Telemarketing Sales Rule

Federal RegisterJan 30, 2002

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FEDERAL TRADE COMMISSION

16 CFR Part 310

Telemarketing Sales Rule

AGENCY:

Federal Trade Commission.

ACTION:

Notice of Proposed Rulemaking.

SUMMARY:

In this document, the Federal Trade Commission (the “Commission” or “FTC”) issues a Notice of Proposed Rulemaking to amend the FTC's Telemarketing Sales Rule, and requests public comment on the proposed changes. The Telemarketing Sales Rule prohibits specific deceptive and abusive telemarketing acts or practices, requires disclosure of certain material information, requires express verifiable authorization for certain payment mechanisms, sets recordkeeping requirements, and specifies those transactions that are exempt from the Telemarketing Sales Rule.

This document invites written comments on all issues raised by the proposed changes and seeks answers to the specific questions set forth in Section IX of this document. This document also contains an invitation to participate in a public forum, to be held following the close of the comment period, to afford Commission staff and interested parties an opportunity to explore and discuss issues raised during the comment period.

DATES:

Written comments will be accepted until March 29, 2002. Notification of interest in participating in the public forum also must be submitted on or before March 29, 2002. The public forum will be held at the Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580, on June 5, 6, and 7, 2002, from 9:00 a.m. until 5:00 p.m.

ADDRESSES:

Six paper copies of each written comment should be submitted to the Office of the Secretary, Room 159, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580. To encourage prompt and efficient review and dissemination of the comments to the public, all comments should also 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.) Individual members of the public filing comments need not submit multiple copies or comments in electronic form.

Alternatively, the Commission will accept papers and comments submitted to the following email address:

tsr@ftc.gov,

provided the content of any papers or comments submitted by email is organized in sequentially numbered paragraphs. All comments and any electronic versions (

i.e.,

computer disks) should be identified as “Telemarketing Rulemaking—Comment. FTC File No. R411001.” The Commission will make this document and, to the extent possible, all papers and comments received in electronic form in response to this document available to the public through the Internet at the following address:

www.ftc.gov

Notification of interest in participating in the public forum should be submitted in writing, but separate from written comments, to Carole Danielson, Division of Marketing Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580. The public forum will be held at the Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

Comments on proposed revisions bearing on the Paperwork Reduction Act should additionally be submitted to: Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 10102, Washington, DC 20503, ATTN.: Desk Officer for the Federal Trade Commission, as well as to the FTC Secretary at the address above.

FOR FURTHER INFORMATION CONTACT:

Catherine Harrington-McBride, (202) 326-2452 (email:

cmcbride@ftc.gov

), Karen Leonard, (202) 326-3597 (email:

kleonard@ftc.gov

), Michael Goodman, (202) 326-3071 (email:

mgoodman@ftc.gov

), or Carole Danielson, (202) 326-3115 (email:

cdanielson@ftc.gov

), Division of Marketing Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

A. Telemarketing Consumer Fraud and Abuse Prevention Act

On August 16, 1994, President Clinton signed into law the Telemarketing Consumer Fraud and Abuse Prevention Act (“Telemarketing Act” or “the Act”).

The Telemarketing Act was the culmination of Congressional efforts during the early 1990's to protect consumers against telemarketing fraud.

The purpose of the Act was to combat telemarketing fraud by providing law enforcement agencies with powerful new tools, and to give consumers new protections. The Act directed the Commission, within 365 days of enactment of the Act, to issue a rule prohibiting deceptive and abusive telemarketing acts or practices.

15 U.S.C. 6101-6108.

Other statutes enacted by Congress to address telemarketing fraud during the early 1990's include the Telephone Consumer Protection Act of 1991 (“TCPA”), 47 U.S.C. 227

et seq.

, which restricts the use of automatic dialers, bans the sending of unsolicited commercial facsimile transmissions, and directs the Federal Communications Commission (“FCC”) to explore ways to protect residential telephone subscribers’ privacy rights; and the Senior Citizens Against Marketing Scams Act of 1994, 18 U.S.C. 2325

et seq.

, which provides for enhanced prison sentences for certain telemarketing-related crimes.

The Telemarketing Act specified, among other things, certain acts or practices the FTC's rule must address. The Act also required the Commission to include provisions relating to three specific “abusive telemarketing acts or practices:” (1) 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;'' (2) restrictions on the time of day telemarketers may make unsolicited calls to consumers; and (3) a requirement that telemarketers promptly and clearly disclose in all sales calls to consumers that the purpose of the call is to sell goods or services, and make other disclosures deemed appropriate by the Commission, including the nature and price of the goods or services sold.

Section 6102(a) of the Act not only required the Commission to define and prohibit deceptive telemarketing acts or practices, but also authorized the FTC to define and prohibit acts or practices that “assist or facilitate” deceptive telemarketing.

The Act further directed the Commission to consider including recordkeeping requirements in the rule.

Finally, the Act authorized State attorneys general, other appropriate State officials, and private persons to bring civil actions in federal district court to enforce compliance with the FTC's rule.

15 U.S.C. 6102(a)(3)(A)-(C).

Examples of practices that would “assist or facilitate” deceptive telemarketing under the Rule include credit card laundering and providing contact lists or promotional materials to fraudulent sellers or telemarketers.

See,

60 FR 43843, 43853 (Aug. 23, 1995) (codified at 16 CFR part 310 (1995)).

15 U.S.C. 6102(a)(3).

15 U.S.C. 6103.

B. Telemarketing Sales Rule

Pursuant to the Telemarketing Act, the FTC adopted the Telemarketing Sales Rule, 16 CFR part 310, (“Telemarketing Rule,” “the Rule,” “TSR,” or “original Rule”) on August 16, 1995.

The Rule, which became effective on December 31, 1995, requires that telemarketers promptly tell each consumer they call several key pieces of information: (1) the identity of the seller; (2) the fact that the purpose of the call is to sell goods or services; (3) the nature of the goods or services being offered; and (4) in the case of prize promotions, that no purchase or payment is necessary to win.

Telemarketers must, in any telephone sales call, also disclose cost and other material information before consumers pay.

In addition, telemarketers must have consumers' express verifiable authorization before using a demand draft (or “phone check”) to debit consumers” bank accounts.

The Rule prohibits telemarketers from calling before 8:00 a.m. or after 9:00 p.m. (in the time zone where the consumer is located), and from calling consumers who have said they do not want to be called by or on behalf of a particular seller.

The Rule also prohibits misrepresentations about the cost, quantity, and other material aspects of the offered goods or services, and the terms and conditions of the offer.

Finally, the Rule bans telemarketers who offer to arrange loans, provide credit repair services, or recover money lost by a consumer in a prior telemarketing scam from seeking payment before rendering the promised services,

and prohibits credit card laundering and other forms of assisting and facilitating deceptive telemarketers.

60 FR 43843.

16 CFR 310.4(d).

16 CFR 310.3(a)(1).

16 CFR 310.3(a)(3).

16 CFR 310.4(c), and 310.4(b)(1)(ii).

16 CFR 310.3(a)(2).

16 CFR 310.4(a)(2)-(4).

16 CFR 310.3(b) and (c).

The Rule expressly exempts from its coverage several types of calls, including calls where the transaction is completed after a face-to-face sales presentation, calls subject to regulation under other FTC rules (

e.g.,

the Pay-Per-Call Rule, or the Franchise Rule),

calls that are not in response to any solicitation, calls initiated in response to direct mail, provided certain disclosures are made, and calls initiated in response to advertisements in general media, such as newspapers or television.

Lastly, catalog sales are exempt, as are most business-to-business calls, except those involving the sale of office or cleaning supplies.

16 CFR 310.6(a)-(c).

16 CFR 310.6(d)-(f).

16 CFR 310.2(u) (pursuant to 15 U.S.C. 6106(4) (catalog sales)); 16 CFR 310.6(g) (business-to-business sales). In addition to these exemptions, certain entities including banks, credit unions, savings and loans, companies engaged in common carrier activity, non-profit organizations, and companies engaged in the business of insurance are not covered by the Rule because they are specifically exempt from coverage under the FTC Act. 15 U.S.C. 45(a)(2);

but see,

discussion immediately following concerning the USA PATRIOT Act amendments to the Telemarketing Act. Finally, a number of entities and individuals associated with them that sell investments and are subject to the jurisdiction of the Securities and Exchange Commission or the Commodity Futures Trading Commission are exempt from the Rule. 15 U.S.C. 6102(d)(2)(A); 6102(e)(1).

C. The USA PATRIOT Act of 2001

On Thursday, October 25, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) of 2001, Pub. L. 107-56 (Oct. 25, 2001). This legislation contains provisions that have significant impact on the TSR. Specifically, section 1011 of that Act amends the Telemarketing Act to extend the coverage of the TSR to reach not just telemarketing to induce the purchase of goods or services, but also charitable fund raising conducted by for-profit telemarketers for or on behalf of charitable organizations. Because enactment of the USA PATRIOT Act took place after the comment period for the Rule review (described below) closed, the Commission did not address issues relating to charitable fundraising by telemarketers in the Rule review.

Section 1011(b)(3) of the USA PATRIOT Act amends the definition of “telemarketing” that appears in the Telemarketing Act, 15 U.S.C. 6106(4), expanding it to cover any “plan, program, or campaign which is conducted to induce * * * a charitable contribution, donation, or gift of money or any other thing of value, by use of one or more telephones and which involves more than one interstate telephone call * * *”

In addition, section 1011(b)(2) adds a new section to the Telemarketing Act directing the Commission to include new requirements in the “abusive telemarketing acts or practices” provisions of the TSR.

Section 1011(b)(1) amends the “deceptive telemarketing acts or practices” provision of the Telemarketing Act, 15 U.S.C. 6102(a)(2), by specifying that “fraudulent charitable solicitation” is to be included as a deceptive practice under the TSR.

Specifically, section 1011(b)(2)(d) mandates that the TSR include “a requirement that any person engaged in telemarketing for the solicitation of charitable contributions, donations, or gifts of money or any other thing of value, shall promptly and clearly disclose to the person receiving the call that the purpose of the call is to solicit charitable contributions, donations, or gifts, and make such other disclosures as the Commission considers appropriate, including the name and mailing address of the charitable organization on behalf of which the solicitation is made.” Pub. L. 107-56 (Oct. 25, 2001).

The impact of the USA PATRIOT amendments to the Telemarketing Act is discussed more fully in the part of this notice that analyzes § 310.1 of the Rule, which deals with the scope of the Rule's coverage. This notice sets forth a number of proposed changes throughout the text of the TSR to implement the USA PATRIOT amendments. Also, in section IX of this notice, the Commission specifically seeks comment and information about its proposals to conform the TSR to section 1011 of the USA PATRIOT Act.

D. Rule Review and Request for Comment

The Telemarketing Act required that the Commission initiate a Rule review proceeding to evaluate the Rule's operation no later than five years after its effective date of December 31, 1995, and report the results of the review to Congress.

Accordingly, on November 24, 1999, the Commission commenced the mandatory review with publication of a

Federal Register

notice announcing that Commission staff would conduct a forum on January 11, 2000, limited to examination of issues relating to the “do-not-call” provision of the Rule, and soliciting applications to participate in the forum.

Seventeen associations, individual businesses, consumer organizations, and law enforcement agencies, each with an affected interest and an ability to represent others with similar interests, were selected to engage in the Forum's roundtable discussion (“Do-Not-Call” Forum), which was held on January 11, 2000, at the FTC offices in Washington, DC.

15 U.S.C. 6108.

64 FR 66124 (Nov. 24, 1999). Comments regarding the Rule's “do-not-call” provision, § 310.4(b)(1)(ii), as well as the other provisions of the Rule, were solicited in a later

Federal Register

notice on February 28, 2000.

See

65 FR 10428 (Feb. 28, 2000).

The selected participants were: AARP, American Teleservices Association, Callcompliance.com, Consumer.net, Direct Marketing Association, Junkbusters, KTW Consulting Techniques, Magazine Publishers Association, National Association of Attonerys General, National Association of Consumer Agency Administrators, National Association of Regulatory

Utility Commissioners, North American Securities Administrators Association, National Consumers League, National Federation of Nonprofits, National Retail Federation, Private Citizen, and Promotion Marketing Association. References to the “Do-Not-Call” Forum transcript are cited as “DNC Tr.” followed by the appropriate page designation.

On February 28, 2000, the Commission published a second notice in the

Federal Register

, broadening the scope of the inquiry to encompass the effectiveness of all the Rule's provisions. This notice invited comments on the Rule as a whole and announced a second public forum to discuss the provisions of the Rule other than the “do-not-call” provision.

In response to this notice, the Commission received 92 comments from representatives of industry, law enforcement, and consumer groups, as well as from individual consumers.

The commenters uniformly praised the effectiveness of the TSR in combating the fraudulent practices that had plagued the telemarketing industry before the Rule was promulgated. They also strongly supported the Rule's continuing role as the centerpiece of federal and State efforts to protect consumers from interstate telemarketing fraud. However, commenters were less sanguine about the effectiveness of the Rule's provisions dealing with consumers' right to privacy, such as the “do-not-call” provision and the provision restricting calling times. They also identified a number of areas of continuing or developing fraud and abuse, as well as the emergence of new technologies that affect telemarketing for industry members and consumers alike.

65 FR 10428 (Feb. 28, 2000). The Commission extended the comment period from April 27, 2000, to May 30, 2000. 65 FR 26161 (May 5, 2000).

A list of the commentes, and the acronyms used to identify each commenter in this Notice, is attached as Appendix A. References to comments are cited by the commenter's acronym followed by the appropriate page designation.

Specifically, commenters opined that the TSR has been successful in reducing many of the abuses that led to the passage of the Telemarketing Act,

and that consumer confidence in the industry has increased and complaints about telemarketing practices have decreased dramatically since the Rule became effective.

Commenters credited the TSR with these positive developments.

Commenters generally agreed that the Rule has been effective in protecting consumers, without unnecessarily burdening the legitimate telemarketing industry.

Commenters also agreed that the Rule has been an effective tool for law enforcement, especially because it allows individual States to obtain nationwide injunctive relief, or to collectively file a common federal action against a single telemarketer, thereby creating enforcement avenues not available under State law.

Commenters uniformly stressed that it is important to retain the Rule.

For example, complaints about “recovery” schemes declined dramatically, from a number 3 ranking in 1995 to a number 25 ranking in 1999, while complaints about credit repair have remained at a relatively low level since 1995 (steadily ranking about number 23 or 24 in terms of number of complaints received by the National Fraud Information Center (“NFIC”)). NCL at 11. Unfortunately, complaints about advance fee loan schemes rose from a number 15 ranking in 1995 to the number 2 ranking in 1998, with about 80% of the advance fee loan companies reported to NFIC located in Canada. NCL at 12.

ATA at 6 (consumers now have increased comfort with the telemarketing industry because of the TSR); ATA at 4-5 (according to NAAG, telemarketing complaints declined from the top consumer complaint in 1995 to number 10 in the first year that the Rule was in effect); KTW at 3 (TSR has added value, respect, and credibility to industry); MPA at 5-7 (complaints about magazine sales have decreased); NAA at 2; NCL at 2-3 (reports to NFIC of telemarketing fraud have decreased over the last five years from 15,738 in 1995 to 4,680 in 1999).

ATA at 4-5; MPA at 5-7; NAA at 2.

AARP at 2; ARDA at 2; ATA at 3-5; Bell Atlantic at 2; DMA at 2; ERA at 2, 6; Gardner at 1; ICFA at 1; KTW at 1; LSAP at 1; MPA at 4-6; NAA at 1-2; NASAA at 1; NACAA at 1; NCL at 2, 17 PLP at 1; Texas at 1; Verizon at 1.

AARP at 2; MPA at 4, 6; NAAG at 1; NACAA at 1; NASAA at 1; NCL at 2; Texas at 1.

AARP at 2; ARDA at 2; ATA at 3-5; Bell Atlantic at 2; DMA at 2; ERA at 2, 6; Gardner at 1; ICFA at 1; KTW at 1; LSAP at 1; MPA at 4-6; NAA at 1-2; NACAA at 1; NASAA at 1; NCL at 2, 17; PLP at 1; Texas at 1; Verizon at 1.

Commenters report that, despite the success of the Rule in correcting many of the abuses in the telemarketing industry, complaints about deceptive and abusive telemarketing practices continue to flow into the offices of consumer groups and law enforcement agencies.

As will be discussed in greater detail below, many of these complaints suggest that some of the TSR's provisions need to be amended to better address recurring abuses and to reach emerging problem areas.

See, e.g.,

LSAP at 2; NAAG at 4, 10-11; NCL at 5-6, 10, 15-16.

Following the receipt of public comments, the Commission held a second forum on July 27 and 28, 2000 (“July Forum”), to discuss provisions of the Rule other than the “do-not-call” provision. At this forum, which was held at the FTC offices in Washington, DC, sixteen participants representing associations, individual businesses, consumer organizations, and law enforcement agencies engaged in a roundtable discussion of the effectiveness of the Rule.

The selected participants were: AARP, ATA, DMA, DSA, ERA, Junkbusters, MPA, NAAG, NACAA, NACHA, NCL, NRF, PLP, Private Citizen, Promotion Marketing Association, and Verizon. References to the July Forum are cited as “Rule Tr.” followed by the appropriate page designation.

At both the “Do-Not-Call” Forum and the July Forum, the participants were encouraged to address each other's comments and questions, and were asked to respond to questions from Commission staff. The forums were open to the public, and time was reserved to receive oral comments from members of the public in attendance. Several members of the public spoke at each of the forums. Both proceedings were transcribed and placed on the public record. The public record to date, including the comments and the forum transcripts, has been placed on the Commission's website on the Internet.

Based on the record developed during the Rule review proceeding, as well as the Commission's law enforcement experience, the Commission has determined to retain the Rule, but proposes to amend it.

The electronic portions of the public record can be found at

www.ftc.gov/bcp/rulemaking/tsr/tsr-review.htm.

The full paper record is available in Room 130 at the FTC, 600 Pennsylvania Avenue, N.W., Washington, DC 20580, telephone number: 1-877-FTC-HELP (1-877-382-4357).

D. Notice of Proposed Rulemaking

By this document, the Commission is proposing revisions to the TSR in order to ensure that consumers receive the protections that the Telemarketing Act, as amended, mandated. The proposed changes to the Rule are made pursuant to the rule review requirements of the Telemarketing Act,

and pursuant to the rulemaking authority granted to the Commission by that Act to protect consumers from deceptive and abusive practices,

including practices that may be coercive or abusive of the consumer's interest in protecting his or her privacy.

As discussed in detail below, the Commission believes the proposed modifications are necessary to ensure that the Rule fulfills this statutory mandate. As noted, the Commission has proposed changes throughout the Rule pursuant to section 1011 of the USA PATRIOT Act. The Commission invites written comment on the questions in Section IX to assist the Commission in determining whether the proposed modifications strike the appropriate balance, maximizing consumer protections while avoiding the imposition of unnecessary compliance burdens on the legitimate telemarketing industry.

15 U.S.C. 6108.

15 U.S.C. 6102(a)(1) and (a)(3).

15 U.S.C. 6102(a)(3)(A).

II. Overview

A. Changes in the Marketplace

Since the Rule was promulgated, the marketplace for telemarketing has changed in significant ways that impact the effectiveness of the TSR. The proposed amendments to the TSR, therefore, attempt to respond to and reflect these changes in the marketplace.

One of the changes in the way telemarketing is conducted relates to refinements in data collection and target marketing techniques that allow sellers to pinpoint with greater precision which consumers are most likely to be potential customers.

These developments offer the obvious benefit of making telemarketing more effective and efficient for sellers. However, enhanced data collection and target marketing also have led to increasing public concern about what is perceived to be increasing encroachment on consumers' privacy. These privacy concerns initially focused on the Internet. However, the privacy debate has expanded to include all forms of direct marketing. Consumers have demanded more power to determine who will have access to their time and attention while they are in their homes.

Indeed, a majority of the comments received during the Rule review focused on issues relating to consumer privacy and consumer sovereignty, rather than on fraudulent telemarketing practices.

See, e.g.,

DNC Tr. at 35-36; Rule Tr. at 70-81; ATA at 9 (industry goes to great lengths to identify only those consumers who are likely purchasers of their products).

See also

Robert O'Harrow,

A Hidden Toll on Free Calls: Lost Privacy—Not even unlisted numbers protected from marketers.

Washington Post, p. A1 (Dec. 19, 1999); Robert O'Harrow,

Horning In On Privacy: As Databases Collect Personal Details Well Beyond Credit Card Numbers, It's Time to Guard Yourself,

Washington Post, p. H1 (Jan. 2, 2002);

Dialing for Dollars: How to be Rid of Telemarketers,

Orlando Sentinel (Sept. 29, 1999), p. E2 (describing process of data mining and types of information gleaned by list brokers for sale to telemarketing firms): Carol Pickering,

They're Watching You: Data-Mining firms are watching your every move—and predicting the next one,

Business 2.0 (Feb. 2000), p. 135; and,

Selling is Getting Personal,

Consumer Reports, p. 16 (Nov. 2000).

See, e.g.,

Bennett at 1; Biagiotti at 1; Card at 1; Conway at 1; Gilchrist at 1; Gindin at 1; Heagy at 1; Holloway at 1; Kelly at 1; Lee at 1; Runnels at 1; Ver Steegt at 1; and DNC Tr. at 83-130.

See also

O'Harrow, “A Hidden Toll” at A1 and “Horning In” at H1; and Gene Gray,

The Future of the Teleservices Industry—Are You Aware?,

17 Call Ctr. Solutions (Jan. 1999) p. 90.

One result of the call for greater consumer empowerment on issues of privacy has been a greater public and governmental focus on the “do-not-call” issue.

Related to the “do-not-call” issue is the proliferation of technologies, such as caller identification service, that assist consumers in managing incoming calls to their homes.

Similarly, privacy advocates have raised concerns about technologies used by telemarketers (such as predictive dialers and deliberate blocking of Caller ID information) that hinder consumers' attempts to screen calls or make requests to be placed on a “do-not-call” list.

See generally

DNC Tr. See

also

George Raine,

Drive to Ban Unsolicited Sales Calls; Consumer Activist's Initiative Would Bar Unwanted E-mail, Telemarketing,

The San Francisco Examiner, p.B-1 (Dec. 21, 1999).

See also

the discussion below of the proposed revision to the “do-not-call” provision, § 310.4(b)(1)(iii).

See, e.g.,

DNC Tr. at 83-130.

See also

, Donna Halvorsen,

Home defense against telemarketing: Consumers reaching out to services that screen telemarketers,

Star Tribune (Minneapolis), p. 1A (July 17, 1999); Stephanie N. Mehta,

Playing Hide-and-Seek by Telephone

, Wall Street Journal, p. B-1 (Dec. 13, 1999); Stanley A. Miller II,

Privacy Manager Thwarts Telemarketers. Ameritech says 7 out of 10 “junk” calls do not get through to customers,

Milwaukee Journal, p. 1 (Aug. 10, 1999); and Ed Russo,

Phone Devices Put Chill on Cold Calls Screening, ID Altering Telemarketing,

Omaha World-Herald, p. 1a (Sept. 26, 1999).

A second change in the marketplace involves payment methods available to consumers and businesses. The growth of electronic commerce and payment systems technology has led, and likely will continue to lead, to new forms of payment and further changes in the way consumers pay for goods and services they purchase through telemarketing. Examples of emerging payment devices include stored value cards and a host of Internet-based payment systems.

In addition, billing and collection systems of telephone companies, utilities, and mortgage lenders are becoming increasingly available to a wide variety of vendors of all types of goods and services.

See

NCL at 5. A more complete discussion of these new payment methods is included below in the section discussing express verifiable authorization, § 310.3(a)(3).

Id.

; NAAG at 10; Rule Tr. 111; 254-257.

The type of payment device used by a consumer to pay for goods and services purchased through telemarketing determines the level of protection that a consumer has in contesting unauthorized charges and, in some instances, the kinds of dispute resolution proceedings available to the consumer should the goods or services be unsatisfactory. Of all the payment devices available to consumers to pay for telemarketing transactions, only credit cards afford limited liability for unauthorized charges and dispute resolution procedures pursuant to federal law.

Therefore, because newly available payment methods in many instances are relatively untested, and may not provide protections for consumers from unauthorized charges, consumers may need additional protections—and vendors heightened scrutiny—when using these new payment methods.

The Fair Credit Billing Act, 15 U.S.C. 1666

et seq.

provides customers with dispute resolution rights when they believe a credit card charge is inaccurate. Debit cards are not similarly protected by federal law; however, Visa offers “‘$0 liability’ protection in cases of fraud, theft or unauthorized card usage if reported within two business days of discovery,” capping liability at $50 after that.

See www.visa.com/ct/debit/main.html.

Similarly, Mastercard offers a zero liability policy when loss, theft, or unauthorized use is reported within 24 hours of discovery, and otherwise caps liability at $50 “in most circumstances.”

See www.mastercard.com/general/zero_liability.html.

In addition, the Commission's 900-Number Rule specifies dispute resolution procedures for disputes involving pay-per-call transactions. 16 CFR 308.7.

Finally, over the past five years, the practice of preacquired account telemarketing—where a telemarketer acquires the customer's billing information prior to initiating a telemarketing call or transaction—has increasingly resulted in complaints from consumers about unauthorized charges. Billing information can be preacquired in a variety of ways, including from a consumer's financial institution or utility company, from the consumer in a previous transaction, or from another source.

In many instances, the consumer is not involved in the transfer of the billing information and is unaware that the seller possesses it during the telemarketing call.

See

NAAG at 10. The review of the TSR was completed before the implementation of the FTC's Privacy Rule, 16 CFR Part 313, mandated by the Gramm-Leach-Bliley Act. 15 USC 6801-6810. The Privacy Rule prohibits financial institutions from disclosing, other than to a consumer reporting agency, customer account numbers or similar forms of access to any non-affiliated third party for use in direct marketing, including telemarketing. 16 CFR 313.12(a).

Id.

The related practice of “up-selling” has also become more prevalent in telemarketing.

Through this technique, customers are offered additional items for purchase after the completion of an initial sale. In the majority of up-selling scenarios, the

seller or telemarketer already has received the consumer's billing information, either from the consumer or from another source. When the consumer is unaware that the seller or telemarketer already has his or her billing information, or that this billing information will be used to process a charge for goods or services offered in an “up-sell,” the most fundamental tool consumers have for controlling commercial transactions—

i.e.,

withholding the information necessary to effect payment unless and until they have consented to buy—is ceded, without the consumers' knowledge, to the seller before the sales pitch ever begins.

See generally

Rule Tr. at 95-99, 107-111, 176-177. For the purposes of this Notice, the Commission intends the term “up-selling” to mean any instance when, after a company captures credit card, or other similar account, data to close a sale, it offers the customer a second product or service. For example, a consumer might initiate an inbound telemarketing call in response to a direct mail solicitation for a given product, and, after making a purchase, be asked if he or she would be interested in another product or service offered by the same or another seller. Sometimes the further solicitation is made by the same telemarketer, and sometimes the call is transferred to a different telemarketer. When the product or service is offered by the same seller, the practice is called internal up-selling; when a second seller is involved, the practice is termed external up-selling.

Cognizant of these changes to the marketplace, and their potentially deleterious effect on consumers, the Commission proposes to amend the TSR.

B. Summary of Proposed Changes to the Rule

The highlights of the Commission's proposal to amend the TSR are summarized below. In brief, the Commission proposes:

• To supplement the current company-specific “do-not-call” provision with an additional provision that will empower a consumer to stop calls from all companies within the FTC's jurisdiction by placing his or her telephone number on a central “do-not-call” registry maintained by the FTC;

• To permit a consumer who places his or her telephone number on the central “do-not-call” registry to receive telemarketing sales calls from an individual company to whom the consumer has provided his or her express verifiable authorization to make telemarketing calls to his or her telephone.

• To modify § 310.3(a)(3) to require express verifiable authorization for all transactions in which the payment method lacks dispute resolution protection or protection against unauthorized charges similar or comparable to those available under the Fair Credit Billing Act and the Truth in Lending Act.

• To delete § 310.3(a)(3)(iii), the provision allowing a telemarketer to obtain express verifiable authorization by sending written confirmation of the transaction to the consumer prior to submitting the consumer's billing information for payment;

• To require, in the sale of credit card protection, the disclosure of the legal limits on a cardholder's liability for unauthorized charges;

• To prohibit misrepresenting that a consumer needs offered goods or services in order to receive protections he or she already has under 15 U.S.C. 1643 (limiting a cardholder's liability for unauthorized charges on a credit card account);

• To mandate, explicitly, that all required disclosures in § 310.3(a)(1) and § 310.4(d) be made truthfully;

• To expand upon the current prize promotion disclosures to include a statement that any purchase or payment will not increase a consumer's chances of winning;

• To prohibit the practices of receiving any consumer's billing information from any third party for use in telemarketing, or disclosing any consumer's billing information to any third party for use in telemarketing;

• To prohibit additional practices: blocking or otherwise subverting the transmission of the name and/or telephone number of the calling party for caller identification service purposes; and denying or interfering in any way with a consumer's right to be placed on a “do-not-call” list;

• To narrow certain of the Rule's exemptions;

• To clarify that facsimile transmissions, electronic mail, and other similar methods of delivery are direct mail for purposes of the direct mail exemption; and

• To modify various provisions throughout the Rule to effectuate expansion of the Rule's coverage to include charitable solicitations, pursuant to Section 1011 of the USA PATRIOT Act.

III. Analysis of Comments and Discussion of Proposed Revisions

The proposed amendments to the Rule do not alter § 310.7 (Actions by States and Private Persons), or § 310.8 (Severability).

A. Section 310.1—Scope of Regulations in This Part

The amendment of the Telemarketing Act by section 1011 of the USA PATRIOT Act is reflected in this section of the TSR. Section 310.1 of the proposed Rule states that “this part of the CFR implements the Telemarketing Act,

as amended by the USA PATRIOT Act.”

15 U.S.C. 6101-6108. The Telemarketing Act was amended by the USA PATRIOT Act on October 25, 2001. Pub. L. 107-56 (Oct. 25, 2001).

During the comment period that occurred prior to enactment of the USA PATRIOT Act, several commenters recommended that the Rule's reach be expanded or clarified.

The impact of the USA PATRIOT Act amendments on the scope of coverage of the TSR, the commenters' proposals, and the Commission's reasoning in accepting or rejecting the commenters' proposals, are discussed below.

See, e.g.,

DMA at 4; KTW at 4; LSAP at 1; NAAG at 19; NACAA at 2; NCL at 5, 7, 10; Telesource at 4.

Effect of the USA PATRIOT Act.

As noted above, section 1011(b)(3) of the USA PATRIOT Act amends the definition of “telemarketing” that appears in the Telemarketing Act, 15 U.S.C. 6306(4), by inserting the underscored language:

The term ”telemarketing” means a plan, program, or campaign which is conducted to induce purchases of goods or services

or a charitable contribution, donation, or gift of money or any other thing of value,

by use of one or more telephones and which involves more than one interstate telephone call * *

In addition, Section 1011(b)(2) adds a new section to the Telemarketing Act requiring the Commission to include in the “abusive telemarketing acts or practices” provisions of the TSR:

a requirement that any person engaged in telemarketing for the solicitation of charitable contributions, donations, or gifts of money or any other thing of value, shall promptly and clearly disclose to the person receiving the call that the purpose of the call is to solicit charitable contributions, donations, or gifts, and make such other disclosures as the Commission considers appropriate, including the name and mailing address of the charitable organization on behalf of which the solicitation is made.

Finally, section 1011(b)(1) amends the “deceptive telemarketing acts or practices” provision of the Telemarketing Act, 15 U.S.C. 6102(a)(2), by inserting the underscored language:

The Commission shall include in such rules respecting deceptive telemarketing acts or practices a definition of deceptive telemarketing acts or practices which

shall include fraudulent charitable solicitations and

which may include acts or practices of entities or individuals that assist or facilitate deceptive telemarketing, including credit card laundering.

Notwithstanding its amendment of these provisions of the Telemarketing Act, neither the text of section 1011 nor its legislative history suggest that it amends Sections 6105(a) of the Telemarketing Act—the provision which incorporates the jurisdictional limitations of the FTC Act into the Telemarketing Act and, accordingly, the TSR. Section 6105(a) states:

Except as otherwise provided in sections 6102(d) (with respect to the SEC), 6102(e) (Commodity Futures Trading Commission), 6103 (state attorney general actions), and 6104 (private consumer actions) of this title, this chapter shall be enforced by the Commission under the Federal Trade Commission Act (15 U.S.C. § 41 et seq.).

Consequently, no activity which is outside of the jurisdiction of that Act shall be affected by this chapter.

(Emphasis added.)

Section 6105(b) reinforces the point made in Section 6105(a), as follows:

The Commission shall prevent any person from violating a rule of the Commission under section 6102 of this title in the same manner, by the same means, and

with the same jurisdiction,

powers, and duties as though all applicable terms and provisions of the Federal Trade Commission Act (15 U.S.C. 41 et seq. were incorporated into and made a part of this chapter. Any person who violates such rule shall be subject to the penalties and entitled to the same privileges and immunities provided in the Federal Trade Commission Act in the same manner, by the same means, and

with the same jurisdiction,

power, and duties as though all applicable terms and provisions of the Federal Trade Commission Act were incorporated into and made a part of this chapter. (Emphasis added.)

One type of “activity which is outside the jurisdiction” of the FTC Act, as interpreted by the Commission and federal court decisions, is that of non-profit entities. Sections 4 and 5 of the FTC Act, by their terms, provide the Commission with jurisdiction only over persons, partnerships or “corporations organized to carry on business for their own profit or that of their members.”

Section 5(a)(2) of the FTC Act states: “The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations * * * from using unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. 45(a)(2). Section 4 of the Act defines “corporation” to include: “any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated,

which is organized to carry on business for its own profit or that of its members

* * * ” 15 U.S.C. 44 (emphasis added).

Reading the amendments to the Telemarketing Act effectuated by section 1011 of the USA PATRIOT Act together with the unchanged sections of the Telemarketing Act compels the conclusion that for-profit entities that solicit charitable donations now must comply with the TSR, although the Rule's applicability to charitable organizations themselves is unaffected.

The USA PATRIOT Act brings the Telemarketing Act's jurisdiction over charitable solicitations in line with the jurisdiction of the Commission under the FTC Act, by expanding the Rule's coverage to include not only the sale of goods or services but also charitable solicitations by for-profit entities on behalf of nonprofit organizations.

A fundamental tenet of statutory construction is that “a statute should be read as a whole, * * * and that provisions introduced by the amendatory Act should be read together with the provisions of the original section that were * * * left unchanged * * * as if they had been originally enacted as one section.” Sutherland Stat. Constr. § 22.34, p. 297 (5th ed).,

citing, inter alia, Brothers

First Leasing,

724 F.2d 789 (9th Cir. 1984);

Republic Steel Corp.

Costle,

581 F.2d 1228 (6th Cir. 1978);

American Airlines, Inc.,

Remis Indus., Inc.

, 494 F.2d 196 (2d Cir. 1974);

Kirchner

Kansas Turnpike Auth.,

336 F.2d 222 (10th Cir. 1964);

National Center for Preservation Law

Landrieu,

496 F. Supp. 716 (D. SC. 1980);

Conoco, Inc.

Hodel,

626 F. Supp. 287 (D. Del. 1986);

Palardy

Horner,

711 F. Supp. 667 (D. Mass. 1989). Thus, in constructing a statute and its amendments, “[e]ffect is to be given to each part, and they are to be interpreted so that they do not conflict.”

Id.

While First Amendment protection for charities extend to their for-profit solicitors,

e.g., Riley

Nat'l Fed. of the Blind,

487 U.S. 781 (1988), this narrowly tailored proposed rule furthers government interests that justify the regulation. One such interest is prevention of fraud.

E.g., Sec. of State of Maryland

Joseph H. Munson Co.,

467 U.S. 947, 969 n.16 (1984);

Telco Communications, Inc.

Carbaugh,

885 F.2d 1231,1232 (4th Cir. 1989),

cert. denied,

495 U.S. 904 (1990). Another is protection of home privacy.

See, e.g., Frisby

Schultz,

487 U.S. 474, 484 (1988) (targeted picketing around a home);

Watchtower Bible and Tract Society of New York, Inc.

Village of Stratton, Ohio

, 240 F.3d 553 (6th Cir.),

cert. granted on other grounds,

_U.S._ (2001) (upholding law, based on both privacy and fraud grounds, forbidding canvassing of residents who filed a No Solicitation Form with mayor's office).

Commenters' Proposals.

A number of commenters urged the expansion of the Rule's scope beyond its current boundaries. For example, LSAP strongly suggested that the Commission amend the Rule to provide additional protection for consumers in light of the convergence of the banking, insurance, and securities industries, noting that this phenomenon has resulted in increased sharing of information between these entities, including customers' billing information.

Similarly, NCL noted that distinctions between common carriers and other vendors are becoming less relevant as deregulation, detariffing, and mergers have led to increased competition among all types of entities to provide similar products and services.

NCL urged that consumers receive the same protections in all commercial telemarketing, regardless of the type of entity involved.

See

LSAP at 1.

See

NCL at 4-5, 7, 15.

Id.

at 5, 15. NCL also raised concerns about “cramming,” which refers to the practice of placing unauthorized charges on a telephone subscriber's telephone bill.

Id.

at 7. This practice is being considered in connection with the review of the Commission's Pay-Per-Call Rule,

see,

63 FR 58524, (Oct. 30, 1998); thus, it need not be treated in the context of the TSR.

The jurisdictional reach of the Rule is set by statute, and the Commission has no authority to expand the Rule beyond those statutory limits. Thus, absent amendments to the FTC Act, the Commission is limited with regard to any additional protections it might provide in response to acts and practices resulting from the convergence of entities that are otherwise exempt from the Commission's jurisdiction.

In a similar vein, some commenters urged the Commission to clarify the Rule's applicability to non-profit entities.

As explained above, although section 1011 of the USA PATRIOT Act expanded the reach of the TSR by enlarging the definition of “telemarketing” to encompass not only calls made to induce purchases of goods or services, but also those to solicit charitable contributions, it did not change the fact that the Telemarketing Act and the TSR do not apply to activities excluded from the FTC's reach by the FTC Act.

NAAG at 19; NACAA at 2; NFN at 1.

It should be noted, however, that although the Commission's jurisdiction is limited with respect to the entities exempted by the FTC Act, the Commission has made clear that the Rule does apply to any third-party telemarketers those entities might use to conduct telemarketing activities on their behalf.

As the Commission stated when it promulgated the Rule, “[t]he Final Rule does not include special provisions regarding exemptions of parties acting on behalf of exempt organizations; where such a company would be subject to the FTC Act, it would be subject to the Final Rule as well.”

For example, although the Rule does not apply to the activities of banks, savings and loan institutions, certain federal credit unions, or to the business of insurance to the extent that such business is regulated by State law, any non-exempt telemarketer calling on behalf of one of these entities would be covered by the Rule.

See

60 FR at 43843; FTC/Direct Mktg. Ass'n.,

Complying with the Telemarketing Sales Rule

(Apr. 1996), p. 12.

60 FR at 43843. This discussion also addresses NACAA's request that the Commission clarify that it has jurisdiction over telemarketing activities involving the switching of consumers' long-distance service. NACAA at 2. The TSR covers the telemarketing of long-distance service to the extent that the telemarketing is conducted by entities that are subject to the FTC Act.

NACAA suggested that the Commission clarify that the Rule applies to international calls made by telemarketers located outside the United States who call consumers within the United States. The Commission believes that its enforcement record leaves no doubt that sellers or telemarketers located outside the United States are subject to the Rule if they telemarket their goods or services to U.S. consumers.

See, e.g., FTC

Win USA,

No. C98-1614Z (W.D. Wash. filed Nov. 13, 1998);

FTC

Pacific Rim Pools Int'l,

No. C97-1748, (W.D. Wash. filed Nov. 7, 1997) (Order for Permanent Injunction and Final Judgment entered on Jan. 12, 1999);

FTC

The Tracker Corp. of America,

No. 1:97-CV-2654-JEC (N.D. Ga. filed Sept. 11, 1997);

FTC

9013-0980 Quebec, Inc.,

No. 1:96 CV 1567 (N.D. Ohio filed July 18, 1996); and

FTC

Ideal Credit Referral Svcs., Ltd.,

No. C96-0874, (W.D. Wash. filed June 5, 1996).

NCL and KTW suggested that the complementary use of the Internet and telephone technologies necessitates

broadening the scope of the Rule to cover online solicitations.

In the original rulemaking, the Commission stated that it lacked sufficient information to support coverage of online services under the Rule,

but noted that such media were subject to the Commission's jurisdiction under the FTC Act. Indeed, since 1995, the Commission has brought more than 200 actions against entities who have used the Internet to defraud consumers.

See

KTW at 4; NCL at 7.

60 FR at 30411.

Included among the FTC's enforcement actions against Internet fraud and deception are cases attacking unfair and deceptive use of “dialer programs.” NCL expressed concern about these programs, which are downloadable software programs that consumers access via the Internet. Once a dialer program is downloaded, it disconnects a consumer's computer modem from the consumer's usual Internet service provider, dials an international phone number in a country with a high per-minute telephone rate, and reconnects the consumer's modem to the Internet from some overseas location, typically opening at an adult website. Line subscribers—the consumers responsible for paying phone charges on the telephone lines—then begin incurring charges on their phone lines for the remote connection to the Internet, typically at the rate of about $4.00 per minute. The charges for the Internet-based adult entertainment are represented on the consumer's phone bill as international telephone calls. Under its Section 5 authority, the Commission has brought cases against videotext providers who use these dialer programs in an unfair or deceptive manner.

See, e.g., FTC

Hillary Sheinkin,

No. 2-00-3636-18 (D.S.C. filed Nov. 18, 2000);

FTC

Ty Anderson,

No. C00-1843P (W.D. Wash. filed Oct. 27, 2000);

FTC

Verity Int'l, Ltd.,

No. 7422 (S.D.N.Y. filed Oct. 2, 2000);

FTC

Audiotex Connection, Inc.,

No. 97-0726 (E.D.N.Y filed Feb. 13, 1997).

The Commission believes that the issue of whether there is a need for standards for Internet or online advertising and marketing is distinct from the issues relevant to telemarketing. E-commerce issues are best considered within the specific context of business practices in the realm of electronic commerce. In fact, the Commission has begun considering these issues by conducting an inquiry on how to apply its rules and guides to online activities, and issuing a staff working paper that provides guidelines for appropriate disclosures when marketing online.

The Commission believes that the body of case law that has been developed on Internet fraud and deception, coupled with its published business education materials

for online advertising disclosures, provide a developing source of guidance for promoting and marketing on the Internet.

63 FR 24996 (May 6, 1998) (public comments and the workshop transcript for the proceeding are available at

www.ftc.gov/bcp/rulemaking/elecmedia/index.htm); FTC,

Dot Com Disclosures: Information About Online Advertising

(Staff Working Paper, May, 2000).

See also,

FTC,

Advertising and Marketing on the Internet: Rules of the Road

(September, 2000), a guide to comlying with FTC rules and guides when advertising and marketing on the Internet.

See

FTC,

Dot Com Disclosures;

FTC,

Advertising and Marketing on the Internet.

B. Section 310.2—Definitions

The Commission received comments on several of the Rule's definitions. Each suggested change and the Commission's reasoning in accepting or rejecting that change is discussed below.

The proposed Rule retains the following definitions from the original Rule unchanged, apart from renumbering: “acquirer,” “attorney general,” “cardholder,” “Commission,” “credit,” “credit card,” “credit card sales draft,” “credit card system,” “customer,” “investment opportunity,” “person,” “prize,” “prize promotion,” “seller,” and “State.”

In addition, as discussed in detail below, the Commission proposes modifying the definition of “outbound telephone call,” and also proposes adding several new definitions: “billing information,” “caller identification service,” “express verifiable authorization,” “Internet services,” and “Web services.”

Further, in order to implement the amendments to the Telemarketing Act made by section 1011 of the USA PATRIOT Act, the Commission proposes adding certain definitions to the Rule, and modifying others. Section 1011(b)(3) of the USA PATRIOT Act amends the definition of “telemarketing” in the Telemarketing Act, 15 U.S.C. 6306(4), by inserting the underscored language:

The term “telemarketing” means a plan, program, or campaign which is conducted to induce purchases of goods or services

or a charitable contribution, donation, or gift of money or any other thing of value,

by use of one or more telephones and which involves more than one interstate telephone call * * * (emphasis added).

The proposed Rule's definition of “telemarketing” incorporates this change. To fully implement this definitional change, the proposed Rule adds definitions of the terms “charitable contribution” and “donor,” discussed below. In addition, the existing definition of “telemarketer” requires modification to reflect the expanded reach of the Rule to cover telephone solicitations of charitable contributions pursuant to the USA PATRIOT Act. Accordingly, the definition of “telemarketer” now includes the analogous phrase “or donor” following each appearance of the term “customer” or “consumer.” Similarly, in two of the new proposed definitions, “billing information,” and “express verifiable authorization,” the analogous phrase “or donor” has also been included following each appearance of the terms “customer” or “consumer.”

Another proposed global change necessitated by the USA PATRIOT Act is the modification of several of the Rule's existing definitions to reflect the expansion of the Rule's coverage to include the solicitation via telemarketing of “charitable contributions.” The affected definitions, “material,” “merchant,” “merchant agreement,” and “outbound telephone call,” now include the analogous phrase “or charitable contributions” following each occurrence of the phrase “goods or services.”

Section 310.2(c)—“Billing information”

The Commission proposes adding a definition of “billing information.” This term comes into play in proposed § 310.3(a)(3), which would add “billing information” to the items that must be recited in obtaining a consumer's express verifiable authorization. It is also implicated in proposed § 310.4(a)(5), which would prohibit the abusive practices of receiving any consumer's billing information from any third party for use in telemarketing, or disclosing any consumer's billing information to any third party for use in telemarketing.

As explained further below, in the section discussing proposed changes to § 310.3(a)(3), the Commission proposes to require that “billing information” be recited as part of the process of obtaining a consumer's or donor's express verifiable authorization. Under the original Rule, if the telemarketer opted to seek oral authorization for a demand draft, the Rule required that the telemarketer tape record the customer's oral authorization, as well as the provision of the following information: the number, date(s) and amount(s) of payments to be made, the date of authorization, and a telephone number for customer inquiry that is answered during normal business hours. The proposed Rule would expand the express verifiable authorization requirement to other payment methods, and would add to this list of disclosures “billing information,”

i.e.,

the identification of the consumer's or donor's specific account and account number to be charged in the particular transaction, to ensure that consumers and donors know which of their accounts will be billed. A definition of “billing information” would clarify sellers’ and telemarketers' obligations under this proposed revision.

As explained in the section discussing proposed § 310.4(a)(5)—which would prohibit receiving from any person other than the consumer or donor for use in telemarketing any consumer's or donor's “billing information,” or disclosing any such “billing information” to any person for use in telemarketing—the inclusion of this provision banning trafficking in “billing information” makes it necessary to provide in the Rule a definition of that term. The proposed Rule defines “billing information” as any data that provides access to a consumer's or donor's account, such as a credit card, checking, savings, share or similar account, utility bill, mortgage loan account, or debit card. The Commission intends this term to include information such as a credit or debit card number and expiration date, bank account number, utility account number, mortgage loan account number, customer's or donor's date of birth or mother's maiden name, and any other information used as proof of authorization to effect a charge against a person's account.

Section 310.2(d)—“Caller Identification Service”

The Commission proposes adding a definition of “caller identification service.” As described, below, in the discussion of § 310.4(a)(6), the Commission proposes specifying that it is an abusive practice to block, circumvent, or alter the transmission of, or direct another person to block, circumvent, or alter the transmission of, the name and/or telephone number of the calling party for caller identification service purposes, provided that it shall not be a violation to substitute the actual name of the seller and the seller's customer service number, which is answered during regular business hours, for the phone number used in making the call. In order to clarify what is prohibited under this proposed provision, the Commission has defined “caller identification service” as “a service that allows a telephone subscriber to have the telephone number and, where available, name of the calling party transmitted contemporaneously with the telephone call, and displayed on a device in or connected to the subscriber's telephone.” The Commission intends the proposed definition of “caller identification service” to be sufficiently broad to encompass any existing or emerging technology that provides for the transmission of calling party information during the course of a telephone call.

Section 310.2(f)—“Charitable Contribution”

The Commission proposes adding a definition of “charitable contribution.” Section 1011 of the USA PATRIOT Act amends the Telemarketing Act to specify as an abusive practice the failure of “any person engaged in telemarketing for the solicitation of

charitable contributions, donations, or gifts of money or any other thing of value”

to make certain prompt and clear disclosures. The Commission has determined that the single term “charitable contribution,” defined for the purposes of the Rule to mean “any donation or gift of money or any other thing of value” succinctly captures the meaning intended by Congress. Therefore, the Commission proposes to add this definition to the Rule.

The Commission has also determined that this definition should explicitly clarify that the definition and, accordingly, the entire Rule, is inapplicable to political contributions, including contributions to political parties and candidates. Calls to solicit such contributions are outside the scope of the Rule because they involve neither purchases of goods or services nor solicitations of charitable contributions, donations or gifts, and thus fall outside the statutory definition of “telemarketing.” 15 U.S.C. 6106(4). Thus, the Commission proposes to exclude from the definition of “charitable contribution” any contributions to “political clubs, committees, or parties.”

Additionally, as a matter of policy, and following the example of many state laws, the Commission also proposes to exclude from the definition contributions to constituted religious organizations or groups affiliated with and forming an integral part of the organization where no part of the net income inures to the direct benefit of any individual, and which has received a declaration of current tax exempt status from the United States government.”

The Commission believes that the risk of actual or perceived infringement on a paramount societal value—free and unfettered religious discourse—likely outweighs the benefits of protection from fraud and abuse that might result from including contributions to such organizations within the scope of the definition.

Similarly, a number of state statutes regulating charitable solicitations exempt political organizations.

E.g.,

Fla. Stat. ch. 496.403 (2000). Ill. Rev. Stat. ch. 23 para. 5103(2000).

See, e.g.,

Ga. Code Ann. Sec. 43-17-2(2); Ill. Rev. Stat. ch. 14 para. 54 (2000).

Section 310.2(m)—“Donor”

As part of its implementation of section 1011 of the USA PATRIOT Act, the Commission proposes adding a definition of “donor.” This Act's expansion of the TSR's coverage to encompass charitable solicitations necessitates the inclusion of a term in the Rule to denote a person solicited to make a charitable contribution. Throughout the original Rule, the terms “customer” and “consumer” are used to refer to those subject to a solicitation to purchase goods or services by a seller or telemarketer. The meaning of these terms cannot reasonably be stretched to include persons being asked to make a charitable contribution. Therefore, the Commission proposes adding to the Rule an analogous term—“donor”—for use in the context of charitable solicitations. Under the proposed definition, a person need not actually make a donation or contribution to be a “donor.” He or she need only be solicited to make a charitable contribution. (In this respect, the definition tracks the definition of “customer”—“any person who is or may be required to pay for goods or services * * *.”)

Section 310.2(n)—“Express Verifiable Authorization”

The Commission proposes adding a definition of “express verifiable authorization” because the proposed Rule expands the use of the term beyond its meaning in the original Rule. The term “express verifiable authorization” comes into play in the proposed Rule in two distinct provisions: § 310.3(a)(3), requiring the express verifiable authorization of a customer or donor to a charge when certain payment methods are used; and § 310.4(b)(1)(iii)(b), which makes it a violation of the Rule to call any consumer or donor who has placed himself or herself on the national “do-not-call” list absent that consumer's or donor's express verifiable authorization. In order to ensure clarity, the term “express verifiable authorization” has been defined to mean “the informed, explicit consent of a consumer or donor, which is capable of substantiation.” The specific means of obtaining express verifiable authorization for a charge are listed in § 310.3(a)(3)(i)-(ii) and the specific means of obtaining express verifiable authorization to place a call to a consumer or donor who is on the national “do-not-call” list is found in § 310.4(b)(1)(iii)(B)(1)-(2).

Section 310.2(m)—“Internet Services”

The Commission also proposes adding a definition of “Internet services” because of the proposed modification of the business-to-business exemption, § 310.6(g), to make the exemption unavailable to telemarketers of Internet services, a line of business that is increasingly pursued by fraudulent telemarketers. Thus, the Commission proposes that the term “Internet services” be defined as “the provision, by an Internet Service Provider, or another, of access to the Internet.” The Commission intends for this term to encompass the provision of whatever is necessary to gain access to the Internet, including software and telephone or cable connection, as well as other goods or services providing access to the Internet. Specifically, the term includes provision of access to the Internet, or any component thereof, such as electronic mail, the World Wide Web, websites, newsgroups, Internet Relay Chat or file transfers.

Section 310.2(r)—“Outbound Telephone Call”

The Commission proposes modifying the Rule's definition of “outbound telephone call”

to clarify the Rule's coverage in two situations: (1) When, in the course of a single call, a consumer or donor is transferred from one telemarketer soliciting one purchase or charitable contribution to a different telemarketer soliciting a different purchase or contribution, such as in the case of “up-selling;”

and (2) when a single telemarketer solicits purchases or contributions on behalf of two separate sellers or charitable organizations (or some combination of the two). Under the proposed definition, when a call, whether originally initiated by a consumer/donor or by a telemarketer, is transferred to a separate telemarketer or seller for the purpose of inducing a purchase or charitable contribution, the transferred call shall be considered an “outbound telephone call” under the Rule. Similarly, if a single telemarketer solicits for two or more distinct sellers or charitable organizations in a single call, the second (and any subsequent) solicitation shall be considered an “outbound telephone call” under the Rule.

The definition of “outbound telephone call” is in § 310.2(n) of the original Rule.

See

n.45 for an explanation of this term.

The Commission proposes this change in response to evidence in the Rule review record that the practice of “up-selling” is becoming increasingly common.

The Commission believes that in external up-selling, when calls are transferred from one seller or telemarketer to another, or when a single telemarketer solicits on behalf of two distinct sellers, it is crucial that consumers or donors clearly understand that they are dealing with separate entities. In the original Rule, the Commission determined that a disclosure of the seller's identity was necessary in every outbound call to enable the customer to make a fully-informed purchasing decision.

In the case of a call transferred by one telemarketer to another to induce the purchase of goods or services, or one in which a single telemarketer offers the goods or services of two separate sellers, it is equally important that the consumer know the identity of the second seller, and that the purpose of the second call is to sell goods or services. Such information is equally material to a donor's decision in the context of solicitations for charitable contributions. The Commission has determined that treating the transferred call as a separate outbound call will ensure that consumers receive the disclosures required by § 310.4(d) and that donors receive the disclosures proposed by § 310.4(e),

thereby clarifying the nature of the transaction for the consumer or donor, and providing him or her with material information necessary to make an informed decision about the solicitation(s) being made.

See

Rule Tr. at 95-99, 107-111, 176-177.

The Act specified that the Commission include in the Rule a requirement that the telemarketer “promptly and clearly disclose to the person receiving the call that the purpose of the call is to sell goods and services and make such other disclosures as the Commission deems appropriate, including the nature and price of the goods and services.” 15 U.S.C. 6102(a)(3)(c). In the original rulemaking, the Commission determined that two additional disclosures were necessary: (1) The identity of the seller, and (2) that no purchase or payment is necessary to be able to win a prize or participate in a prize promotion if a prize promotion is offered. 16 CFR 310.4(d)(1) and (4). Section 310.4(e)(1) of the proposed Rule imposes an analogous requirement to disclose the identity of the charitable organization on behalf of whom an outbound telemarketing call is being made to solicit charitable contributions.

In particular, consumers and donors need to understand that they are dealing with more than one seller or charitable organization, and the identity of each. It is also important that consumers understand that the purpose of the second transaction is to solicit sales goods or services, or charitable contributions (whichever is applicable).

Additionally, the disclosures in § 310.3(a)(1) (or of proposed § 310.3(a)(4) as to charitable solicitations) would, of course, also have to be made by each telemarketer. In fact, as discussed, below, in the discussion of § 310.3, the Commission believes that even when a single telemarketer acts on behalf of two sellers or charitable organizations, it is necessary for these transactions to be treated as separate for the purposes of complying with the TSR. Therefore, in such an instance, the telemarketer should take care to ensure that the customer/donor is provided with the necessary disclosures for the primary solicitation, as well as any further solicitation. Similarly, express verifiable authorization for each solicitation, when required, would be necessary. Of course, even absent the Rule's requirement to obtain express verifiable authorization, telemarketers must always take care to ensure that consumers' or donors' explicit consent to the purchase or contribution is obtained.

In addition, the Commission wishes to clarify that a transferred call or a solicitation by a single telemarketer on behalf of a separate seller or charitable organization is, for the purposes of the Rule, a separate transaction. Because it is a separate transaction, it will be covered by the Rule if the separate seller or charitable organization is subject to the Commission's jurisdiction. Thus, if an initial inbound call is exempt from the Rule's coverage—for example, under the § 310.6(e) exemption for calls in response to general media advertising—but the consumer or donor is transferred to another seller or telemarketer, or if a second (or subsequent) seller's or charitable organization's solicitation is made by a single telemarketer, the transaction with the second solicitation will

not

be exempt under the general media exemption. On the contrary, the Commission will consider this to be a separate transaction and will make a separate determination whether that second seller or telemarketer falls within the FTC's jurisdiction and thus is subject to all of the Rule's requirements.

Section 310.2(aa)—“Telemarketing”

As explained above, the USA PATRIOT Act's amended definition of “telemarketing” has been incorporated into the definition of “telemarketing” in the Rule.

Section 310.2(bb)—“Web Services”

The Commission proposes adding a definition of “Web services” because of the proposed amendment to the business-to-business exemption, § 310.6(g), to make it unavailable to sellers and telemarketers of Web services, a line of business demonstrated by the Commission's recent law enforcement experience to be an area of particular abuse by fraudulent telemarketers. The Commission proposes that the term “Web services” be defined as “designing, building, creating, publishing, maintaining, providing, or hosting a website on the Internet.” The Commission intends for this term to encompass any and all services related to the World Wide Web.

Other Recommendations by Commenters Regarding Proposed Definitions

Credit terms

. NCL recommended that changes in the way consumers pay for goods and services they purchase via telemarketing may necessitate changes in the Rule.

NCL further suggested that, if the Rule were amended to address telephone billing and other new forms of electronic payment, the definitions of “credit card,” “merchant,” and “merchant agreement” might need to be changed to ensure coverage of these new or alternative billing methods.

The Commission agrees that consumers need additional protection in certain telemarketing sales situations, but has effected these protections through proposed changes to the express verifiable authorization provision.

Therefore, the definitions of “credit card,” “merchant,” and “merchant agreement” are retained unchanged.

See

NCL at 9.

Id.

§ 310.3(a)(3). A complete analysis of the proposed revisions to this section can be found below in the discussion of § 310.3(a)(3).

Telemarketing

. DSA recommended that the definition of “telemarketing” be changed to make the Rule applicable only when more than one telephone is used in conducting a plan, program, or campaign to induce the purchase of goods or services.

The Commission's definition of telemarketing, which states that telemarketing occurs when

one or more

telephones are used to induce the purchase of goods or services, tracks verbatim the Telemarketing Act.

Even if it is assumed that the Commission has authority to deviate from the very specific definition mandated by the statute, the Commission believes that there is no justification to do so. Limiting the definition as DSA proposed would unnecessarily restrict the application of the Rule, which currently governs interstate calls which are part of a plan, program or campaign to induce the purchase of goods or services or to induce charitable contributions, even if only a single phone is used to place or receive calls. Therefore, the Commission has determined not to modify the definition in this manner.

See

DSA at 6.

15 U.S.C. 6106(4). At the end of the definition, however, the Rule adds a clarifying sentence not present in the statute.

Transactions Involving “Preacquired Account Telemarketing.

” LSAP recommended that new definitions be added for the terms “account,” “account holder,” “inbound telephone call,” and “preacquired account number,” to address the practice of preacquired account telemarketing.

The Commission agrees that a definition of something like “account” would be helpful in clarifying the Rule's coverage, but has determined that the broader term “billing information” better serves the purpose. As set forth above, the definition of “billing information” is designed to ensure that sellers and telemarketers understand their new obligations under proposed § 310.4(a)(5), which prohibits as an abusive practice the receipt for use in telemarketing from any person other than the consumer or donor any consumer's or donor's billing information, and further prohibits disclosure of any consumer's or donor's billing information to any person for use in telemarketing.

Therefore, because it has addressed concerns about preacquired account telemarketing in other ways, the Commission believes that it is unnecessary to add definitions of “account holder,” “inbound telephone call” and “preacquired account number.”

See

LSAP at 2-3.

See

the section discussing § 310.4(a)(5), below, for a complete analysis of this provision.

Online solicitation

. NCL recommended that the scope of the Rule be expanded to cover online solicitations (discussed above in the section addressing proposed revisions to § 310.1), and that a definition of “online solicitation” be added to the Rule. For the reasons discussed above, the Commission has decided not to expand the Rule's coverage to online solicitations. Therefore, a definition of “online solicitation” is not necessary.

Free Trial Offers

. NCL recommended that the Commission include definitions of “free offer” and “trial offer” if the Rule were amended to include specific requirements for sellers and telemarketers who make such offers. Several commenters noted that the practice of making a free trial offer has generated significant numbers of consumer complaints when those offers are coupled with preacquired-account telemarketing.

The Rule review record and the enforcement experience of the Commission and other law enforcement agencies confirm that consumers are often confused about their obligations when a product or service is offered to them for a trial period at no cost and the seller or telemarketer already possesses the consumer's billing information.

See

NACAA at 2; NAAG at 11-12, 16-17; NCL at 5-6.

See, e.g., FTC

Triad Discount Buying Service, Inc.

(S.D. Fla. No. 01-8922 CIV ZLOCH complaint and stipulated order filed Oct. 23, 2001);

New York

Memberworks,

Assurance of Discontinuance (Aug. 2000);

Minnesota

Memberworks, Inc.,

No. MC99-010056 (4th Dist. MN June, 1999);

Minnesota

Damark Int'l, Inc.,

No. C8-99-10638, Assurance of Discontinuance (Ramsey County Dist. Ct. Dec. 3, 1999);

FTC

S.J.A. Society, Inc.,

No. 2:97 CV472 (E.D. Va. filed May 31, 1997).

As noted by NAAG, in many preacquired account telemarketing solicitations, products and services (often buyers' clubs) are marketed through the use of free trial offers, which are presented to consumers as “low involvement marketing decisions.”

Consumers are asked merely to consent to the mailing of materials about the offer. Consumers frequently do not realize that the seller or telemarketer already has their billing information in hand and, instead, mistakenly believe they must take some action before they will be charged—

i.e.

, that they are under no obligation unless they take some additional affirmative step to consent to the purchase. When such free trial offers are coupled with preacquired account telemarketing, telemarketers often use the preacquired billing information to charge the consumers at the end of the trial period, even when consumers have taken no additional steps to assent to a purchase or authorize the charge, and have never provided any billing information themselves.

See

NAAG at 11.

Id.

at 11-12.

The proposed Rule addresses concerns about free trial offers that are marketed in conjunction with preacquired-account telemarketing by banning the receipt of the consumer's billing information for use in telemarketing from any source other than the consumer.

The ban on the receipt of customer billing information from any source other than the consumer should curtail abuses that have occurred when free trial offers are made in conjunction with preacquired account telemarketing by effectively eliminating the trade in preacquired billing information. Free trial offers that are made to consumers via telemarketing, but absent the use of preacquired billing information, would, of course, remain subject to the Rule's requirements, including the disclosure requirements in § 310.3(a)(1) and § 310.4(d), and the prohibition on misrepresentations in § 310.3(a)(2). Pursuant to these provisions, any seller or telemarketer offering goods or services on a free trial basis would be required to disclose, among other things, the total cost and quantity of the goods or services and that the customer's account will be automatically charged or debited at the end of the free trial period, if such is the

case. Adherence to these Rule requirements will afford consumers the protections needed when accepting goods or services on a free trial basis.

Proposed Rule, § 310.4(a)(5).

“

Promptly.

” As described in detail below in the discussion of § 310.4(d), NACAA and Texas suggested defining the term “prompt” as used in § 310.4(d) of the Rule, suggesting that the term be defined to mean “at the onset” of a call.

The Commission believes that the Rule's Statement of Basis and Purpose makes clear that “prompt” means “at once or without delay,”

and that further clarification is unnecessary.

See

NACAA at 2; Texas at 2.

60 FR at 43856, n. 150.

C. Section 310.3—Deceptive Telemarketing Acts or Practices

Section 310.3 of the Rule sets forth required disclosures that must be made in every telemarketing call; prohibits misrepresentations of material information; requires that a telemarketer obtain a customer's express verifiable authorization before obtaining or submitting for payment a demand draft; prohibits false and misleading statements to induce the purchase of goods or services or, pursuant to the USA PATRIOT Act amendments, to induce charitable contributions; holds liable anyone who provides substantial assistance to another in violating the Rule; and prohibits credit card laundering in telemarketing transactions. During the Rule review, the Commission received a large number of comments addressing various provisions of this section, the substance of which are discussed in turn below.

Section 310.3(a)(1)—Required Disclosures

Section 310.3(a)(1) requires the disclosure by a seller or telemarketer of five types of material information before a customer pays for goods and services. That information includes: the total cost and quantity of the goods offered; all material restrictions, limitations, or conditions to purchase, receive, or use the offered goods or services; information regarding the seller's refund policy if the seller has a policy of not making refunds or if the telemarketer makes a representation about such a policy; certain information relating to the odds involved in prize promotions; and all material costs or conditions to receive or redeem a prize.

Most of the comments about this section expressed support for the required disclosures,

and some recommended that additional disclosures be added to the Rule. MPA noted that the inclusion of the required disclosures in the Rule has been beneficial both for industry and consumers by providing clear guidelines for good business practices, and by establishing a standard that helps consumers to distinguish between legitimate and fraudulent telemarketing practices.

NASAA noted that the disclosure provisions also have been helpful in protecting investors from “bait and switch” scams where stockbrokers claim to be selling blue chip investments, but deliver only high-risk, little-known stocks.

See

e.g.,

MPA at 5; ARDA at 2 (asserting that immediate disclosures benefit consumers “[w]ithout placing an unreasonable burden on telemarketers”).

See

MPA at 5.

See

NASAA at 3.

The Commission received no comments addressing the provisions regarding disclosure of refund policies (§ 310.3(a)(1)(iii)), or the disclosure of material costs or conditions to receive a prize (§ 310.3(a)(1)(v)). Moreover, the Commission's enforcement experience with these provisions does not suggest that there are deficiencies or omissions that need to be addressed through amendments. Therefore, these sections are included in the proposed Rule without change.

Several commenters suggested additional disclosures or other changes to § 310.3(a)(1), which they felt would enhance the consumer protections provided by this section. Each recommendation and the Commission's reasons for accepting or rejecting it are set forth below.

Section 310.3(a)(1)(i)—Disclosure of Total Costs

Some commenters suggested that the Commission clarify that, in the case of sales involving monthly installment payments, the total cost to be disclosed should be the total cost of the entire contract, not just the amount of the monthly installment.

These commenters noted that it is typical in magazine subscription sales for a telemarketer to state the weekly price for a subscription without giving the total cost for the entire term of the subscription period. For example, a magazine telemarketer might state that a consumer would be charged $3.45 per week for 48 months, rather than stating that the consumer's ultimate liability for the magazines will be more than $700.

See

NAAG at 8; Texas at 2.

NAAG at 8.

The Commission has already noted that in disclosing total costs it is sufficient for a seller or telemarketer to disclose the total number of installment payments and the amount of each payment.

The Commission recognizes, however, that it is possible to state the cost of an installment contract in such a way that, although literally true, obfuscates the actual amount that the consumer is being asked to pay. Such a statement of cost would not meet the relevant “clear and conspicuous” standard for disclosures under the Rule.

Particularly in long-term, high-cost contracts, where it may be advantageous to the seller or telemarketer to break the cost down to weekly or monthly amounts, and for the customer to pay over time, the disclosure of the number of installment payments and the amount of each must correlate to the billing schedule that will actually be implemented. Therefore, to comply with the Rule's total cost disclosure provision, it would be inadequate to state the cost per week if the installments are to be paid monthly or quarterly.

60 FR at 43847;

Complying With the Telemarketing Sales Rule

at 16.

16 CFR 310.3(a)(1). The Commission believes that the best practice to ensure the clear and conspicuous standard is met is to “do the math” for the consumer wherever possible. For example, where the contract entails 24 monthly installments of $8.99 each, the best practice would be to disclose that the consumer will be paying $215.76. In open-ended installment contracts it may not be possible to “do the math” for the consumer. In such a case, particular care must be taken to ensure that the cost disclosure is easy for the consumer to understand.

The Commission believes that the current total cost disclosure provision provides a customer with the necessary material information with which to make a purchasing decision when a seller discloses either the overall total cost, or, in the case of installment payments, the total number of payments and the amount of each. Therefore, the provision's language is retained in the proposed Rule without change.

Section 310.3(a)(1)(ii)—Disclosure of Material Restrictions

NAAG opined that the material information that a seller or telemarketer must disclose to a consumer in a telemarketing transaction includes the illegal nature of any goods and services offered. For example, NAAG noted that several cross-border telemarketing cases have involved the sale of foreign lottery chances to citizens of the United States, a practice which is illegal under U.S. law.

NAAG expressed the concern that

some courts may construe the term “material” narrowly, so as not to require a disclosure of the inherent illegality of such offers.

NAAG at 15. Law enforcement actions against telemarketers selling foreign lottery chances to U.S. citizens include:

FTC

Win USA Ltd.,

No. C98-1614Z (W.D. Wash filed Nov. 13, 1998) (brought by the FTC, the State of Arizona, and the State of Washington); and

FTC

Windermere Big Win Int'l, Inc.,

No. 98CV 8066, (N.D. Ill. filed Dec. 16, 1998). Federal law prohibits the importing and transmitting of lottery materials by mail and otherwise, 18 U.S.C. 1301-1302; such schemes may

also violate anti-racketeering laws relating to gambling, 18 U.S.C. 1952-1953, 1084.

The Commission believes that the definition of “material” contained in the Rule, which comports with the Commission's Deception Statement and established Commission precedent,

is sufficiently clear and broad enough to encompass the illegality of goods or services offered. Therefore, no change is proposed with respect to this provision.

Cliffdale Assocs., Inc.,

103 F.T.C. 110, 165,

appeal dismissed sub nom., Koven v. F.T.C.,

No. 84-5337 (11th Cir. 1984);

Thompson Medical Co.,

104 F.T.C. 648 (1984),

aff'd

791 F.2d 189 (D.C. Cir. 1986).

Section 310.3(a)(1)(iv)—Disclosures Regarding Prize Promotions

Section 310.3(a)(1)(iv) requires that, in any prize promotion, a telemarketer must disclose the odds of being able to receive the prize, that no purchase or payment is required to win a prize or participate in a prize promotion, and the no purchase/no payment method of participating in the prize promotion. NCL suggested adding a disclosure that making a purchase will not improve a customer's chances of winning,

noting that this disclosure would be consistent with the requirements for direct mail solicitations under the Deceptive Mail Prevention and Enforcement Act (“DMPEA”).

The Commission has determined to add such a disclosure requirement, both in § 310.3(a)(1) (governing all telemarketing calls), and in § 310.4(d) (governing outbound telemarketing).

See

NCL at 9. Although this suggestion was made with respect to § 310.4(d), governing oral disclosures required in outbound telemarketing calls, the rationale and purpose of the proposed disclosure applies with equal force to all telemarketing, as covered by § 310.3(a).

See also

the discussion, below, in the section on sweepstakes disclosures within the analysis of § 310.4(d).

Id.

The Deceptive Mail Prevention and Enforcement Act of 1999 is codified at 39 U.S.C. 3001(k)(3)(A)(II). In this regard, it is noteworthy that the Direct Marketing Association's Code of Ethics advises that “[n]o sweepstakes promotion, or any of its parts, should represent * * * that any entry stands a greater chance of winning a prize than any other entry when this is not the case.” “The DMA Guidelines for Ethical Business Practice,'revised Aug. 1999, accessible online at http://www.the-dma.org/library/guidelines/dotherightthing.shtml#23 (Article #23, Chances of Winning).

The Commission believes that this disclosure will ensure that consumers are not deceived. The legislative history of the DMPEA suggests that without such a disclosure, many consumers reasonably interpret the overall presentation of many prize promotions to convey the message that making a purchase will enhance their chances of winning the touted prize.

This message is likely to influence these consumers' purchasing decisions, inducing them to purchase a product or service they are otherwise not interested in purchasing just so they can become winners. For this reason, it is important that entities using these promotions take particular care to dispel deception by disclosing that a purchase will not enhance the chance of winning.

Moreover, Publishers Clearing House (“PCH”) recently agreed to settle an action brought by 24 States and the District of Columbia alleging, among other things, that the PCH sweepstakes mailings deceived consumers into believing that their chances of winning the sweepstakes would be improved by buying magazines from PCH. As part of the settlement, PCH agreed to include disclaimers in its mailings stating that buying does not increase the recipient's chances of winning (and to pay $18.4 million in redress). In 2001, PCH agreed to pay $34 million in a settlement with the remaining 26 States.

See, e.g., Missouri ex rel. Nixon

Publishers Clearing House,

Boone County Circuit Court, No. 99 CC 084409 (2001);

Ohio ex rel. Montgomery

Publishers Clearing House,

Franklin County Court of Common Pleas, No. 00CVH-01-635 (2000). Similarly, in 1999, American Family Publishers (“AFP”) settled several multi-state class actions that alleged the AFP sweepstakes mailings induced consumers to buy magazines to better their chances of winning a sweepstakes. The original suit, filed by 27 States, was settled in March 1998 for $1.5 million, but was reopened and expanded to 48 States and the District of Columbia after claims that AFP violated its agreement. The State action was finally settled in August 2000 with AFP agreeing to pay an additional $8.1 million in damages. See,

e.g., Washington

American Family Publishers,

King County Superior Court, No. 99-09354-2 SEA (2000).

See also

, John Reosti,

Debit Cards Seen as No Threat to Credit Card Revenues

, The American Banker, (June 29, 2000), p. 11A (noting that the popularity of debit cards is increasing, with some predicting that debit cards will outpace credit cards as a payment method by 2005).

135

See, e.g.

, NCL at 5 (noting that the growth in electronic commerce has led to the development of new forms of payment, such as “cyberwallets”). “Cyberwallets” provide secure access to a customer's existing bank or credit card accounts via the Internet, and are now offered by many companies, such as Visa and Mastercard.

See www.visa.com/pd/ewallet/main.html; www.mastercard.com/shoponline/e-wallets/

. Other new electronic access devices include stored value cards (SVCs) and smartcards, which allow customers to purchase goods or services using money “loaded” onto the cards, which contain

embedded microchips to track the cards' value.

See

Janine S. Hiller and Don Lloyd Cook,

From Clipper Ships to Clipper Chips: The Evolution of Payment Systems For Electronic Commerce

, J.L.& Com., Fall, 1997, p. 53, 79-81. Visa Cash is one example of a stored value card that can be used in lieu of cash for purchases.

See www.visa.com/pd/cash/main.html

. Mastercard offers a smartcard product.

See www.mastercard.com/ourcards/smartcard/

. “Electronic cash” services, using prepaid accounts that can be drawn against for making online purchases, are also under development.

See

Stacy Collett, “New Online Payment Options Emerging,”

www.cnn.com/2000/TECH/computing/02/03/pay.online.options.idg

136

See

LSAP at 4; NAAG at 10, 20; NCL at 5, 10. For example, buyers' club programs can be billed to customers' mortgage statements or telephone or electricity bills. The growth of this type fo non-traditional billing has led to complaints regarding unauthorized charges from customers unfamiliar with such billing arrangements.

137

Rule Tr. at 180.

138

Id.

at 183.

139

Id.

at 185. Such a transaction could occur without any telephone contact between the seller and customer, thus making it outside the scope of this Rule. However, this technology could also be used in conjunction with telemarketing, and thus merits inclusion here.

In advancing their argument, those commenters who advocated expanding the express verifiable authorization provision to cover novel payment methods suggested that consumers may not be aware that they can be billed for a telemarketing purchase via some of these methods (such as on their utility and mortgage bills). This concern is analogous to the concerns articulated about deception in the use of demand drafts in the original rulemaking—concerns which led the Commission to determine that consumers' unfamiliarity with demand drafts could lead them unwittingly to provide their bank account numbers to a telemarketer without realizing that funds could be withdrawn in the absence of a signed check.

140

Unaccustomed to this new type of transaction, consumers had no reason to expect that funds could be debited from their checking accounts unless they wrote and signed a check. But telemarketers, through omissions or affirmative misrepresentations, were inducing consumers to divulge their checking account numbers, with the result that funds were debited from their accounts. Thus, the Commission determined that to dispel consumers' false expectations about their checking account numbers, disclosure of material facts about how telemarketers would use the account information they were being asked to divulge was necessary. Thus, § 310.3(a)(3) of the original TSR provides that it is a deceptive practice and a rule violation to obtain or submit for payment a check, draft, or other form of negotiable paper drawn on a person's checking, savings, share, or similar account, without that person's express verifiable authorization.

141

Section 310.3(a)(3) also established “safe harbor” disclosure procedures to use in obtaining express verifiable authorization

140

60 FR at 43850.

141

The Commission was persuaded that

verifiable

authorization was necessary for demand drafts because demand drafts lacked chargeback protection and dispute resolution rights, and because of the risk that a consumer's bank account could be drained by unauthorized charges.

The Commission believes that the increased availability and use of new payment methods necessitates expanding the Rule's express verifiable authorization provision to cover those new methods. The emergence of novel and, for the consumer, unexpected billing and collection systems for telemarketing purchases has brought an attendant rise in consumer complaints about unauthorized charges for telemarketing purchases on, among other things, mortgage accounts and utility bills. The Commission believes that deception is occurring in connection with telemarketers' use of new billing and collection systems. The rationale which supported the original requirement for express verifiable authorization in the use of demand drafts pertains with equal force to other unconventional payment methods not covered by the TILA and FCBA. Consumers have no reason to anticipate that their accounts can be debited or charged without their signature, and they may be induced to divulge their billing information on the basis of this misperception. To obviate deception on this issue, consumers need disclosure of material facts about how telemarketers will use the billing information they are being asked to divulge. Finally, an additional factor supporting the expanded coverage of the express verifiable authorization provision to novel payment systems is that many of the emerging payment systems cited by commenters in this proceeding lack chargeback protection and dispute resolution rights, as well as limited customer liability in the event of unauthorized charges. As was the case with demand drafts, the Commission believes that express verifiable authorization for novel payment systems will ensure that such systems are only used when consumers clearly agree to that use.

The Commission believes that requiring express verifiable authorization when novel payment systems are used to bill and collect for a telemarketing purchase will remedy the deceptive practices often associated with the growth of new payment systems. Therefore, the Commission proposes to amend § 310.3(a)(3) to require that the consumer's express verifiable authorization be obtained when payment is to be made by any method that “does not impose a limitation on the customer's liability for unauthorized charges nor provide for dispute resolution procedures pursuant to, or comparable to those available under, the Fair Credit Billing Act and the Truth in Lending Act, as amended.”

The proposed Rule retains the safe harbor that calls for the customer receiving the following information as evidence of oral authorization: the number, date(s) and amount(s) of payments, a telephone number for customer inquiry, and the date of the customer's oral authorization. In addition, the proposed Rule would call for another piece of information to be included in any taped oral authorization: Specific identification or recitation of the name of the specific account and the account number to be charged in the particular transaction. This material information will ensure that consumers are aware of the specific account against which the charge or debit will be placed.

The proposed Rule deletes the term “draft” to reflect the expanded application of the provision to forms of payment other than demand drafts; and, for the same reason, the term “payor” has been replaced by the term “customer.”

Finally, the proposed Rule eliminates § 310.3(a)(3)(iii), which deemed verifiable any authorization obtained by

written confirmation of the transaction, sent to the customer before submission of the draft for payment. Commenters and participants at the July Forum made clear that written confirmation prior to the submission of a customer's billing information for payment is seldom, if ever, used as a method of express verifiable authorization.

142

Moreover, the Commission's law enforcement record provides ample evidence that when this method is used, it is subject to abuse.

143

Given that the method of authorization in § 310.3(a)(3)(iii) is used infrequently, and that complaints received by the Commission suggest that it has been subject to abuse by those telemarketers who employ it, the Commission proposes to delete this provision from the Rule.

142

See

Reese at 5; Rule Tr. 116-118; 122.

143

See,

e.g., FTC

S.J.A. Society, Inc.

, No. 2:97cv472 (E.D. Va. filed May 12, 1997) (defendants sent consumers written “confirmation” of unauthorized debit payments). See also

FTC

Diversified Mktg. Serv. Corp.

, No. 96-388 (W.D. Okla. filed Mar. 13, 1996);

FTC

Winward Mktg., Ltd.

, et al., No. 96-cv-0615-FWH (N.D. Ga. filed Mar. 12, 1996).

In proposing to expand the coverage of the express verifiable authorization provision to include novel payment methods beyond demand drafts, the Commission has considered the effect this change would have on telemarketing businesses. Although the proposed change might be expected to result in additional costs to some telemarketers, the record reflects that telemarketers already commonly tape the customer's oral authorization in all calls in which a sale is made.

144

Given the apparent prevalence of taping, the Commission believes that any additional burden on telemarketers will be minimal.

144

See

Reese at 5 (stating that it is “standard practice * * * to ask the buyer's permission to record all or part of a sale on tape, as a mutual protection and to allow for post-sale independent verification”); Rule Tr. at 116-118 (“* * * 100% of sales calls are taped, and not the call, the portion in which the agreement to purchase goods and services and the terms for that purchase are tape recorded. I don't have a client that doesn't insist on it right now.”), 122 (noting an increase in taping to ensure that consent has been provided and for use in any law enforcement investigation).

Other Recommendations by Commenters Regarding Authorization

Some commenters suggested that the Rule restrict the allowable methods of authorization in certain circumstances. For example, some commenters recommended requiring written authorization when funds will be withdrawn from a customer's bank account or when a telemarketer has preacquired billing information.

145

These commenters assert that written authorization is necessary when a consumer's bank account is being accessed by a telemarketer because consumers have limited recourse when funds are misappropriated from their bank accounts.

146

145

AARP at 4; NAAG at 20 (suggesting that the Rule require written authorization when funds are withdrawn from bank account);

Id.

at 13 (suggesting that the Rule require written authorization when a telemarketer has preacquired billing information).

146

AARP at 4; NAAG at 20.

Requiring Written Authorization for Preacquired Account Telemarketing.

Some commenters expressed the view that in situations when the telemarketer possesses preacquired billing information, the Rule should require the telemarketer to obtain the consumer's written authorization. In this way, the consumer would have a readily recognizable means to signal assent to a purchase.

147

NAAG argued that such a means of ensuring the customer's assent is particularly necessary where an imbalance of information exists because the telemarketer, often unbeknownst to the consumer, has the means to charge the customer's account without ever seeking permission to do so.

148

147

See

AARP at 4; NAAG at 10.

148

NAAG at 10.

As outlined below, in the discussion of § 310.4(a)(5), the Commission proposes to prohibit as an abusive practice the receipt of a consumer's billing information from any source other than from the consumer. Therefore, the Commission declines to require written authorization in instances of preacquired account telemarketing.

Requiring Written Authorization to Withdraw Funds From a Customer's Checking Account.

Some commenters urged the Commission to amend the Rule to prohibit any telemarketer from debiting a customer's bank account without the customer's written authorization.

149

In the original rulemaking, the Commission declined to adopt such a position, stating that:

149

AARP at 4; NAAG at 20 (citing laws in Vermont and Kentucky that already require written authorization before a customer's bank account can be debited).

Requiring such prior written authorization could be tantamount to eliminating this emerging payment alternative. Moreover, the Commission believes that it would be inconsistent to impose upon demand drafts a more stringent authorization mechanism than that imposed on electronic funds transfers under the EFTA and Reg. E.

150

60 FR at 43851.

The Commission reaffirms its reluctance to impose on demand drafts more stringent requirements than those imposed on electronic funds transfers.

151

Moreover, the Commission believes that the oral authorization alternative provided in § 310.3(a)(3)(ii) has proven sufficient to protect consumers against unauthorized access to their bank accounts, except, perhaps, in those cases where a fraudulent telemarketer has resorted to altering verification tapes, or has flouted the requirement of the provision altogether. The Commission believes that even a written authorization requirement would not solve such problems because a telemarketer willing to alter verification tapes might also be inclined to forge signatures, and one ignoring the current oral authorization procedure would be no more likely to follow a more stringent one. Therefore, the Commission rejects this proposal.

151

In this regard, the TSR's express verifiable authorization provision is also consistent with the NACHA Operating Rules, which govern payments made through the Automated Clearing House system.

See

NACHA at 2; Rule Tr. at 131-186.

Section 310.3(a)(4)—Prohibition of False and Misleading Statements to Induce the Purchase of Goods or Services or a Charitable Contribution

Only MPA commented on this provision of the Rule, noting that its broad prohibition against false or misleading statements to induce the purchase of goods or services provided flexibility for law enforcement to address fraud, regardless of the method of payment used. The Commission has used this provision extensively in cases it has brought under the Rule and has determined that the provision should be retained unchanged.

152

The Commission has brought over eighty cases that included allegations under § 310.3(a)(4) since the Rule was enacted.

See, e.g., FTC

Pacific Rim Pools Int'l,

No. C97-1748, (W.D. Wash. filed Nov. 7, 1997) (Order for Permanent Injunction and Final Judgment entered on Jan. 12, 1999);

FTC

National Business Distribs. Co., Inc.,

No. 96-4470 (Mcx) JGD, (C.D. Cal. filed June 26, 1996) (Final Judgment and Order for Permanent Injunction entered on Jan. 24, 1997);

FTC

Ideal Credit Referral Svcs. Ltd.,

No. C96-0874, (W.D. Wash. filed June 5, 1996) (Default Judgment and Order for Permanent Injunction and for Monetary Relief entered on Apr. 16, 1997);

FTC

USA Credit Svcs., Inc.,

No. 96-639 J LSP, (S.C. Cal. filed Apr. 10, 1996) (Final Judgment and Order for Permanent Injunction and Other Equitable Relief entered on Mar. 20, 1997).

Pursuant to section 1011 of the USA PATRIOT Act, the Commission proposes to expand the coverage of this prohibition to encompass misrepresentations “to induce a charitable contribution.” No other revision is proposed.

Section 310.3(b)—Assisting and Facilitating

Section 310.3(b) prohibits a person from providing substantial assistance or support to any seller or telemarketer

when that person knows or consciously avoids knowing that the seller or telemarketer is violating certain provisions of the Rule. Comments about this provision of the Rule were mixed. MPA asserted that the assisting and facilitating standard “struck exactly the right balance,”

153

while law enforcement and consumer advocacy groups were critical, reiterating many of the concerns they raised during the original rulemaking about the difficulty in meeting the Rule's scienter standard.

154

153

MPA at 8.

154

See

NAAG at 6; NACAA at 2; Texas at 2.

The critics of the provision argued that the Rule's current standard—which requires showing that the individual or entity knew or consciously avoided knowing about the law violations—sets the standard too high, and should be changed to a “knew or should have known” standard.

155

They opined that the “conscious avoidance” standard is not used in other areas of enforcement and is a departure from legal authority under many State consumer protection statutes and under the FTC Act, where the “knew or should have known” standard is commonly accepted.

156

They further argued that a “knew or should have known” standard would make it easier for law enforcement to challenge the support system for cross-border fraud.

157

155

Id.

Despite the high standard of proof set by the “conscious avoidance” standard, the Commission has successfully used the provision in a number of cases.

See, e.g., FTC

Woofter Inv. Corp.,

No. CV-S-97-00515-LDG (RLH), (D. Nev. filed May 12, 1997) (Stipulated Order for Permanent Injunction and Final Judgment entered on Dec. 28, 1998);

FTC

Ideal Credit Referral Svcs. Ltd.,

No. C96-0874, (W.D. Wash. filed June 5, 1996) (Default Judgment and Order for Permanent Injunction and for Monetary Relief entered on Apr. 16, 1997).

156

See

NAAG at 5-6; Texas at 2.

167

See

NACAA at 2; NAAG at 6; Texas at 2.

The Commission has considered the recommendation to change the standard, but believes that the “conscious avoidance” standard is appropriate because the Rule creates potential liability to pay redress or civil penalties based on another person's violation of the Rule. The “knew or should have known” standard is appropriate where an alleged wrongdoer is liable to be placed under an administrative cease-and-desist order or conduct injunction in a district court order based on his or her own direct violation of the Rule. As noted in the Rule's Statement of Basis and Purpose, “in a situation where a person's liability to pay redress or civil penalties for a violation of this Rule depends on the wrongdoing of another person, the “conscious avoidance” standard is correct.”

158

However, the Commission invites additional comment on, and proposals for alternatives to, this provision in Section IX.

158

60 FR at 43852 (citations omitted).

Section 310.3(c)—Credit Card Laundering

Section 310.3(c) prohibits credit card laundering. The few comments received concerning this section expressed strong support for the provision. ATA noted that the bright line this provision draws between legitimate and illegitimate business has made the Rule successful.

159

MPA stated that this provision strictly targets bad actors because legitimate companies would be able to establish relationships with credit card companies, leaving only illegitimate companies to violate this provision.

160

ATA agreed with MPA on this point, noting that stricter guidelines adopted by credit card companies for acceptable chargeback rates have further separated good from bad actors.

161

159

ATA at 4-5.

160

MPA at 9.

161

ATA at 4-5.

The Commission's enforcement experience has demonstrated that § 310.3(c) can be a useful tool in pursuing fraudulent telemarketers and those who provide them credit card laundering services.

162

However, the Commission believes the provision's usefulness may be unduly restricted by the phrases “(e)xcept as expressly permitted by the applicable credit card system,” in the preamble to § 310.3(c), and “when such access is not authorized by the merchant agreement or the applicable credit card system” in § 310.3(c)(3). In the initial rulemaking proceeding, Visa and Mastercard urged that these limiting phrases be adopted to ensure that the Rule did not unduly restrict legitimate activity. In its enforcement activities, however, the Commission has sometimes met with unwillingness on the part of overseas affiliates or branches of credit card system operators, such as Visa and Mastercard, to corroborate whether the conduct of specific telemarketers and others providing assistance to telemarketers is allowable under the rules of the credit card system or the specific terms of the telemarketer's merchant agreement. The absence of such cooperation has, in some instances, hobbled law enforcement efforts to bring fraudulent telemarketers to justice.

162

See, e.g., FTC

Windermere Big Win Int'l, Inc.,

No. 98CV 8066, (N.D. Ill. filed Dec. 16, 1998);

FTC

Pacific Rim Pools Int'l,

No. C97-1748, (W.D. Wash. filed Nov. 7, 1997) (Order for Permanent Injunction and Final Judgment entered on Jan. 12, 1999);

FTC

Woofter Inv. Corp.,

No. CV-S-97-00515-LDG (RLH), (D. Nev. filed May 12, 1997) (Stipulated Order for Permanent Injunction and Final Judgment entered on Dec. 28, 1998).

As a result of concern about the enforceability of the original provision in the absence of the full cooperation of credit card system operators, the Commission has requested comment in Section IX on possible changes to this provision that would better facilitate law enforcement efforts.

The Commission proposes no changes to the text of § 310.3(c) pursuant to section 1011 of the USA PATRIOT Act. The proposed Rule, however, expands coverage of the § 310.3(c) prohibition on credit card laundering through modification of the definition of a key term used in this provision—“merchant.” As discussed, the proposed definition would encompass persons authorized to honor or accept credit card payment, not only for the purchase of goods or services, but also for the payment of charitable contributions. The Telemarketing Act, as originally enacted, specifically identified as appropriate for rule coverage “acts or practices of entities or individuals that assist or facilitate deceptive telemarketing, including credit card laundering.” 15 U.S.C. 6102(a)(2). Neither the text nor the underlying rationale of section 1011 of the USA PATRIOT Act suggest that this provision should not be extended to reach instances where credit card laundering occurs in connection with charitable solicitations.

Section 310.3(d)—Prohibited Deceptive Acts or Practices in the Solicitation of Charitable Contributions, Donations, or Gifts

Section 1011(b)(1) of the USA PATRIOT Act mandates that the Commission include “fraudulent charitable solicitations” in the deceptive practices prohibited by the TSR. Accordingly, the Commission proposes a new section, 310.3(d), prohibiting specific material misrepresentations that have been alleged in Commission enforcement actions or those brought by FTC counterparts on the state level, or that have been prohibited by statute in one or more states. The new provision would prohibit misrepresentations of the following:

• The nature, purpose, or mission of any entity on behalf of which a charitable contribution is being requested;

163

See, e.g., FTC

Baylis Co., Inc.,

No. 94-0017-S-LmB (D.C. Idaho filed Jan. 19, 1994) (misrepresented non-profit status);

FTC

Marketing Twenty-One,

No. CV-S-94-00624-LDG (LRL) (D.C. Nev. filed July 13, 1994)

(misrepresented purpose as soliciting contributions for non-existent entity named “For the Children”);

FTC

Voices for Freedom,

No. 92-1542-A (E.D. Va.. filed Oct. 21, 1991) (falsely obtained IRC 501(c)(3) status and misrepresented mission as assisting soldiers in Operation Desert Storm).

See also

Fla. Stat. ch. 496.415(7) (2000); Ariz. Rev. Stat. § 6561(3) (2001).

• That any charitable contribution is tax deductible in whole or in part;

164

See, e.g., FTC

Thadow, Inc.,

No. CV-S-95-75-HDM (LRL) (D.C. Nev. filed Jan. 25, 1995);

FTC

United Holdings Group, Inc.,

No. CV-S-94-331-LDG (RLH) (D.C. Nev., filed April 5, 1994);

Marketing Twenty-One,

No. CV-S-94-00624-LDG (LRL).

See also

Minn Stat. Ann. § 309.556(1)(b) (West 2000).

• The purpose for which any charitable contribution will be used;

165

The Commission intends that term “purpose” be interpreted broadly to include, among other things, whether the charitable contribution would benefit any particular individual, group, or locality, as well the way in which these entities would be helped, such as by the provision of food, shelter, etc.

See, e.g., FTC

Gold,

No. CV 99-2895 CBM (RZx) (C.D. Calif. filed Nov. 9, 1998) (misrepresenting that contributions would

inter alia,

support local firefighters, buy wheelchairs for veterans or fund parties for hospitalized children);

FTC

Image Sales & Consultants, Inc.

No. 1:97 DV 0131 (N.D. Inc., filed Apr. 7, 1997);

FTC

Saja,

No. CIV-97-0666 PHX sm (D.C. Ariz. filed Mar. 31, 1997) (misrepresenting that contributions would buy necessary equipment or fund death benefits for firefighters or law enforcement officers in the donors' local communities);

See also

Ariz. Rev. Stat. § 4406561(4), (5) (2001); Fla. Stat. ch. 496.415(3),(4) (2000); Md. Code. Ann. Business Regulations § 6-609, 611 (2000).

See also

Ariz. Rev. Stat. § 6561(3) (2001); Ind. Code Ann. § 23-7-8-7 (Michie 2001); Md. Code Ann., Business Regulations § 6-610 (2000); N.M. Stat. Ann. § 57-22-6.3 (Michie 2001); N.Y. Exec. Law §

172-d (Consol. 2001).

• The percentage or amount of any charitable contribution that will go to a charitable organization or to any particular charitable program after any administrative or fundraising expenses are deducted;

166

See, e.g., Voices for Freedom,

No. 92-1542-A;

Gold,

No. SACV 98-968 LHM (EEx);

Baylis,

No. 94-0017-S-LmB;

Marketing Twenty-One.

See also

Fla. Stat. ch. 496.415(8); N.Y. Exec. Law § 172-d(4) (Consol. 2001); Pa. Stat. Ann. tit. 10 § 162.15(A)(9) (West 2000).

• Any material aspect of a prize promotion including, but not limited to: the odds of being able to receive a prize; the nature or value of a prize; or that a charitable contribution is required to win a prize or to participate in a prize promotion;

167

See, e.g., United Holdings Group, Inc.,

No. CV-S-94-331;

Marketing Twenty-One

(misrepresented value of prizes being offered in exchange for contributions of $700 to $1500);

FTC

NCH, Inc.,

No. CV-S-94-00138-LDG (LRL) (D.C. Nev. filed July 13, 1994) (misrepresented that donors would receive a specific prize in return for their contribution);

FTC

International Charity Consultants, Inc.,

No. CV-S-94-00195-DWH (LRL) (D.C. Nev. filed Mar. 1, 1994) (misrepresented odds of winning valuable prizes purportedly offered in exchange for contributions).

• In connection with the sale of advertising, the purpose for which the proceeds from the sale of advertising will be used; that a purchase of advertising has been authorized or approved by any donor; that any donor owes payment for advertising; or the geographic area in which the advertising will be distributed;

168

See, e.g., FTC

Southwest Mktg. Concepts,

No. H-97-1070 (S.D. Texas filed Apr. 1, 1997);

Saja; FTC

Dean Thomas Corp.,

No. 1:97 CV 0129 (N.D. Ind. filed Apr. 7, 1997);

FTC

The Century Corp.,

No. 1:97 CV 0130 (N.D. Ind. filed Apr. 7, 1997);

Image Sales & Consultants,

No. 1:97 CV 0131;

FTC

Omni Advertising,

No. 1:98 CV 0301 (N.D. Ind. filed Oct. 5, 1998);

FTC

T.E.M.M. Mktg., Inc.,

No. 1:98 CV 0300 (N.D. Ind. filed Oct. 5, 1998);

FTC

Tristate Advertising Unlimited, Inc.,

No. 1:98 CV 302 (N.D. Ind, filed Oct 5, 1998);

Gold; Eight Point Communications,

No. 98-74855 (D.C. Mich. filed Nov. 10, 1998).

See also

Pa. Stat. Ann. tit. 10 § 162.15(A)(11) (West 2000).

• A seller's or telemarketer's affiliation with, or endorsement or sponsorship by, any person or government.

169

See, e.g. FTC

Eight Point Communications

(telemarketers misrepresented affiliation with local police and fire departments);

FTC

Gold,

No. SACV 98-968 LHM (EEx) (C.D. Calif. filed Nov. 9, 1998) (telemarketers falsely identified selves as members of local law enforcement);

Saja

(telemarketers falsely claimed to be firefighters or police officers).