerned about in passing the Telemarketing Act.181 The
Commission agrees that such face-to-face contacts where consumers have
the opportunity to examine the goods or services should be exempt under
the Rule. This exemption also applies to telephone contacts made
subsequent to a face-to-face sales presentation to the extent such
contacts are for the sole purpose of consummating the sale of goods or
services that the customer had the opportunity to examine.
\180\ House Report at 7; Senate Report at 7-8.
\181\ See, e.g., DSA.
Section 310.6(c) of the revised proposed Rule exempts telephone
calls initiated by a customer that are not the result of any
solicitation by the seller or telemarketer. The Commission added this
exemption to address many commenters' concerns that the definition of
telemarketing might include an inbound call from a customer to make
hotel, airline, car rental or similar reservations, to place carry-out
or restaurant delivery orders, obtain information or customer technical
support, or other incidental uses of the telephone that were not in
response to a direct solicitation.\182\ This exemption is consistent
with Congress' intent not to cover transactions involving incidental
use of the telephone.\183\
\182\ See, e.g., ACRA at 6; DSA at 5; Olan at 19-20; Viacom at
6-7; MCI at 5-6.
\183\ Senate Report at 8.
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The Commission has replaced former Section 310.6(c) with revised
Sections 310.6(d) and (e). Section 310.6(c) of the initially proposed
Rule had exempted telephone contacts made 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.'' Many
commenters expressed confusion over what was meant by ``initial sales
contact'' or ``directed to that particular person,'' and requested that
the Commission clarify the scope of this exemption.\184\ The Commission
agrees that clarification is needed as to the scope of this exemption.
Revised proposed Sections 310.6(d) and (e) now treat separately calls
prompted by advertisements in any media, other than direct mail
solicitations, and calls prompted by direct mail solicitations. Revised
Section 310.6(d) exempts ``telephone calls initiated by a customer in
response to an advertisement through any media, other than direct mail
solicitations; provided, however, that this exemption does not apply to
calls initiated by a customer in response to an advertisement relating
to investment opportunities, goods or services described in Sections
310.4(a)(2)-(3), or advertisements that guarantee or represent a high
likelihood of success in obtaining or arranging for extensions of
credit, if payment of a fee is required in advance of obtaining the
extension of credit.'' The revised language of Section 310.5(d)
addresses some commenters' concerns that calls in response to
television commercials, infomercials, magazine and newspaper
advertisements, and other forms of mass media advertising would be
covered by the Rule.\185\ The Commission does not intend that telephone
contacts in response to general media advertising be covered under the
Rule. Rather, deceptive general media advertising will continue to be
subject to enforcement actions under the FTC Act.
\184\ See, e.g., ANA at 10-11; Viacom at 6-7; Olan at 27; AFSA
at 3-4; QVC at 13-14; DMA at 37; MPA at 9; Time Warner at 26-27.
\185\ See, e.g., INTV at 4; QVC at 2-3; NAA at 10-12; ANA at 10-
11.
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On the other hand, the Commission knows that some fraudulent
sellers and telemarketers use mass media or general advertising to
entice their victims to call, particularly in relation to the sale of
investment opportunities, specific credit-related programs, and
recovery rooms. Given the Commission's [[Page 30423]] experience with
these fraudulent telemarketing schemes being marketed through
television commercials, infomercials, magazine and newspaper
advertisements, and other forms of mass media advertising, the
Commission has excluded these activities from the general media
advertising exemption.
The revised proposed Rule no longer excludes ``prize promotions''
from the general media exemption because the Commission believes that
the majority of fraudulent prize promotions do not employ mass media or
general advertising. In addition, the revised proposed Rule has dropped
``employment services'' as one of the exceptions to the general media
exemption. Although the Commission and other law enforcement agencies
have brought actions against advance fee employment services that use
mass media advertising, many legitimate employment services use the
same type of mass media advertising and also require advance fees. The
Commission believes that neither the legislative history of the
Telemarketing Act nor the rulemaking record for the Rule provide a
sufficient basis for singling out the employment service industry for
an exception to the general media advertising exemption. Deceptive
employment opportunity advertising will, however, still be subject to
enforcement actions under the FTC Act.
Section 310.6(e) exempts telephone calls initiated by a customer in
response to ``a direct mail solicitation that clearly and conspicuously
discloses all material information listed in Section 310.3(a)(1) of
this Rule for any item offered in the direct mail solicitation;
provided, however, that this exemption does not apply to calls
initiated by a customer in response to a direct mail solicitation
relating to investment opportunities, goods or services described in
Sections 310.4(a)(2)-(3), or direct mail solicitations that guarantee
or represent a high likelihood of success in obtaining or arranging for
extensions of credit, if payment of a fee is required in advance of
obtaining the extension of credit.'' Some commenters suggested that the
Commission include under the general media exemption all direct mail
solicitations--which, in effect, would have excluded all inbound calls
from coverage under the Rule. However, the Commission's enforcement
experience demonstrates that deceptive telemarketers frequently use
direct mail solicitations as an integral part of their fraudulent
schemes. Inbound calls prompted by such solicitations frequently result
in the caller being subjected to the deceptive practices the
Telemarketing Act is designed to address. Therefore, the Commission has
determined that including all direct mail solicitations within the
general media exemption is unworkable. The Commission acknowledges,
however, that most direct mail solicitations are not deceptive. In
particular, the likelihood of deception is greatly diminished when
direct mail solicitations contain all material information about the
offered goods or services. Revised Section 310.6(e) therefore exempts
only those direct mail solicitations that disclose, clearly and
conspicuously, all the information specified in Section 310.3(a)(1) as
material to a person's purchase decision. As in the general media
exemption, revised Section 310.6(e) excludes from this exemption direct
mail solicitations relating to investment opportunities, specific
credit-related programs, and recovery rooms because of the Commission's
enforcement experience in these areas.
The Commission decided to delete the ``de minimis'' exemption for
incidental telemarketing activity contained in former Section 310.6(a).
Comments indicate that neither the law enforcement nor the business
communities found such an exemption helpful or workable. Law
enforcement agencies believed that the exemption would hamper quick law
enforcement, while providing a loophole for fraudulent telemarketers
who specialize in high-price scams directed at only a few victims.\186\
The business community found the exemption to be so restrictive that it
would be of little significance.\187\ The Commission agrees with those
observations and believes that revisions made elsewhere in the revised
proposed Rule, including exemptions in Section 310.6, eliminate the
need for this specific exemption.
\186\ See, e.g., NYSCPB at 13; NACAA at 6; NAAG at 38-40; IA DOJ
at 21.
\187\ See, e.g., DMA at 36; Olan at 27; ICTA at 57; AAAA at 6.
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Comments about the initially proposed ``business-to-business''
exemption \188\ fell to opposite extremes. Several industry commenters
asked that the exemption be expanded to include entities other than
businesses.\189\ Other commenters asked that the Commission clarify the
type of office supplies excluded from the exemption.\190\ Still other
industry commenters suggested that a ``business-to-business'' exemption
was only defensible if provided on an across-the-board basis, without
exceptions.\191\ On the other hand, law enforcement and consumer
agencies urged the Commission to exclude additional goods or services
from the business-to-business exemption.\192\
\188\ Initially proposed Rule Section 310.6(b).
\189\ See, e.g., Viacom at 9.
\190\ See, e.g., IBM at 28; BPIA at 4.
\191\ See DMA at 36-37.
\192\ See NAAG at 41; ID AG at 2; USPS at 25.
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Because the Commission has extensive enforcement experience
pertaining to deceptive telemarketing directed to businesses, it does
not believe that an across-the-board exemption for business-to-business
contacts is appropriate. The Commission does agree, however, that
clarification of the goods or services that are excluded from this
exemption is necessary. Revised Section 310.6(f) states that only the
retail sale of nondurable office or cleaning supplies are excluded from
the exemption.\193\
\193\ See, e.g., IBM at 28; BPIA at 4.
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Many commenters suggested an exemption for transactions where the
customer is able to examine the goods or services before paying for
them but does not involve a face-to-face sales presentation.\194\ The
Commission does not believe such an exemption is necessary, given the
changes elsewhere in the revised proposed Rule, as noted above.
\194\ See, e.g., CHC at 8, 12.
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Many commenters suggested an exemption based on a prior business
relationship with the customer.\195\ The Commission does not believe
that such an exemption would be workable in the context of
telemarketing fraud. A fraudulent telemarketer need only obtain an
initial purchase from an unsuspecting victim to claim a ``prior
business relationship'' exemption.
\195\ See, e.g., ARDA at 39; ACRA at 9-10; MSSC at 27; Time
Warner at 44; ADC at 2; DMA at 38.
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In addition, many commenters suggested an exemption for
``established businesses,'' including businesses that offer basic
customer protection policies such as a moneyback guarantee.\196\ The
Commission agrees with the comments of other law enforcement agencies
that such broad-based ``safe harbor'' provisions are not
appropriate.\197\
\196\ See, e.g., Time Warner at 23-26; DMA at 38; AmEx at 2;
APAC at 1-2,6; Viacom at 6; Olan at 28; ACRA at 10; ARDA at 40; NRF
at 17-18.
\197\ See, e.g., Tr. at 705-26.
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Such a ``safe harbor'' or ``established business'' exemption might
have an anticompetitive effect on new businesses entering the market.
In addition, the experience of law enforcement agencies indicates that
much telemarketing fraud is perpetrated by so-called ``established
businesses.'' Furthermore, the existence of policies such as a
moneyback guarantee is no assurance that the company is not fraudulent.
Law enforcement agencies are well aware that fraudulent
[[Page 30424]] telemarketers often tout their ``moneyback guarantees''
and refund policies as part of the sales solicitation. Unfortunately,
such companies rarely honor those moneyback guarantees. Therefore, the
Commission has decided not to include a broad ``safe harbor'' or
``established business'' exemption in the revised proposed Rule. The
Commission believes that changes made elsewhere in the revised proposed
Rule, including exemptions set forth in Section 310.6, obviate the need
for such an exemption or safe harbor.
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.\198\ Section 310.7 of the initially
proposed Rule set forth the notice such parties must provide to the
Commission concerning those actions. The language regarding the notice
has not changed in the revised proposed Rule. However, the revised
proposed Rule has added Section 310.7(b), which clarifies that the Rule
does not vest State officials or private persons with jurisdiction over
any person or activity outside the jurisdiction of the FTC Act.
\198\ See 15 U.S.C. 6103 and 6104.
The Commission added this language in response to questions from a
number of commenters regarding the scope of the Rule and the authority
to bring actions for violations of the Rule.199 When coupled with
the new language in section 310.1 on the scope of the Rule, the
language in Section 310.7(b) clarifies that the Rule does not apply to
any person outside the jurisdiction of the FTC Act, and that neither
the Commission nor any other party authorized to bring suit for
violations of the Rule may bring an action against such persons.
\199\ See, e.g., AARP at 3; ABA at 1; BOB at 2.
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This restriction on the scope of the Rule and authority to bring
actions under the Rule tracks Section 6(b) of the Telemarketing Act:
``[N]o activity which is outside the jurisdiction of [the FTC] Act
shall be affected by this Act.'' 200 The language also is
consistent with the legislative history of the Telemarketing Act and
reflects the intent of Congress:
\200\ 15 U.S.C. 6105(b).
[T]he legislation * * * does not vest the FTC, the State attorneys
general, or private parties with jurisdiction over any person over
whom the FTC does not otherwise have authority.201
\201\ Senate Report at 14.
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Section 310.8 Federal Preemption
Section 310.8 of the initially proposed Rule stated 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. Several commenters
asked that this Section clarify that the Rule establishes a threshold
requirement that State laws can exceed as long as they do not conflict
with the Rule's requirements.202 At least one commenter expressed
concern that they would be subject to making State-required disclosures
that are similar to the Rule's requirements but not directly in
conflict.203
\202\ See, e.g., AARP at 25; NYSCPB at 13-14; NAAG at 41-42;
NACAA at 6.
\203\ See Prudential at 4.
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The Commission does not believe any changes are necessary to this
Section. The language in this Section is clear and provides sufficient
guidance that additional State requirements and prohibitions would be
permitted as long as they do not conflict directly with the Rule. Thus,
State registration, certification, or licensing requirements for
telemarketing most likely would not be preempted because they would not
be in direct conflict with any provisions of this Rule.
Effective Date
The NPR asked for comments on whether 30 days would provide
sufficient time to come into compliance with the initially proposed
Rule provisions.204 Most of the parties who commented on the
effective date indicated that 30 days would be insufficient given the
need ``to make system changes, establish training programs [for]
employees involved in telephone sales * * *, develop new recordkeeping
procedures, prepare written disclosure and acknowledgement forms, draft
and negotiate new contracts with service bureaus, [and] develop
internal monitoring programs.'' 205 Most of the commenters who
believed 30 days was insufficient suggested a 6-month time frame in
order to achieve compliance.206 NCL noted that some of the
prohibited deceptive and fraudulent practices could be instituted
immediately (for example, the prohibitions against misrepresentations),
but that industry might need additional time to comply with certain
other requirements of the initially proposed Rule.207
\204\ 60 FR at 8328.
\205\ NRF at 41. See also APAC at 9; NCL at 55; Olan at 29; NAA
at 24; DMA at 40; SCIC at 71; ARDA at 41; Time Warner at 41. But see
USPS at 26.
\206\ See, e.g., DMA at 40; Olan at 29; NRF at 41; SCIC at 7;
Time Warner at 41.
\207\ NCL at 55.
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Because the revised proposed Rule eliminates many of the disclosure
requirements that generated the foregoing compliance time predictions,
the Commission proposes to set the effective date at 30 days from the
date the final Rule is published. Thirty days should not unduly burden
legitimate industry because, based on information provided by industry,
legitimate sellers and telemarketers already comply with the revised
proposed Rule. For example, legitimate industry represented that it
already makes the affirmative disclosures required under Section
310.3(a)(1); it does not misrepresent material information pertaining
to the sale of goods or services prohibited under Section 310.3(a)(2);
it does not knowingly provide substantial assistance or support to
deceptive sellers or telemarketers prohibited under Section 310.3(b);
and it does not engage in credit card laundering prohibited under
Section 310.3(c). Further, telemarketers have been required to comply
with the TCPA since 1992 and should already have in place and be
implementing the ``do not call'' procedures required under that Act.
Such procedures therefore would comply with Section 310.4(b)(2) of this
Rule, as well. Finally, the Commission understands from the workshop
that participants already maintain the records required under Section
310.5. Because the Commission does not require that records be kept in
any special form, legitimate industry is most likely already in
compliance with Section 310.5 of the Rule. Based on the foregoing, the
Commission does not believe that a further delayed effective date for
the Rule is reasonable.
Section C. Invitation To Comment
Before adopting this revised proposed Rule as final, consideration
will be given to any written comments submitted to the Secretary of the
Commission on or before June 30, 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, NW., Washington, DC 20580. [[Page 30425]]
Section D. 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
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 E. Regulatory Flexibility Act
During the comment period, only a few commenters 208 asserted
that the initially proposed Rule might have a significant economic
impact on a substantial number of small entities. However, based on the
revised proposed Rule's modified regulatory approach, 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 revised regulations, if
promulgated, will not have a significant economic impact on a
substantial number of small entities, 5 U.S.C. 605.
\208\ See generally Olan; ATFA; ANA; ABA.
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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 revised proposed rule exempts pay-per-call services
subject to the Commission's ``Trade Regulation Rule Pursuant to the
Telephone Disclosure and Dispute Resolution Act of 1992,'' exempts
telephone calls in which a payment is not required until after a face-
to-face sales presentation has occurred, telephone calls initiated by a
customer that are not in response to any solicitation, and customer
telephone calls that are in response to mass media advertising.
As a result of these statutory and regulatory limitations, the
Commission believes 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 revised 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.
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. This part does not apply to any
activity outside the jurisdiction of the Federal Trade Commission Act,
15 U.S.C. 41, et seq.
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) 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.
(d) Commission means the Federal Trade Commission.
(e) Credit means the right granted by a creditor to a debtor to
defer payment of debt or to incur debt and defer its payment.
(f) Credit card means any card, plate, coupon book, or other credit
device existing for the purpose of obtaining money, property, labor, or
services on credit.
(g) Credit card sales draft means any record or evidence of a
credit card transaction.
(h) Credit card system means any method or procedure used to
process credit card transactions involving credit cards issued or
licensed by the operator of that system.
(i) Customer means any person who is or may be required to pay for
goods or services offered through telemarketing.
(j) Investment opportunity means anything, tangible or intangible,
that is offered, offered for sale, sold, or traded based wholly or in
part on representations, either expressed or implied, about past,
present, or future income, profit, or appreciation. The term
``investment opportunity'' does not include sales of franchises subject
to the Commission's Rule entitled ``Disclosure Requirements and
Prohibitions [[Page 30426]] Concerning Franchising and Business
Opportunity Ventures,'' 16 CFR part 436.
(k) Material means likely to affect a person's choice of, or
conduct regarding, goods or services.
(l) Merchant means a person who is authorized under a written
contract with an acquirer to honor or accept credit cards, or to
transmit or process for payment credit card payments, for the purchase
of goods or services.
(m) Merchant agreement means a written contract between a merchant
and an acquirer to honor or accept credit cards, or to transmit or
process for payment credit card payments, for the purchase of goods or
services.
(n) Outbound telephone call means a telephone call initiated by a
telemarketer to induce the purchase of goods or services.
(o) Person means any individual, group, unincorporated association,
limited or general partnership, corporation, or other business entity.
(p) Prize means anything offered, or purportedly offered, and
given, or purportedly given, to a person by chance. For purposes of
this definition, chance exists if a person is guaranteed to receive an
item and, at the time of the offer or purported offer, the telemarketer
does not identify the specific item that the person will receive.
(q) Prize promotion means:
(1) A sweepstakes or other game of chance; or
(2) An oral or written express or implied representation that a
person has won, has been selected to receive, or may be eligible to
receive a prize or purported prize.
(r) Seller means any person who, in connection with a telemarketing
transaction, provides or offers to provide goods or services to the
customer in exchange for consideration.
(s) 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.
(t) Telemarketer means any person who, in connection with
telemarketing, initiates or receives telephone calls to or from a
customer.
(u) Telemarketing means a plan, program, or campaign which is
conducted to induce the purchase of goods or services by use of one or
more telephones and which involves more than one interstate telephone
call. 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 or in a
substantially similar catalog.
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 part
for any seller or telemarketer to engage in the following conduct:
(1) Before a customer pays for goods or services offered, failing
to disclose, in a clear and conspicuous manner, the following material
information:
(i) The total costs to purchase, receive, or use, and the quantity
of, any goods or services that are the subject of the sales offer;
(ii) All material restrictions, limitations, or conditions to
purchase, receive, or use the goods or services that are the subject of
the sales offer;
(iii) All material terms and conditions of the seller's refund,
cancellation, exchange, or repurchase policies if a representation
about any such policy is made a part of the sales offer; and
(iv) That no purchase is necessary to win if a prize promotion is
offered in conjunction with a sales offer of goods or services;
(2) Misrepresenting, directly or by implication, any of the
following material information:
(i) The total costs to purchase, receive, or use, and the quantity
of, any goods or services that are the subject of a sales offer;
(ii) Any material restriction, limitation, or condition to
purchase, receive, or use goods or services that are the subject of a
sales offer;
(iii) Any material aspect of the performance, efficacy, nature, or
central characteristics of goods or services that are the subject of a
sales offer;
(iv) Any material aspect of the nature or terms of the seller's
refund, cancellation, exchange, or repurchase policies;
(v) Any material aspect of a prize promotion including, but not
limited to, the odds of winning, the nature or value of a prize, or
that payment is required to receive a prize;
(vi) Any material aspect of an investment opportunity including,
but not limited to, risk, liquidity, earnings potential, or
profitability; or
(vii) A seller's or telemarketer's affiliation with, or endorsement
by, any government or third-party organization; and
(3) Making a false or misleading statement to induce any person to
pay for goods or services.
(b) Assisting and facilitating. It is a deceptive telemarketing act
or practice and a violation of this part for a person to provide
substantial assistance or support to any seller or telemarketer when
that person knows or consciously avoids knowing that the seller or
telemarketer is engaged in any act or practice that violates Sec. 310.3
(a) or (c), or Sec. 310.4 of this part, and such substantial assistance
is related to the commission or furtherance of that act or practice.
(c) Credit card laundering. Except as expressly permitted by the
applicable credit card system, it is a deceptive telemarketing act or
practice, and a violation of this part, 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 or the
applicable credit card system.
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 part for any seller or telemarketer
to engage in the following conduct:
(1) Threats, intimidation, or the use of profane or obscene
language;
(2) Requesting or receiving payment of any fee or consideration for
goods or services represented to remove derogatory information from, or
[[Page 30427]] improve, a person's credit history, credit record, or
credit rating until:
(i) The 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 in the
form of a consumer report from a 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 part should be construed to affect 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;
(3) Requesting or receiving payment of any fee or consideration
from a person, for goods or services represented to recover or
otherwise assist in the return of money or any other item of value paid
for by, or promised to, that person in a previous telemarketing
transaction, until seven (7) business 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
(4) Requesting or receiving payment of any fee or consideration in
advance of obtaining a loan or other extension of credit when the
seller or telemarketer has guaranteed or represented a high likelihood
of success in obtaining or arranging a loan or other extension of
credit for a person.
(b) Pattern of calls. (1) It is an abusive telemarketing act or
practice and a violation of this part for a telemarketer to engage in,
or for a seller to cause a telemarketer to engage in, the following
conduct:
(i) Causing any telephone to ring, or engaging any person in
telephone conversation, repeatedly or continuously with intent to
annoy, abuse, or harass any person at the called number; or
(ii) Initiating an outbound telephone call to a person when that
person previously has stated that he or she does not wish to receive an
outbound telephone call 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)(ii) if:
(i) It has established and implemented written procedures to
comply with Sec. 310.4(b)(1)(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)(ii); and
(iv) Any subsequent call is the result of 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 part for a telemarketer to engage in outbound telephone calls
to a person's residence at any time other than between 8:00 a.m. and
9:00 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 part for a telemarketer in an
outbound telephone call to fail to disclose promptly and in a clear and
conspicuous manner to the person receiving the call, the following
information:
(1) The identity of the seller;
(2) That the purpose of the call is to sell goods or services;
(3) The nature of the goods or services; and
(4) That no purchase is necessary to win if a prize promotion is
offered in conjunction with a sales offer of goods or services. This
disclosure must be made before the prize is described to the person
called. If requested by that person, the telemarketer must disclose the
no-purchase entry method for the prize promotion.
Sec. 310.5 Recordkeeping requirements.
(a) Any seller or telemarketer shall keep, in any form, for a
period of 24 months from the date the record is produced, the following
records relating to its telemarketing activities:
(1) All substantially different advertising, brochures,
telemarketing scripts, and promotional materials;
(2) The name and last known address of each prize recipient and the
prize awarded for prizes that have a value of $25.00 or more;
(3) The name and last known 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; and
(4) The name, any fictitious name used, the last known home address
and telephone number, and the job title(s) for all current and former
employees directly involved in telephone sales.
(b) Failure to keep all records required by Sec. 310.5(a) shall be
a violation of this part.
(c) The seller and the telemarketer calling on behalf of the seller
may, by written agreement, allocate responsibility between themselves
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, and the seller or telemarketer, as the case may
be, need not keep records that duplicate those of the other. If the
agreement is unclear as to who must maintain any required record(s),
the seller shall be responsible for keeping such records.
(d) Absent a written agreement described in section 310.5(c)
between the seller and the telemarketer, the seller shall be
responsible for complying with Sec. 310.5(a) (1), (2) and (3); the
telemarketer shall be responsible for complying with Sec. 310.5(a)(4).
The seller and telemarketer may keep any required records in the
manner, format, or place as they keep such records in the ordinary
course of business.
(e) 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 telemarketing acts or practices are exempt under this
part:
(a) Pay-per-call services subject to the Commission's ``Trade
Regulation Rule Pursuant to the Telephone Disclosure and Dispute
Resolution Act of 1992,'' 16 CFR part 308.
(b) Telephone calls in which the sale of goods or services is not
completed, and payment or authorization of payment is not required,
until after a face-to-face sales presentation by the seller during
which the customer has the opportunity to examine the goods or services
offered.
(c) Telephone calls initiated by a customer that are not the result
of any solicitation by a seller or telemarketer.
(d) Telephone calls initiated by a customer in response to an
advertisement through any media, other than direct mail solicitations;
provided, however, that this exemption does not apply to calls
initiated by a customer in response to an advertisement relating to
investment opportunities, goods or services described in
Sec. 310.4(a)(2) or (3), or advertisements that guarantee or represent
a high likelihood of success in obtaining or arranging for extensions
of credit, if payment of a fee is required in advance of obtaining the
extension of credit.
(e) Telephone calls initiated by a customer in response to a direct
mail [[Page 30428]] solicitation that clearly and conspicuously
discloses all material information listed in Sec. 310.3(a)(1) of this
part for any item offered in the direct mail solicitation; provided,
however, that this exemption does not apply to calls initiated by a
customer in response to a direct mail solicitation relating to
investment opportunities, goods or services described in
Sec. 310.4(a)(2) or (3), or direct mail solicitations that guarantee or
represent a high likelihood of success in obtaining or arranging for
extensions of credit, if payment of a fee is required in advance of
obtaining the extension of credit.
(f) Telephone calls between a telemarketer and any business, except
calls involving the retail sale of nondurable office or cleaning
supplies.
Sec. 310.7 Actions by States and private persons.
(a) 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
part. 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.
(b) This part does not vest the attorney general of any State or
any private person with jurisdiction over any person or activity
outside the jurisdiction of the Federal Trade Commission Act.
Sec. 310.8 Federal preemption.
Nothing in this part shall be construed to preempt any State law
that is not in direct conflict with any provision of this part.
Sec. 310.9 Severability.
The provisions of this part 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. 95-13814 Filed 6-7-95; 8:45 am]
BILLING CODE 6750-01-P
