# Telemarketing Sales Rule

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URL: https://www.frixlaw.com/law-library/documents/fr%3A03-1811

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** January 29, 2003
- **Citation:** 68 FR 4580

## Text

FEDERAL TRADE COMMISSION
16 CFR Part 310
Telemarketing Sales Rule

AGENCY:

Federal Trade Commission.

ACTION:

Final Amended Rule.

SUMMARY:

In this document, the Federal Trade Commission (“FTC” or “Commission”) issues its Statement of Basis and Purpose (“SBP”) and final amended Telemarketing Sales Rule (“amended Rule”). The amended Rule sets forth the FTC's amendments to the Telemarketing Sales Rule (“original Rule” or “TSR”). The amended Rule is issued pursuant to the Commission's Rule Review, the Telemarketing and Consumer Fraud and Abuse Prevention Act (“Telemarketing Act” or “Act”) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”).

EFFECTIVE DATES:

The amended Rule will become effective March 31, 2003. Full compliance with § 310.4(a)(7), the caller identification transmission provision, is required by January 29, 2004. The Commission will announce at a future time the date by which full compliance with § 310.4(b)(1)(iii)(B), the “do-not-call” registry provision, will be required. The Commission anticipates that full compliance with the “do-not-call” provision will be required approximately seven months from the date a contract is awarded to create the national registry.

ADDRESSES:

Requests for copies of the amended Rule and this SBP should be sent to: Public Reference Branch, Room 130, Federal Trade Commission, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The complete record of this proceeding is also available at that address. Relevant portions of the proceeding, including the amended Rule and SBP, are available at http://www.ftc.gov.

FOR FURTHER INFORMATION CONTACT:

Catherine Harrington-McBride, (202) 326-2452, Karen Leonard, (202) 326-3597, Michael Goodman, (202) 326-3071, or Carole Danielson, (202) 326-3115, Division of Marketing Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

The amended Rule: (1) retains most of the original Rule's requirements concerning deceptive and abusive telemarketing acts or practices without major substantive changes; (2) establishes a national “do-not-call” registry maintained by the Commission; (3) defines “upselling” to clarify the amended Rule's application to these transactions, requires specific disclosures for upsell transactions, and expressly excludes upselling transactions from certain exemptions in the amended Rule; (4) requires that sellers and telemarketers accepting payment by methods other than credit and debit cards subject to certain protections obtain express verifiable authorization from their customers; (5) retains the exemptions for pay-per-call, franchise, and face-to-face transactions, but makes these transactions subject to the national “do-not-call” registry and certain other provisions in the abusive practices section of the Rule; (6) specifies requirements for the use of predictive dialers; (7) requires disclosures and prohibits misrepresentations in connection with the sale of credit card loss protection plans; (8) requires an additional disclosure in connection with prize promotions; (9) requires disclosures and prohibits misrepresentations in connection with offers that include a negative option feature; (10) eliminates the general media and direct mail exemptions for the telemarketing of credit card loss protection plans and business opportunities other than business arrangements covered by the Franchise Rule
1
; (11) requires telemarketers to transmit caller identification information; (12) eliminates the use of post-transaction written confirmation as a means of obtaining a customer's express verifiable authorization when the goods or services are offered on a “free-to-pay conversion” basis; (13) prohibits the disclosure or receipt of the customer's or donor's unencrypted billing information for consideration, except in limited circumstances; and (14) requires that the seller or telemarketer obtain the customer's express informed consent to all transactions, with specific requirements for transactions involving “free-to-pay conversions” and preacquired account information.

1
Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures (“Franchise Rule”), 16 CFR Part 436.

Statement of Basis and Purpose

I. Background

A. Telemarketing and Consumer Fraud and Abuse Prevention Act.

The early 1990s saw heightened Congressional attention to burgeoning problems with telemarketing fraud.
2
The culmination of Congressional efforts to protect consumers against telemarketing fraud occurred in 1994 with the passage of the Telemarketing Act, which was signed into law on August 16, 1994.
3
The purpose of the Act was to combat telemarketing fraud by providing law enforcement agencies with new tools and to give consumers new protections.

2
Statutes enacted by Congress to address telemarketing fraud during the early 1990s 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.

3
15 U.S.C. 6101-6108.

The Telemarketing Act directed the Commission to issue a rule prohibiting deceptive and abusive telemarketing acts or practices, and 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 consumer would consider coercive or abusive of his or her 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.
4
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.
5
The Act further directed the Commission to consider including recordkeeping requirements in the rule.
6
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.
7

4
15 U.S.C. 6102(a)(3)(A)-(C).

5
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 43842, 43853 (Aug. 23, 1995).

6
15 U.S.C. 6102(a)(3).

7
15 U.S.C. 6103, 6104.

B. Original Rule.

The FTC adopted the original Rule on August 16, 1995.
8
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.
9
Telemarketers must, in any telephone sales call, also disclose cost and other material information before consumers pay.
10
In addition, the original Rule requires that telemarketers have consumers' express verifiable authorization before using a demand draft (or “phone check”) to debit consumers' bank accounts.
11
The original 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.
12
The original 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.
13
Finally, the original 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,
14
and prohibits credit card laundering and other forms of assisting and facilitating fraudulent telemarketers.
15

8
60 FR at 43842 (codified at 16 CFR 310 (1995)).

9
16 CFR 310.4(d).

10
16 CFR 310.3(a)(1).

11
16 CFR 310.3(a)(3).

12
16 CFR 310.4(c), and 310.4(b)(1)(ii).

13
16 CFR 310.3(a)(2).

14
16 CFR 310.4(a)(2)-(4).

15
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,
16
or the Franchise Rule),
17
calls initiated by consumers that are not in response to any solicitation, calls initiated by consumers in response to direct mail, provided certain disclosures are made, and calls initiated by consumers in response to advertisements in general media, such as newspapers or television.
18
Lastly, catalog sales are exempt, as are most business-to-business calls, except those involving the sale of non-durable office or cleaning supplies.
19

16
Trade Regulation Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992 (“Pay-Per-Call Rule”), 16 CFR Part 308.

17
16 CFR 310.6(a)-(c).

18
16 CFR 310.6(d)-(f).

19
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, common carriers engaged in common carrier activity, non-profit organizations, and companies engaged in the business of insurance regulated by state law 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 below 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. 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.
20
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 related to the “do-not-call” provision of the Rule, and soliciting applications to participate in the forum.
21

20
15 U.S.C. 6108.

21
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). Seventeen associations, individual businesses, consumer groups, and law enforcement agencies 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, D.C. 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.
22
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.
23

22
65 FR 10428 (Feb. 28, 2000) (the “February 28 Notice”). The Commission extended the comment period from April 27, 2000, to May 30, 2000. 65 FR 26161 (May 5, 2000).

23
A list of the commenters and the acronyms used to identify each commenter who submitted a comment in response to the February 28 Notice is attached hereto as Appendix A. Appendix B is a list of the commenters and the acronyms used to identify each commenter who submitted a comment in response to the Notice of Proposed Rulemaking (“NPRM”), discussed below, including supplemental comments and comments submitted on the user fee proposal. References to comments are cited by the commenter's acronym followed by the appropriate page designation. “RR” after the commenter's acronym indicates that the comment was received in response to the Rule Review. “NPRM” after the commenter's acronym indicates that the comment was received in response to the NPRM. “Supp.” after the commenter's acronym indicates that the comment was received as a Supplemental Comment. “User Fee” after the commenter's acronym indicates the comment was submitted in response to the request for comments on the Commission's user fee proposal.

The commenters generally 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. Commenters consistently stressed that it is important to retain the Rule. 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. Commenters identified several changes in the marketplace that had occurred in the five years since the Rule was promulgated and that threatened the Rule's effectiveness. Those changes included increased consumer concern about personal privacy,
24
the development of novel payment methods,
25
and the increased use of

preacquired account telemarketing
26
and upselling.
27

24
The past several years have seen 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 identification information) that hinder consumers' attempts to screen calls or make requests to be placed on a “do-not-call” list.

25
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. 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. These newly available payment methods in many instances are relatively untested, and may not provide protections for consumers from unauthorized charges.

26
The practice of preacquired account telemarketing—where a telemarketer acquires the customer'sbilling 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'sutility 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.

27
The practice of “upselling” 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 upselling scenarios, the seller or telemarketer already has received the consumer's billing information, either from the consumer or from another source.

Following the receipt of public comments, the Commission held a second forum on July 27 and 28, 2000 (“Rule Review Forum”), to discuss provisions of the Rule other than the “do-not-call” provision and to discuss the Rule's effectiveness.
28
Both the “Do-Not-Call” Forum and the Rule Review Forum were open to the public, and time was reserved to receive oral comments from members of the public in attendance. Both proceedings were transcribed and, along with the comments received, placed on the public record.
29

28
References to the Rule Review Forum transcript are cited as “RR Tr.” followed by the appropriate page designation.

29
Relevant portions of the entire record of the Rule Review proceeding, including all transcripts and comments, can be viewed on the FTC'swebsite at http://www.ftc.gov/bcp/rulemaking/tsr/tsr-review.htm. In addition, the full paper record is available in Room 130 at the FTC, 600 Pennsylvania Avenue, N.W., Washington, DC 20580, telephone number: 1-202-326-2222.

Based on the record developed during the Rule Review, as well as the Commission's law enforcement experience, the Commission determined to retain the Rule but proposed to amend it to better address recurring abuses and to reach emerging problem areas.

D. The USA PATRIOT Act of 2001.

On October 25, 2001, the USA PATRIOT Act
30
became effective. This legislation contains provisions that have significant impact on the TSR. Specifically, § 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 fundraising conducted by for-profit telemarketers on behalf of charitable organizations. Because enactment of the USA PATRIOT Act took place after the comment period for the Rule Review closed, the Commission did not raise issues relating to charitable fundraising by telemarketers in the Rule Review.

30
Pub. L. 107-56, 115 Stat. 272 (Oct. 26, 2001).

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, § 1011(b)(2), among other things, 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.
31
Finally, § 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.

31
Specifically, § 1011(b)(2)(d) mandates that the TSR include in its regulation of abusive telemarketing acts and practices “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. 26, 2001).

E. Notice of Proposed Rulemaking.

On January 30, 2002, the Commission published its NPRM, proposing revisions to the TSR (“proposed Rule”) in order to ensure that consumers receive the protections that the Telemarketing Act mandated, and to effectuate § 1011 of the USA PATRIOT Act.
32
The Commission proposed a number of changes, including creating a national “do-not-call” registry maintained by the FTC, a ban on receiving from or disclosing to a third party a consumer's billing information, a prohibition against blocking caller identification information, and a requirement that sellers or telemarketers accepting payment via novel payment methods obtain the customer's express verifiable authorization. During the course of this NPRM proceeding, the Commission received about 64,000 electronic and paper comments from representatives of industry, law enforcement, consumer and privacy groups, and from individual consumers.
33
On June 5, 6 and 7, 2002, the Commission held a forum (“June 2002 Forum”) to discuss the issues raised by commenters regarding the FTC's proposed revisions.
34
The forum was open to the public, and time was reserved to receive oral comments from members of the public in attendance. During the forum, the Commission announced that it would accept supplemental comments until June 28, 2002.
35
The forum proceeding was transcribed and placed on the public record. The public record, including many comments and all forum transcripts, has been placed on the Commission's website on the Internet.
36

32
67 FR 4492 (Jan. 30, 2002).

33
Of these, more than forty-five were supplemental comments from organizations and individuals, and about 15,000 supplemental comments were from Gottschalks' customers submitted by Gottschalks. Simultaneous with, but separate from, the NPRM proceeding, the Commission has been exploring possible methods for implementing the proposed national “do-not-call” registry. On February 28, 2002, the Commission published a Request for Information (“RFI”) that solicited information from potential contractors on various aspects of implementing the proposed registry. The RFI comment period closed on March 29, 2002. On August 2, 2002, the Commission issued a Request for Quotes to selected vendors. Final proposals were submitted on September 20, 2002, and are being evaluated by Commission staff. On May 29, 2002, the Commission published a Notice of Proposed Rulemaking, soliciting comments on a proposed amendment to the TSR that would establish the methods by which fees for use of the registry would be set. 67 FR 37362 (May 29, 2002). The comment period ended June 28, 2002. The proposed amendment received about forty comments (cited as “[Name of Commenter]-User Fee at [page number]”), virtually all of which argued that the Commission does not have the authority to issue a user fee, or that it was premature to propose a user fee because the Commission did not have sufficient information upon which to base the proposal. The user fee proposal remains under review as the Commission continues to evaluate the issues raised in the comments.

34
References to the June 2002 Forum transcript are cited as “June 2002 Tr.” followed by the appropriate day (I, II, or III, referring to June 5, 6, or 7, respectively) and page designation.

35
June 2002 Tr. II at 254. References to the supplemental comments received are cited as “[Name of Commenter]-Supp. at [page number].”

36
Much of the record in this proceeding can be viewed on the FTC's website at http://www.ftc.gov/bcp/rulemaking/tsr/tsr-review.htm. In addition, the full paper record is available in Room 130 at the FTC, 600 Pennsylvania Avenue, N.W., Washington, DC 20580, telephone number: 1-202-326-2222.

Individual consumers generally favored the Commission's proposals, particularly with regard to a national “do-not-call” registry. Consumer groups and state law enforcement representatives also generally supported the proposed amendments, although they expressed concern about the effect of the proposal on state “do-not-call”

and other laws. Business and industry commenters generally opposed the proposal, but suggested changes that they believed would make the proposed amendments less burdensome on legitimate business while still achieving the desired consumer protections. Comments from charitable organizations focused primarily on the FTC proposal which would require for-profit telemarketers who solicit on behalf of charitable organizations to comply with the proposed “do-not-call” registry. Charitable organizations consistently opposed such a requirement. The comments and the basis for the Commission's decision on the various recommendations are analyzed in detail in Section II below.

F. The Amended Rule.

The Commission has carefully reviewed the entire record developed in its rulemaking proceeding. The record, as well as the Commission's law enforcement experience, leave little doubt that important changes have occurred in the marketplace, and that modifications to the original Rule are necessary if consumers are to receive the protections that Congress intended to provide when it enacted the Telemarketing Act. Based on that record and on the Commission's law enforcement experience, the Commission has modified the proposed Rule published in the NPRM and now promulgates this amended Rule, as described in this SBP.

The Commission's decision to retain certain provisions of the original Rule while supplementing or amending others is made pursuant to the Rule Review requirements of the Telemarketing Act,
37
and pursuant to the rulemaking authority granted to the Commission by that Act to protect consumers from deceptive and abusive practices,
38
including practices that may be coercive or abusive of the consumer's interest in protecting his or her privacy.
39
The Commission's decision to amend the original Rule also is made pursuant to the authority granted to the Commission by § 1011 of the USA PATRIOT Act.

37
15 U.S.C. 6108.

38
15 U.S.C. 6102(a)(1) and (a)(3).

39
15 U.S.C. 6102(a)(3)(A).

As discussed in detail herein, the Commission believes that it is necessary to amend the original Rule to ensure that the Telemarketing Act's goals are met—that is, encouraging the growth of the legitimate telemarketing industry, while curtailing those practices that are abusive or deceptive. The record in this rulemaking proceeding demonstrates that many of the changes in the marketplace that have occurred since the original Rule was promulgated have led to the growth of deceptive and abusive practices in areas not adequately addressed by the original Rule. The amended Rule addresses these practices by responding to the changes in the marketplace in a manner consistent with the intent of Congress in enacting the Telemarketing Act and § 1011 of the USA PATRIOT Act. The Commission believes that the amended Rule strikes a balance, maximizing consumer protections without imposing unnecessary burdens on the telemarketing industry. Each of the amendments is discussed in detail in this SBP. A summary of the major changes from the original Rule is set forth below. The amended Rule:

• Supplements the current company-specific “do-not-call” provision with a 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, except when the consumer has an “established business relationship” with the seller on whose behalf the call is made;

• Permits consumers who have put their numbers on the national “do-not-call” registry to provide permission to call to any specific seller by an express written agreement;

• Explicitly exempts solicitations to induce charitable contributions via outbound telephone calls from coverage under the national “do-not-call” registry provision;

• Modifies § 310.3(a)(3) to require express verifiable authorization for all transactions except when the method of payment used is a credit card subject to protections of the Truth in Lending Act and Regulation Z, or a debit card subject to the protections of the Electronic Fund Transfer Act and Regulation E;

• Modifies § 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;

• Mandates disclosures in the sale of credit card loss protection, and prohibits 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);

• Explicitly mandates that all required disclosures in § 310.3(a)(1) and § 310.4(d) be made truthfully;

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

• Prohibits disclosing or receiving, for consideration, unencrypted consumer account numbers for use in telemarketing, except when the disclosure or receipt is to process a payment for goods or services or a charitable contribution pursuant to a transaction;

• Prohibits causing billing information to be submitted for payment, directly or indirectly, without the express informed consent of the customer or donor;

• Sets out guidelines for what evidences express informed consent in transactions involving preacquired account information and “free-to-pay conversion” features;

• Requires telemarketers to transmit the telephone number, and name, when available, of the telemarketer to any caller identification service;

• Prohibits telemarketers from abandoning any outbound telephone call, and provides, in a safe harbor provision, that to avoid liability under this provision, a telemarketer must: abandon no more than three percent of all calls answered by a person; allow the telephone to ring for fifteen seconds or four rings; whenever a sales representative is unavailable within two seconds of a person's answering the call, play a recorded message stating the name and telephone number of the seller on whose behalf the call was placed; and maintain records documenting compliance;

• Extends the applicability of most provisions of the Rule to “upselling” transactions;

• Prohibits denying or interfering in any way with a consumer's right to be placed on a “do-not-call” list;

• Requires maintenance of records of express informed consent and express agreement;

• Narrows certain exemptions of the Rule;

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

• Modifies 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, and adds new mandatory disclosures and prohibited misrepresentations in charitable solicitations.

G. Proposed Rule Adopted with Some Modifications.

Based on the entire record in this proceeding, the amended Rule adopted by the Commission is substantially similar to the proposed Rule. However, the amended Rule contains some important differences from the proposed Rule. These further modifications to the original Rule were based on the recommendations of commenters and on the Commission's more comprehensive law enforcement experience in certain areas over the months since publishing the NPRM.

The major differences between the proposed Rule and the amended Rule adopted here are as follows:

• The definition of “charitable contribution” no longer contains exceptions for religious and political groups;

• Sellers who have an “established business relationship” with the consumer are exempted from the national “do-not-call” registry;

• For-profit telemarketers who solicit charitable contributions are exempted from the national “do-not-call” registry, but remain subject to the entity-specific “do-not-call” provision;

• The original Rule's definition of “outbound call” has been reinstated, and the proposed Rule modified to require specific disclosures in an upsell transaction;

• Disclosures regarding negative option features are required;

• Express verifiable authorization is required for all payments, except those made by a credit or debit card subject to certain statutorily-mandated consumer protections;

• For express oral authorization to be deemed verifiable, a seller must ensure the customer's or donor's receipt of the date the charge will be submitted for payment (rather than the date of the payment) and identify the account to be charged with sufficient specificity such that the customer or donor understands what account is being used to collect payment (rather than provide the account name and number);

• The use of written post-sale confirmations is permitted, subject to the requirement that such confirmations be clearly and conspicuously labeled as such; however, this method is not permitted in transactions involving a “free-to-pay conversion” feature and preacquired account information;

• In charitable solicitations, the prohibited misrepresentation regarding the percentage or amount of any charitable contribution that will go to a charitable organization or program is no longer delimited by the phrase “after any administrative or fundraising expenses are deducted;”

• The Rule now specifies that billing charges to a consumer's account without the consumer's authorization is an abusive practice and a Rule violation; and the Rule now requires that a customer's express informed consent be provided in every transaction;

• The ban on the transfer of consumers' billing information has been replaced with a ban on transferring unencrypted consumer account numbers;

• The failure to transmit caller identification information is prohibited, rather than the affirmative blocking of such information;

• Abandoned calls are prohibited, subject to a “safe harbor” that requires a telemarketer to: abandon no more than three percent of all calls answered by a person; allow the telephone to ring for fifteen seconds or four rings; whenever a sales representative is unavailable within two seconds of a person's answering the call, play a recorded message stating the name and telephone number of the seller on whose behalf the call was placed; and maintain records documenting compliance;

• Records of express informed consent or express agreement must be maintained;

• The exemptions for certain kinds of calls are explicitly unavailable to upselling transactions;

• The exemption for business-to-business telemarketing is once again available to telemarketing of Web services and Internet services, as well as the solicitation of charitable contributions.

II. Discussion of the Amended Rule

The amendments to the Rule do not alter § 310.7 (Actions by States and Private Persons), or § 310.8 (Severability), although § 310.8 (Severability) has been renumbered as § 310.9 in the amended Rule. Section 310.8 of the amended Rule is now reserved.

A. Section 310.1 — Scope of Regulations.

Section 310.1 of the amended Rule states that “this part [of the CFR] implements the [Telemarketing Act],
as amended
,” reflecting the amendment of the Telemarketing Act by § 1011 of the USA PATRIOT Act.
40
This section discusses comments received regarding the implementation of the USA PATRIOT Act amendments as well as other issues relating to the scope of coverage of the TSR.

40
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. 26, 2001).

Effect of the USA PATRIOT Act.

As noted in the NPRM, § 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, § 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, § 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 the amendment of these provisions of the Telemarketing Act, neither the text of § 1011 nor its legislative history suggests that it amends § 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) of the Act states:

Except as otherwise provided in sections 6102(d) [with respect to the Securities and Exchange Commission], 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).
41

41
Section 6105(b) reinforces the point made in § 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 conducted by 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.”
42

42
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 § 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.
43
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.

43
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.” 1A NORMAN J. SINGER, SUTHERLAND STATUTES & STAT. CONSTR. § 22:34 (6th ed. 2002),
citing, inter alia, Brothers v. First Leasing
, 724 F.2d 789 (9th Cir. 1984);
Republic Steel Corp. v. Costle
, 581 F.2d 1228 (6th Cir. 1978);
Am. Airlines, Inc. v. Remis Indus., Inc.
, 494 F.2d 196 (2d Cir. 1974);
Kirchner v. Kansas Tpk. Auth.
, 336 F.2d 222 (10th Cir. 1964);
Nat'l Ctr. for Preservation Law v. Landrieu
, 496 F. Supp. 716 (D.S.C. 1980);
Conoco, Inc. v. Hodel
, 626 F. Supp. 287 (D. Del. 1986);
Palardy v. Horner
, 711 F. Supp. 667 (D. Mass. 1989). Thus, in construing a statute and its amendments, “[e]ffect is to be given to each part, and they are to be int erpreted so that they do not conflict.”
Id.

The Commission received numerous comments regarding the change in scope to the TSR required by the USA PATRIOT Act amendments of the Telemarketing Act. Some comments supported the Commission's interpretation of the USA PATRIOT Act amendments, and the coverage of for-profit telemarketers who solicit on behalf of exempt charitable organizations.
44
However, the majority of commenters who addressed this issue believed the Commission had misinterpreted the mandate of the USA PATRIOT Act amendments. Law enforcement agencies and consumer groups, including NAAG and NASCO, generally expressed the view that the Commission had underestimated the jurisdictional powers conferred on it by the USA PATRIOT Act amendments, and urged that the Rule apply not only to for-profit solicitors who call on behalf of charities, but also to the charities themselves.
45
These commenters argued that the language of the USA PATRIOT Act and its legislative history do not support limiting the applicability of the TSR to telemarketers who call on behalf of non-profits, rather than extending it to cover charitable organizations as well.
46

44

See, e.g.
, AARP-NPRM at 4; AFP-NPRM at 3 (arguing that the USA PATRIOT Act gives the FTC jurisdiction over for-profit telemarketers soliciting on behalf of non-profits, agreeing that the disclosures required by amended Rule § 310.4(e) are necessary, and noting that the disclosures mirror the disclosures required by AFP's code of ethics); ASTA-NPRM at 1; Make-a-Wish-NPRM,
passim
; MBNA-NPRM at 6 (the Rule amendments to effectuate the USA PATRIOT Act's provisions “reflect Congress' intent and are limited in scope and impact while providing important consumer benefits.”).

45

See, e.g.
, NAAG-NPRM at 50-51; NASCO-NPRM at 3-4.

46

See
NAAG-NPRM at 50-51; NASCO-NPRM at 3-4 (the USA PATRIOT Act refers to “fraudulent charitable solicitations,” and requires disclosures by “any person” engaged in telemarketing; also noting that the USA PATRIOT Act was passed in the wake of September 11, 2001, and in response to misrepresentations by non-profits as well as their for-profit telemarketers.).

On the other hand, most non-profit organizations that commented argued that the Commission's interpretation of the USA PATRIOT Act amendments was too expansive. Several of these commenters argued that in adopting § 1011 of the USA PATRIOT Act, “Congress meant only to apply certain disclosure requirements—and not the other aspects of the Rule—to professional fundraisers for charities and to for-profit entities soliciting charitable contributions for their own philanthropic purposes.”
47
Others suggested that “Congress intended only to address bogus charitable solicitation where the non-profit or charitable cause or organizational scheme itself is of a criminal or fraudulent nature.”
48
These commenters cite statements made by the legislation's chief sponsor to the effect that concerns about fraudulent charities prompted him to introduce the legislation.
49

47
DMA-NonProfit-NPRM at 4.
See also
ACE-NPRM at 1-2; ERA-NPRM at 45; IUPA-NPRM at 21-22.

48
Not-For-Profit Coalition-NPRM at 26.
See also
Community Safety-NPRM at 2.

49

See
Not-For-Profit Coalition-NPRM at 27-28; DMA-NonProfit-NPRM at 5.

The Commission believes that concerns about bogus charitable fundraising in the wake of the events of September 11, 2001, in large measure propelled passage of § 1011 of the USA PATRIOT Act.
50
But the fact remains that Congress did more than impose upon the solicitation of charitable contributions by for-profit telemarketers prohibitions against misrepresentation and basic disclosure obligations. Indeed, the USA PATRIOT Act amendments alter the scope of the entire TSR by altering the key definition of the statute—“telemarketing”—to encompass charitable solicitation. Moreover, the text of § 1011 expressly directs the Commission to address both deceptive and abusive acts or practices.
51
Thus, there is no textual support for the notion that § 1011 excludes from its grant of authority over charitable solicitations the power to prohibit deceptive or abusive practices.
52

50

See
letter dated June 14, 2002, from Senator Mitch McConnell to FTC Chairman Timothy Muris, commenting on the NPRM and stating:

“In an effort to protect generous citizens and the charitable institutions they support, I was proud to introduce the Crimes Against Charitable Americans Act and secure its inclusion in the USA PATRIOT Act. This legislation strengthens federal laws regulating charitable phone solicitations. The bill also takes important steps to combat deceptive charitable solicitations by requiring telemarketers to make common sense disclosures such as the charity's identity and address at the beginning of the phone call. . . . When Congress enacted this legislation, it did not envision, nor did it call for, the FTC to propose a federal “do-not-call” list, and certainly not a list that applied to charitable organizations or their authorized agents.”

51
Pub. L. 107-56 (Oct. 26, 2001).

52
It is a tenet of statutory construction that “an amendatory act is not to be construed to change the original act . . . further than expressly declared or necessarily implied.” SUTHERLAND STAT. CONSTR., note 43 above, at § 22:30 (citations omitted). The Commission believes the necessary implication of modifying the definition of “telemarketing” in the USA PATRIOT Act is to have all provisions of the Rule apply to charitable solicitations.

Some non-profit commenters also argued that the Commission's interpretation of the USA PATRIOT Act produced, in effect, a double standard, regulating charities who outsource their telemarketing, but not those who conduct their own telemarketing campaigns.
53
Others opined that this bifurcated regulatory scheme was not intended by Congress when it passed the USA PATRIOT Act amendments to the Telemarketing Act.
54
These commenters argued that this distinction penalizes charities (by subjecting them to regulation) merely because they choose to outsource an administrative function. Some argued further that the increased costs of regulatory compliance will not be borne by the for-profit telemarketers, but rather by charities themselves, negatively impacting their ability to carry out their primary mission.
55

53

See, e.g.
, March of Dimes-NPRM at 2.

54

See
IUPA-NPRM at 1.

55

See
Reese-NPRM at 2.

Again, the Commission notes that despite its broad mandate to regulate charitable solicitations made via telemarketing, the USA PATRIOT Act amendments did not expand the Commission's jurisdiction under the TSR to make direct regulation of non-profit organizations possible. Nevertheless, reading the amendatory act together with the original language, as it must, the Commission has sought to give full effect to the directive of Congress set forth in the USA PATRIOT Act amendments.

Another argument raised by large numbers of non-profit commenters is that regulating for-profit telemarketers who solicit on behalf of non-profits, and in particular subjecting them to the requirements of the “do-not-call” registry provision, is unfair given the other limitations on the Commission's jurisdiction.
56
These commenters suggested that the result of this scheme would be to allow commercial calls that consumers find intrusive, while banning calls from charities, even those with whom a donor has a past relationship.
57
As explained in greater detail in the discussion of the applicability of the “do-not-call” provisions to charitable solicitation telemarketing, careful consideration of this argument has led the Commission to exempt solicitations to induce charitable contributions via outbound telephone calls from the “do-not-call” registry provision. Only the less restrictive entity-specific “do-not-call” provision included in the original Rule will apply to charitable solicitation telemarketing. However, both the entity-specific “do-not-call” provisions
and
the “do-not-call” registry provisions apply to commercial telemarketing to induce purchases of goods or services. This approach fulfills the Commission's intention that the TSR be consistent with First Amendment principles, whereby a higher degree of protection is extended to charitable solicitation than to commercial solicitation. Moreover, as a practical matter, the Commission believes that this approach will enable charities to continue soliciting support and pursuing their missions.

56

See, e.g.
, FOP-NPRM at 2; HRC-NPRM at 1; Italian American Police-NPRM at 1; Lautman-NPRM at 2; Leukemia Society-NPRM at 1-2; NCLF-NPRM at 1; Angel Food-NPRM at 1; North Carolina FFA-NPRM at 1; SO-CT-NPRM at 1; SO-NJ-NPRM at 1; SO-WA-NPRM at 1; Reese-NPRM at 2; SHARE-NPRM at 3; Stage Door-NPRM at 1.

57

See, e.g.
, PAF-NPRM at 1; AOP-Supp. at 1; Chesapeake-Supp. at 1.

Commenters' Proposals.

Noting the Commission's jurisdictional limitations with respect to banks, MBNA requested that the Rule explicitly state that it is “inapplicable to entities exempt from coverage under § 5(a)(2) of the [FTC Act].”
58
MBNA also recommended that the Rule extend this exemption to “entities acting on behalf of banks . . . because such entities are regulated by the Bank Service Company Act, 15 U.S.C. § 45(a)(2), concerning services they provide for banks.”
59
MasterCard challenged the Commission's statement that it can regulate third-party telemarketers who call on behalf of a bank, and urged that the Commission explicitly exempt “any bank subsidiary or affiliate performing services on behalf of a bank.
60
ABA recommended that the amended Rule clarify that “non-bank operating subsidiaries of banks as defined by the banking agencies” are exempt.
61

58
MBNA-NPRM at 2.
Accord
Fleet-NPRM at 2 (arguing that the Office of the Comptroller of the Currency already provides significant guidance to banks on managing risks that may arise from their business relationships with third parties); AFSA-NPRM at 3.

59
MBNA-NPRM at 2.
See also
AFSA-NPRM at 3.

60
MasterCard-NPRM at 13-14.
Accord
Citigroup-NPRM at 11.

61
ABA-NPRM at 3.

The Commission notes that, from the inception of the Rule, the Commission has asserted that parties acting on behalf of exempt organizations are not thereby exempt from the FTC Act, and thus, for example, “a nonbank company that contracts with a bank to provide telemarketing services on behalf of the bank is covered” by this Rule.
62
This reading is consistent with the Commission's long-standing interpretation of the scope of its authority under the FTC Act, as well as with judicial precedent.
63
Furthermore, the Commission's authority was clarified in § 133 of the Gramm-Leach-Bliley Act (“GLBA”), which states that “[a]ny person that . . . is controlled directly or indirectly . . . by . . . any bank . . . ([as] defined in section 3 of the Federal Deposit Insurance Act) and
is not itself a bank . . . shall not be deemed to be a bank . . . for purposes of any provisions applied by
” the FTC under the FTC Act.
64
Most recently, a federal district court held that, under this language, the Rule applies to telemarketing by a mortgage subsidiary of a national bank. As the court stated, “the definition of `bank' identified by Congress simply does not include the subsidiaries of banks.”
65

62
60 FR at 43843,
citing, inter alia, Official Airline Guides v. FTC
, 630 F.2d 920 (2d Cir. 1980) (holding that the air carrier exemption from the FTC Act did not apply to a firm publishing schedules and fares for air carriers, which was not itself an air carrier); FTC/Direct Mktg. Ass'n.,
Complying with the Telemarketing Sales Rule
(Apr. 1996) (“TSR Compliance Guide”) at 7.

63

See, e.g., Official Airline Guides
, note 62 above;
FTC v. Saja
, 1997-2 CCH (Trade Cas.) P 71,952 (D. Ariz. 1997);
FTC v. Am. Standard Credit Sys., Inc.
, 874 F. Supp. 1080 (1994).

64
GLBA, Pub. L. 106-102, 113 Stat. 1383, Title I, § 133(a), 15 U.S.C. 6801-6810 (2001).

65

Minnesota v. Fleet Mortgage Corp.
, 181 F. Supp. 2d 995 (D. Minn. 2001) (noting that the applicable definition under the Federal Deposit Insurance Act (“FDIA”) is “any national bank, State bank, District Bank, and any Federal branch and insured branch”
citing
FDIA, 12 U.S.C. 1813(a)(1)(A)).

The Commission believes it is unnecessary to state in the Rule what is already plain in the Telemarketing Act,
i.e.
, that its jurisdiction for purposes of the TSR is conterminous with its jurisdiction under the FTC Act, and therefore declines to include an express statement of this fact in the Rule. Further, the Commission declines to adopt the interpretation of some commenters that the FTC Act itself exempts non-bank entities based on their affiliation with or provision of services to exempt banks, and the recommendations of those commenters who sought an exemption from the Rule for bank subsidiaries or agents. To do so would be contrary to the Commission's interpretation of its jurisdictional boundaries, and would unnecessarily limit the reach of the Rule.
66

66
This approach is consistent with that laid out in the SBP of the original Rule.
See
60 FR at 43483.

In a similar argument, SBC asserted that, contrary to the Commission's stated position, the Commission's lack of jurisdiction over common carriers engaged in common carriage activity extends to their affiliates and their agents engaged in telemarketing on their behalf.
67
SBC cites no authority for this proposition, and the Commission is

aware of none. SBC claims that the cases cited by the Commission in the NPRM
68
in support of its authority provide no support for Commission jurisdiction over a common carrier's agent assisting in selling common carrier services.
69
In fact, in one of those cases, the publisher of what the court described as “the primary market tool of . . . virtually every (air) carrier . . . in the United States” was held not to be exempt under the exemption for air carriers.
70
Accordingly, the Commission declines to revise its position.

67
SBC-NPRM at 2, 4-5.

68
67 FR at 4407 (
citing
60 FR at 43843,
citing FTC v. Miller
, 549 F.2d 452 (7th Cir. 1977) and
Official Airline Guides
),
see
note 62 above.

69
SBC-NPRM at 4-5.

70

Official Airline Guides
,
see
note 62 above.
See also
cases cited above in note 63, rejecting exemption claims of telemarketers for exempt organizations.

Citigroup requested that the amended Rule clarify that certain financial services providers, such as insurance underwriters and registered broker-dealers, are exempt from the Rule.
71
NAIFA requested similar clarification regarding insurance companies, as well as an explicit statement of exemption in the Rule.
72
The Commission believes that the explicit statement of the Commission's jurisdictional limitation over broker-dealers is abundantly clear in the Telemarketing Act itself;
73
thus, it is unnecessary to exempt them in the Rule. Similarly, the Commission believes its jurisdictional limitations regarding the business of insurance are clear, and thus no express exemption for these entities is necessary.
74

71

See
Citigroup-NPRM at 10.

72

See
NAIFA-NPRM at 1-2.

73
15 U.S.C. 6102(d)(2).

74

See
Section 2 of the McCarran-Ferguson Act, 15 U.S.C. 1012(b) (the business of insurance, to the extent that it is regulated by state law, is exempt from the Commission's jurisdiction pursuant to the FTC Act).

In contrast to these requests to circumscribe or restate the Commission's jurisdiction under the Rule, a number of commenters urged the expansion of the Rule's scope beyond its current boundaries. As NCL put it, “[b]ecause the Commission's general jurisdiction does not include significant segments of the telemarketing industry, such as common carriers and financial institutions, the Rule does not provide comprehensive protection for consumers or a level playing field for marketers.”
75
Others argued that the Commission should assert jurisdiction over intrastate calls as well as interstate calls.
76

75
NCL-NPRM at 2.
See also
Horick-NPRM at 1; PRC-NPRM at 3-4; Myrick-NPRM at 1.

76
FCA-NPRM at 2.

As the Commission stated in the NPRM, “the jurisdictional reach of the Rule is set by statute, and the Commission has no authority to expand the Rule beyond those statutory limits.”
77
Thus, absent amendments to the FTC Act or the Telemarketing Act, the Commission is limited with regard to its ability to regulate under the Rule those entities explicitly exempt from the FTC Act. Despite this limitation, the Commission can reach telemarketing activity conducted by non-exempt entities on behalf of exempt entities.
78
Therefore, when an exempt financial institution, telephone company, or non-profit entity conducts its telemarketing campaign using a third-party telemarketer not exempt from the Rule, then that campaign is subject to the provisions of the TSR.
79

77
67 FR at 4497.

78

Id.

79
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.” 60 FR at 43843. Although some commenters, such as SBC (SBC-NPRM at 5-8) and Wells Fargo (Wells Fargo-NPRM at 2), took issue with this proposition, the fact remains that the Telemarketing Act states merely that “no activity which is outside the jurisdiction of that Act shall be affected by this chapter.” 15 U.S.C. 6105(a). Thus, when an entity not exempt from the FTC Act engages in telemarketing, that conduct falls within the Commission's jurisdiction under the TSR.
Id.
; TSR Compliance Guide at 12.

Regarding the suggestion that the Commission regulate intrastate telemarketing calls, the Commission notes that, pursuant to the definition of “telemarketing” included in the Telemarketing Act, 15 U.S.C. § 6106(4), the Commission only has authority to regulate “a plan, program, or campaign which is conducted . . . by use of one or more telephones and which involves
more than one interstate call
.” (emphasis added).

Finally, one commenter suggested that the Commission expressly state its jurisdiction over prerecorded telephone solicitations and facsimile advertisements.
80
The Commission believes that sales calls using pre-recorded messages may fall within the Rule's definition of “telemarketing,” provided the call is not exempt and provided the call meets the other criteria of “telemarketing.” Thus, a sales call using a prerecorded message may be “telemarketing” if it is part of a plan, program, or campaign for the purpose of inducing the purchase of goods or services or inducing a donation to a charitable organization, is conducted by use of one or more telephones, and involves more than one interstate call. However, the fact that prerecorded sales calls may be “telemarketing” does not affect the fact that such calls are already prohibited, except with the consumer's prior express consent, under regulations promulgated by the FCC pursuant to the TCPA.
81
Similarly, FCC regulations already prohibit unsolicited facsimile advertisements,
82
although facsimiles also are a form of direct mail subject to the TSR. The Commission notes in the discussion of § 310.6(b)(6) below that it considers facsimiles to be a form of direct mail solicitation. Thus, under § 310.6(b)(6), a seller using a facsimile advertisement to induce calls from consumers may not claim the direct mail exemption unless the facsimile truthfully discloses the material information listed in § 310.3(a)(1) (or contains no material misrepresentation regarding any item contained in § 310.3(d) if the solicitation is for a charitable contribution).

80

See
Worsham-NPRM at 6.

81
47 CFR 64.1200(a)(2).

82
47 CFR 64.1200(a)(3).

B. Section 310.2 — Definitions.

The amended 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,”
83
“investment opportunity,”
84
“merchant,” “merchant agreement,” “person,” “prize,” “prize promotion,” “seller,” and “State.”

83
VISA stated that the definition of “customer” is too broad, encompassing not only “the person who is party to the telemarketing call and who would be liable for the amount of a purchase as the contracting party, but also would include any person who is liable under the terms of the payment device.” VISA-NPRM at 7. Although the term “customer,” defined to mean “any person who is or may be required to pay for goods or services offered through telemarketing,” is broad in scope, the Commission believes this breadth is necessary to effect the purposes of the Rule. Further, the Commission believes that the term “customer,” taken in context of the various Rule sections in which it is used, is not confusing. Therefore, the Commission makes no change in the amended Rule to the definition of “customer.”

84
One commenter recommended that the Commission clarify that an investment vehicle whose main attribute is that it provides tax benefits would be considered an “investment opportunity” under the Rule. Thayer-NPRM at 6. The Commission believes that such a tax-advantaged investment would come under the present definition, which is predicated on representations about “past, present, or future income, profit, or appreciation.” The Commission believes that any such investment opportunity would only result in a tax advantage because of its ability to produce income or appreciation, regardless of whether that income is positive (and tax-deferred or tax-exempt) or negative (resulting in deductible losses). Thus, the Commission has retained the original definition of “investment opportunity” in the amended Rule.

Based on the record developed in this matter, the Commission has determined to retain the following definitions from

the proposed Rule unchanged, apart from renumbering: “caller identification service,” “donor,” “telemarketer,”
85
and “telemarketing.” The amended Rule modifies the definitions put forth in the NPRM for the terms “billing information,” “charitable contribution,” “material,” and “outbound telephone call.” Finally, the amended Rule adds five definitions that were not included in the NPRM proposal. They are: “established business relationship,” “free-to-pay conversion,” “negative option feature,” “preacquired account information,” and “upselling.” The Commission discusses each of these definitions below, along with the comments received regarding them, and the Commission's reasoning in making a final determination regarding each of these definitions.
86

85
One commenter expressed concern that “a company that sells telemarketing services to sellers, but does not maintain any calling facilities itself, instead subcontracting the actual telephoning to individuals” might not fall within the definition of “telemarketer.” Patrick-NPRM at 2. The Commission disagrees, and believes that regardless of whether an entity maintains a physical call center, it would be a “telemarketer” for purposes of the Rule if “in connection with telemarketing, [it] initiates or receives telephone calls to or from a customer or donor.” Amended Rule § 310.2(bb).

86
The definitions proposed in the NPRM for “express verifiable authorization,” “Internet services,” and “Web services” have been deleted from the amended Rule because they are no longer necessary in light of certain substantive modifications in the amended Rule.

§ 310.2(c) — Billing information

The proposed Rule included a definition of the term “billing information,” which was used in proposed § 310.3(a)(3), the express verifiable authorization provision, and proposed § 310.4(a)(5), the section that addressed preacquired account telemarketing. Under the definition proposed in the NPRM, the term “billing information” encompassed “any data that provides access to a consumer's or donor's account, such as a credit card, checking, savings, or similar account, utility bill, mortgage loan account, or debit card.”
87

87

See
proposed Rule § 310.2(c), and discussion, 67 FR at 4498-99.

The Commission received numerous comments regarding this definition as it pertained to the express verifiable authorization and preacquired account provisions of the proposed Rule. The use of the term in the express verifiable authorization provision drew less comment, perhaps because that provision merely required that the customer or donor receive such billing information if express verifiable authorization of payment is to be deemed verifiable.
88
Comments from consumer groups generally favored the “billing information” definition, noting that the breadth of the term would prove beneficial to consumers.
89
AARP, for example, stated that the definition, as employed in the proposed preacquired account telemarketing provision, “is broad enough so as not to leave any doubt in the mind of the telemarketer regarding what can and cannot be shared.”
90
Law enforcement representatives and some consumer groups expressed their concern that, as broad as the definition might seem, it should be further expanded to encompass encrypted data, and other kinds of information that can allow access to a consumer's account.
91
Industry commenters, on the other hand, argued precisely the opposite, requesting that the definition be narrowed and that it specifically exclude encrypted data,
92
or other specified items unique to that commenter's business practices.
93
Instead, industry commenters recommended, “billing information” should be limited to account information that “in and of itself, is sufficient to effect a transaction” against a consumer's account.
94
Virtually all of these comments were made in the context of the proposed Rule provision regarding preacquired account telemarketing, which would have prohibited the disclosure or receipt of “billing information” except when provided by the customer or donor to process payment.

88
As discussed below, in the section explaining the express verifiable authorization provision (
i.e.
, § 310.3(a)(3)), commenters' concerns regarding billing information in the express verifiable authorization provision focused on the dangers of disclosure of consumers' account numbers.

89

See
NCLC-NPRM at 13; LSAP-NPRM at 5 (approved of definition, but also suggested changing “such as” to “including but not limited to”).

90
AARP-NPRM at 7.

91
Specifically, NAAG noted: “[T]he Gramm Leach Bliley Act (“GLBA”) has resulted in the common use of reference numbers and encrypted numbers to identify consumer accounts in preacquired account telemarketing. These types of account access devices definitely should be included in the list of examples. Failure to include encrypted numbers within the scope of the Rule's definition of `billing information' would render the Rule useless as a device to combat the ills of preacquired account telemarketing.” NAAG-NPRM at 38.
See also
NACAA-NPRM at 5-6 (“consider providing a non-exclusive list of such information, based upon technologies in place today. Thus, name, account number, telephone number, married and maiden names of parents, social security number, passwords to accounts and PINs, and encrypted versions of this information, with or without the encryption [key], should all be prohibited from use in any trasaction but the immediate one in which the co nsumer is engaged.”); NCLC-NPRM at 13.

92
Citigroup-NPRM at 7-8; Household Auto-NPRM at 2 (“Although the specific language of the proposed definition does appear to be consistent with the Commission's GLBA interpretation, the explanation of the term in the [NPRM] is broader and creates a conflict with the GLBA interpretation . . . . To avoid such a conflict, we suggest that the Commission clarify that the term . . . includes only account numbers and specifically excludes encrypted account numbers.”).
Accord
ABIA-NPRM at 2; Roundtable-NPRM at 8 (“The Roundtable is concerned that this definition is so broad that it could be construed to restrict the sharing of publicly available identifying information, such as a consumer's name, phone number and address.”).
See also
AFSA-NPRM at 11-12; Advanta-NPRM at 3; ARDA-NPRM at 3; Assurant-NPRM at 3; Capital One-NPRM at 8-9; Cendant-NPRM at 7; Citigroup-NPRM at 7; E-Commerce Coalition-NPRM at 2; ERA-NPRM at 24; IBM-NPRM at 10; MPA-NPRM at 23, n.23; MasterCard-NPRM at 8; Metris-NPRM at 7; VISA-NPRM at 6.

93

See, e.g.
, Green Mountain-NPRM at 31 (“If the Commission intends to adopt its proposal to amend the TSR to add a new Section 310.4(a)(5) to ban the use of preacquired billing information obtained from third parties, it should exempt names, addresses, electricity meter identifiers, and electricity usage patterns from its definition of `billing information.'”)

94
IBM-NPRM at 10. ARDA argued that information that would fall within the definition of “billing information” —such as a customer's or donor's date of birth— may be collected during a call for purposes other than to effect a charge. ARDA cited examples including “eligibility to enter a contest or drawing” or “demographic purposes.” ARDA-NPRM at 3. ARDA then asserted that, while this information may not be gathered during a call in which a billing occurs, or used for billing purposes in the first instance, it could be passed along to other parties for marketing or other purposes.
Id.
While the Commission recognizes that information like date of birth has marketing uses beyond access to consumer accounts for billing purposes, the Commission finds it improbable at best that collection or confirmation of date of birth, or similar piece of information, as a proxy for consent to be charged for a purchase or donation would satisfy the “express informed consent” requirements of amended Rule § 310.4(a)(6), discussed below.

As noted below in the discussions of amended Rule §§ 310.4(a)(5) and (6), the Commission has tailored its approach to preacquired account telemarketing, thereby addressing many of the concerns raised by commenters on both sides regarding the proposed definition of “billing information.” The amended Rule's approach to preacquired account telemarketing—which no longer focuses on the sharing of “billing information” in anticipation of telemarketing, but instead prohibits “[c]ausing billing information to be submitted for payment, directly or indirectly, without the express informed consent of the customer or donor”—obviates the concerns about the breadth of the term, and whether it includes or excludes encrypted account numbers.
95
However,

the amended Rule includes a definition of “preacquired account information,” which encompasses both encrypted and unencrypted account information, to address specifically the practice of preacquired account telemarketing.
96

95
During the Rule Review, industry argued the term was so broad it might mean that sellers and telemarketers could not share customer names and telephone numbers for use in telemarketing.
See, e.g.
, Advanta-NPRM at 3; Roundtable-NPRM at 8. Industry also argued that encrypted data should not be included in the definition of “billing information,” because such data by itself does not allow a charge to be placed on a consumer's

account, and because sharing it is permitted by the GLBA.
See, e.g.
, Cendant-NPRM at 7; E-Commerce Coalition-NPRM at 2; MPA at 23, n.23. These arguments have been addressed by the Commission's revised approach to preacquired account telemarketing, which focuses not on the sharing of account information—except in the very limited area of sale of unencrypted account numbers—but on the harm that results from certain practices in preacquired account telemarketing,
i.e.
, unauthorized charges. Moreover, in those instances where there has been the strongest history of abuse, sellers and telemarketers are required to obtain part or all of the customer's account number directly from the customer.

96

See
amended Rule § 310.2(w), and related discussion below.

Consequently, after consideration of the record in this proceeding, and in light of the more focused approach to the provisions in which the term is used, the Commission has decided to retain the proposed definition of “billing information,” with a minor modification. The definition now encompasses “any data that
enables any person to obtain access
to a customer's or donor's account, such as a credit card, checking, savings, share or similar account, utility bill, mortgage loan account, or debit card.” (emphasis added). The Commission believes that this syntactical modification, substituting the phrase “that enables any person to obtain access” for the phrase “that provides access,” makes the definition more precise and somewhat easier to understand. The definition retains the broad scope of its predecessor in order to capture the myriad ways a charge may be placed against a consumer's account,
97
yet has more limited effect in the context of the approach adopted in the amended Rule to address preacquired account telemarketing and express verifiable authorization.

97
The record shows that a telemarketer or seller may provide anything from complete account number to mother's maiden name to initiate a charge for a telemarketing transaction, depending on its relationship with another seller, financial institution, or billing entity.
See, e.g.
, Assurant-NPRM at 4.

§ 310.2(d) — Caller identification service

The definition of “caller identification service” comes into play in § 310.4(a)(7) of the amended Rule, discussed below. In the NPRM, the Commission proposed to define “caller identification service” to mean “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.” As the Commission explained in the NPRM, the Commission intends the 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.
98
Those few commenters who addressed the definition supported the Commission's proposal.
99
Therefore, the amended Rule adopts § 310.2(d), the definition of “caller identification service,” unchanged from the proposal.

98
67 FR at 4499.

99

See, e.g.
, EPIC-NPRM at 11; ARDA-NPRM at 4. ARDA suggested that the definition be expanded to allow transmission of the name and number of “any party whom the telephone subscriber may contact” regarding being placed on the company's “do-not-call” list. As noted in the subsequent discussion of this provision, § 310.4(a)(7) of the amended Rule permits telemarketers to substitute a customer service number on the caller identification transmission.

§ 310.2(e) — Charitable contribution

The original Rule did not include a definition of “charitable contribution” because originally the term “telemarketing” in the Telemarketing Act, which determined the scope of the TSR, was defined to reach telephone solicitations only for the purpose of inducing sales of goods or services.
100
The proposed Rule added a definition of the term “charitable contribution” because § 1011 of the USA PATRIOT Act amended the Telemarketing Act to specify that “telemarketing” now includes not only calls to induce purchases of goods or services but also calls to induce “
a charitable contribution, donation, or gift of money or any other thing of value
.”
101
The Commission has determined that the 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 has retained this definition from the proposed Rule. It has, however, determined to modify the proposed definition to eliminate the exemptions included in the proposed Rule.

100
15 U.S.C. 6106(4).

101
15 U.S.C. 6106(4) (amended by § 1011(b)(3) of the USA PATRIOT Act, Pub. L. 107-56 (Oct. 26, 2001)).

The proposed definition in the NPRM expressly excluded donations or gifts of money or any other thing of value solicited by or on behalf of “political clubs, committees, or parties, or 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.”
102
This proposed exemption drew strong comment and criticism. NASCO recommended that a definition of “constituted religious organizations” be included in the Rule to set clear boundaries for what kinds of groups were intended to be included.
103
Hudson Bay stated that “establishing governmentally preferred groups, such as religious organizations or political parties, and providing them with superior access to the public, is in our opinion unquestionably a violation of the Fourteenth Amendment's guarantee of equal protection and of the First Amendment.”
104
Similarly, DMA-Nonprofit stated “the Commission has no authority to single out agents of religious organizations for exemption . . . . [T]here is no language in the [USA PATRIOT Act] that allows the Commission to make this distinction.”
105

102
Proposed Rule § 310.2(f).

103
NASCO-NPRM at 6.

104
Hudson Bay-NPRM at 12.

105
DMA-NonProfit-NPRM at 5-6.
See also
Not-for-Profit Coalition-NPRM at 41.

Based on careful consideration of the record, the Commission is persuaded that no exemptions based upon the type of organization engaged in telemarketing are warranted, and that all telemarketing (as defined in the Telemarketing Act as amended by the USA PATRIOT Act) conducted by any entity within its jurisdiction should be covered by the TSR. This does
not
mean that the Commission believes political fundraising is within the scope of the Rule.
106
It means only that the TSR applies to all calls that are part of any “plan, program, or campaign” that is conducted by any entity within the FTC's jurisdiction, involving more than one interstate telephone call for the purpose of inducing a purchase of goods or services
or
a charitable contribution, donation, or gift of money or any other thing of value. Thus, for example, if a for-profit telemarketer on behalf of a

(presumably non-profit) political club or constituted religious organization were to engage in a “plan, program, or campaign” involving more than one interstate telephone call to induce a purchase of goods or services
or
a charitable contribution, that activity would be within the scope of the TSR. But if such a for-profit telemarketer on behalf of the same client made calls that were not for the purpose of inducing a purchase of goods or services or a charitable contribution, those calls would not be within the scope of the TSR.

106
The USA PATRIOT Act is consistent with a basic common law distinction between charities and political organizations. “Gifts or trusts for political purposes or the attainment of political objectives generally have been regarded as not charitable in nature. Also . . . a trust to promote the success of a political party is not charitable in nature.” 15 Am. Jur. 2d
Charities
§ 60 (2002). In this regard, it is noteworthy that Congress elsewhere has established a regulatory scheme applicable to political fundraising. 2 U.S.C. §§ 431-455.

Commenters also addressed the scope of the term “or any thing of value” in the definition of “charitable contribution” in the proposed Rule, suggesting exemptions to limit this definition. Red Cross urged the Commission to exempt blood from the definition of “charitable contribution” because, it argued, “blood donations are not 'a thing of value' in a fiduciary sense.”
107
Blood Centers agreed with this position, arguing that while “the donor's blood is of great value to the recipient of the blood donation . . . the donor is not being asked to part with anything other than his or her
time
.”
108
Blood Centers also argued that donations of blood are of grave importance to save lives, and so are distinguishable from typical commercial and even charitable telemarketing calls.
109
Another argument raised by Blood Centers in support of its position that a blood donation should be excluded from the definition of “charitable contribution” is that blood donation programs are highly regulated by the Food and Drug Administration (“FDA”).
110
March of Dimes also requested that volunteers' time not be considered a “thing of value” under the Rule, noting that their organization often uses the telephone to contact volunteers who then solicit contributions from their friends and neighbors.
111

107
Red Cross-NPRM at 3.

108
Blood Centers-NPRM at 2.

109

Id.

110

Id.
at 2-3.

111
March of Dimes-NPRM at 2.
See also
AFP-NPRM at 5.

The Commission believes that the text of the USA PATRIOT Act provision expanding the definition of telemarketing to include calls to induce “a charitable contribution, donation, or gift of money or any other thing of value” is broad in scope and plain in meaning. The USA PATRIOT Act specifically uses the term “or any other thing of value” in addition to the terms “charitable contribution, donation, or gift of money,” ensuring that it will encompass non-money contributions. The Commission believes that, while blood donors are asked for blood and not money, the blood they donate is clearly a “thing of value.”
112
Similarly, although volunteers are asked to give time rather than money, the Commission believes that a donation of time is a “thing of value.”
113
Therefore, the Commission cannot exempt from the definition of “charitable contribution” either blood or time volunteered. The Commission believes, however, that legitimate concern about inclusion of blood in the definition should be alleviated by the exemption of charitable solicitation telemarketing from the “do-not-call” registry provisions. The remaining provisions that will apply to telemarketing to solicit blood donations are neither burdensome nor likely to impede the mission of the non-profit organizations that seek such donations.

112

See
Maryland Health Care, Fall 2000 at 4, http://www.mdhospitals.org/MarylandPubs/MDHlthCr_1100.pdf (noting the blood shortages had driven up the price of blood from $145.24 per unit to $174.10 per unit in a single year).

113
Presumably, organizations that rely on volunteers would, absent their donations of time, be forced to pay labor costs associated with the work done by volunteers. Therefore, the time donated is a “thing of value,” equivalent to the labor cost saved.

NAAG and NASCO suggested that the Commission “state that the word `charitable' does not limit the character of the recipient of the contribution.”
114
According to these commenters, it is important to ensure that donations solicited by or on behalf of public safety organizations are considered “charitable contributions” for regulatory purposes, and that those contributions solicited by sham charities are still “charitable contributions” under the amended Rule.
115
The Commission believes that the current definition, which closely tracks the USA PATRIOT Act definition, is clear as to what is covered.
116
Its focus is on the donation, rather than the solicitor, and it is sufficiently broad in scope to encompass donations solicited on behalf of any organization.

114
NAAG-NPRM at 52; NASCO-NPRM at 5-6.

115

Id.

116
15 Am. Jur. 2d
Charitie
s § 60 (2002).

NAAG and NASCO also requested that the Commission explicitly address the situation where a call involves “`percent of purchase' situations, where contributions are sought in the form of the purchase of goods or services, [and] where a portion of the price will, according to the solicitor, be dedicated to a charitable cause.”
117
These commenters urged the Commission to ensure that such hybrid transactions are covered, either as sales of goods or services or as charitable contributions, or both, under the Rule.
118
The Commission believes that when the transaction predominantly is an inducement to make a charitable contribution, such as when an incentive of nominal value is offered in return for a donation, the telemarketer should proceed as if the call were exclusively to induce a charitable contribution. Similarly, if the call is predominantly to induce the purchase of goods or services, but, for example, some portion of the proceeds from this sale will benefit a charitable organization, the telemarketer should adhere to the portions of the Rule relevant to sellers of goods or services. The Commission believes that further elaboration on the differences between these scenarios is unnecessary because, in either case, the requirements are similar, consisting primarily of avoiding misrepresentations, and promptly disclosing information that would likely be disclosed in the ordinary course of a telemarketing call.

117
NAAG-NPRM at 52.
See also
NASCO-NPRM at 5-6.

118

Id.

§ 310.2(m) — Donor

The proposed Rule contained a definition of “donor” in order to effectuate the goals of the USA PATRIOT Act amendments. Under that definition, a “donor” is “any person solicited to make a charitable contribution.”
119
Throughout the proposed Rule, wherever the word “customer” was used, the Commission added the word “or donor” where appropriate, to indicate that the provision was also applicable to the solicitation of charitable contributions. The Commission received very few comments on this definition. The March of Dimes expressed the concern that “[t]he definition of a `donor' does not accurately reflect the nomenclature used by the industry.”
120
Rather, the March of Dimes suggested, the term “donor,” as used in philanthropic circles, “connotes an established relationship with the non-profit charitable organization.”
121
The March of Dimes recommended replacing the terms “customer” and “donor” in the Rule with the term “consumer.”

119
Proposed Rule § 310.2(m), 67 FR at 4540.

120
March of Dimes-NPRM at 3.

121

Id.
(noting that the term “prospect” is used to mean a potential donor).

The Commission believes that the term “consumer” is too broad and non-specific to substitute for the terms

“customer” and “donor.”
122
The Rule uses these more targeted terms to capture the varied nature of transactions between sellers or telemarketers and individuals who are, or may be, required to pay for something as the result of a telemarketing solicitation. Thus, it is the intent of the Commission that the term “donor” as used in the Rule encompass not only those who have agreed to make a charitable contribution, but also any person who is solicited to do so, to be consistent with its use of the term “customer.” Therefore, the Commission has determined that the term “donor” is necessary and appropriate, and has retained the definition of “donor” in the amended Rule without modification.

122
The term “consumer” is defined generally as “one that utilizes economic goods.” Merriam-Webster's Collegiate Dictionary, at: http://www.merriamwebster.com/cgi-bin/dictionary#. This broader term is used in the Rule in the definition of “established business relationship,” § 310.2(n), and in the provision banning the transfer of unencrypted account numbers, § 310.4(a)(5). In each of these instances, the Commission has consciously used the broader term “consumer” to effect broader Rule coverage.

§ 310.2(n) — Established business relationship

The Commission has determined to add to the Rule a definition of “established business relationship.” This new definition comes into play in § 310.4(b)(1)(iii), which now exempts from the national “do-not-call” registry calls from sellers with whom the consumer has an “established business relationship” (unless that consumer has asked to be placed on that seller's company-specific “do-not-call” list). This definition limits the exemption to relationships formed by the consumer's purchase, rental, or lease of goods or services from, or financial transaction with, the seller within eighteen months of the telephone call (or, in the case of inquiries or applications, within three months of the call).

Industry comments were nearly unanimous in emphasizing that it is essential that sellers be able to call their existing customers.
123
Although the initial comments from consumer groups opposed an exemption for “established business relationships,”
124
their statements during the June 2002 Forum and in their supplemental comments expressed the view that such an exemption would be acceptable, as long as it was narrowly-tailored and limited to current, ongoing relationships.
125
Moreover, state law enforcement representatives' comments on their experience with state “do-not-call” laws that have an exemption for “established business relationships” suggest that this type of exemption is consistent with consumer expectations.
126
While the Commission is persuaded that an “established business relationship” exemption is necessary and appropriate, it believes that the exemption must be narrowly crafted and clearly defined to avoid a potential loophole that could defeat the purpose of the national “do-not-call” registry.

123

See, e.g.
, AFSA-NPRM at 13-14; AmEx-NPRM at 3; ANA-NPRM at 5; ARDA-NPRM at 17; ATA-NPRM at 29; BofA-NPRM at 4; Best Buy-NPRM at 1; DialAmerica-NPRM at 12; DMA-NPRM at 33-34; DSA-NPRM at 7-8; ERA-NPRM at 36-37; Gottschalks-NPRM at 1; NCTA-NPRM at 6; NRF-NPRM at 13; PMA-NPRM at 28; Roundtable-NPRM at 5; SIIA-NPRM at 2-3; Time-NPRM at 6-7; VISA-NPRM at 3.
See also, e.g.
, ARDA-Supp. at 1; ICTA-Supp. at 2.

124

See, e.g.
, EPIC-NPRM at 20-21; NCL-NPRM at 10. Among other things, consumer advocates opposed such an exemption because of the difficulty in defining a “pre-existing business relationship” without creating significant loopholes in the protections provided by the national “do-not-call” registry (described in the discussion of amended Rule § 310.4(b)(1)(iii) below).
See
NCL-NPRM at 10. Furthermore, they did not agree with industry's argument that consumers want to hear from companies with whom they have an existing relationship. NCL stated that the fact that a consumer may have had a relationship with a company does not necessarily mean that he or she wishes to receive calls, or to continue to receive calls, from that company. NCL-NPRM at 10. Consumer advocates believed the FTC had taken the right approach: the burden should lie with the seller to show specific consent to receive calls. NCL-NPRM at 10; EPIC-NPRM at 20-21; PRC-NPRM at 2.

125
June 2002 Tr. I at 110 (NCL) (“This would have to be . . . really narrowly defined in order to protect consumers so that if somebody had something that was ongoing . . . that would be in a different category.”).
See also
AARP-Supp. at 3 (“AARP recognizes that there may be an expectation by consumers that they will be in contact with businesses with whom they have current, ongoing, voluntary relationship; calls from such businesses are not necessarily unwanted or unsolicited. Calls made from a business with which consumers had a prior relationship are a different matter altogether. In situations where the consumer has chosen not to continue a business relationship, it cannot be presumed they wish to be solicited by that business again. Therefore, AARP believes that any exemption for an existing business relationship must be limited to those situations where the relationship is current, ongoing, voluntary, involves an exchange of consideration, and has not been terminated by either party.”).

126
June 2002 Tr. I at 110-19.
See also
June 2002 Tr. I at 119-22, in which participants discussed an AARP survey conducted in conjunction with the Missouri Attorney General's Office, which showed that three-fourths of consumers did not feel an established business relationship was justified. However, representatives from the Missouri Attorney General's Office explained that the results were less a measure of consumer condemnation of such an exemption, than an indication that consumers were receiving calls from businesses with whom they did not perceive that they had such a relationship. According to the Missouri representatives, businesses took a broader view of the relationship than did consumers. As noted in more detail below, consumers appear to be comfortable with an exemption for “established business relationships” once its parameters are explained to them.

In adopting the “do-not-call” provisions of the original Rule, the Commission considered, among other things, the approach taken by Congress and the FCC in the TCPA and its implementing regulations.
127
In crafting an “established business relationship” definition, it is useful again to consider the TCPA, which specifically exempts calls “to any person with whom the caller has an established business relationship.”
128
The House Report on the TCPA's “established business relationship” exemption confirms that Congress intended for the reasonable expectation of the consumer to be the touchstone of the exemption:

127
60 FR at 43855.

128
47 U.S.C. 227(a)(3)(B). The legislative history of the TCPA shows that Congress exempted “established business relationship” calls “so as not to foreclose the capacity of businesses to place calls that build upon, follow-up, or renew, within a reasonable period of time, what had once been an existing customer relationship.” H.R. REP. NO. 102-317 at 13 (1991). Throughout the House Report discussing the exemption for “established business relationship,” the point is stressed that the exemption is intended to reach only those relationships that are
current or recent
. The Report consistently refers to an “established business relationship” in terms of “the existence of the relationship
at the time of the solicitation, or within a reasonable time prior to it
.”
Id.
at 13-15. (emphasis added).

In the Committee's view, an “established business relationship” also could be based upon any prior transaction, negotiation, or inquiry between the called party and the business entity that has occurred during a reasonable period of time. . . . By requiring this type of relationship, the Committee expects that otherwise objecting consumers would be less annoyed and surprised by this type of unsolicited call since the consumer would have a recently established interest in the specific products or services. . . . In sum, the Committee believes the test to be applied must be grounded in the consumer's expectation of receiving the call.
129

129

Id.
at 14, 15.

When it promulgated its rules pursuant to the TCPA, the FCC included the following definition of “established business relationship” with regard to its company-specific “do-not-call” requirements:

The term
established business relationship
means a prior or existing relationship formed by a voluntary two-way communication between a person or entity and a residential subscriber with or without an exchange of consideration, on the basis of an inquiry, application, purchase or transaction by the residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party.
130

130
47 CFR 64.1200(f)(4).

Consideration of state approaches to the “established business relationship”

exemption is also instructive. Most state “do-not-call” laws have some form of exemption for “established business relationships,” and several of these are modeled on the language of the FCC's exemption.
131
However, there is an important difference between the FCC approach and that of many of the states, in that many state law exemptions circumscribe the scope of an “established business relationship” by specifying the amount of time after a particular event (like a purchase) during which such a relationship may be deemed to exist.
132
The Commission believes that this approach is more in keeping with consumer expectations than an open-ended exemption. As discussed in more detail below, many consumers favor an exemption for companies with whom they have an established relationship. Consumers also might reasonably expect sellers with whom they have recently dealt to call them, and they may be willing to accept these calls. A purchase from a seller ten years ago, however, would not likely be a basis for the consumer to expect or welcome solicitation calls from that seller.

131
Fourteen state “do-not-call” statutes are open-ended and do not contain a time limit for tolling the established business relationship: Alabama, California, Connecticut, Florida, Georgia, Idaho, Kentucky, Maine, Minnesota, Oregon, Texas, Vermont, Wisconsin, and Wyoming. Three of these “open-ended” state statutes incorporate the FCC definition either in whole or in part: California, Texas, and Wyoming. In addition, four other states incorporate the FCC definition in whole or in part, but limit the time period during which a business may claim an “established business relationship” once the relationship has lapsed: Colorado, Kansas, Oklahoma, and Pennsylvania. See note 592 below for citations to all state “do-not-call” statutes.

132

See
discussion and note 135 below.

In addition, specific time limits for an “established business relationship” are particularly appropriate for a general “do-not-call” registry such as the one to be maintained by the Commission, as opposed to the company-specific “do-not-call” lists for which the FCC definition was crafted. The Commission believes that an “established business relationship” exemption in a national list applying to many sellers and telemarketers should be carefully and narrowly crafted to ensure that appropriate companies are covered while excluding those from whom consumers would not expect to receive calls. A specific time limit balances the privacy needs of consumers and the need of businesses to contact their current customers.

Comments received in response to the NPRM stress the importance of extending such an exemption to current, existing relationships and prior relationships that occurred within a reasonable period of time.
133
Throughout the comments from industry stressing the need for an “established business relationship” exemption, a consistent theme is that
such an exemption is necessary for “existing customers” or someone with whom sellers “currently do business
,” and there seems to be a common understanding regarding what constitutes an “existing” relationship.
134
There is less consensus when it comes to the issue of how long a business relationship lasts
following
a transaction between a seller and consumer. Many states have attempted to provide some clarity regarding how long after dealings between a consumer and seller have ceased that a residual “established business relationship” could be deemed still to exist.

133
The comments received on “established business relationship” came primarily from the business community. On the other hand, there was little comment from consumer advocates and state regulators on how such an exemption would be formulated because the proposed Rule did not include an “established business relationship” exemption. However, the NPRM did ask about the effect on companies and charitable organizations with whom consumers had a pre-existing business or philanthropic relationship of the proposal to allow companies to call consumers on the “do-not-call” registry if they had given their express verifiable authorization to call (67 FR at 4539, question 9). As discussed in more detail above in note 124, those few consumer advocates who did mention such an exemption were opposed to it.

134

See, e.g.
, ABA-NPRM at 10; Community Bankers-NPRM at 2; AmEx-NPRM at 3; ANA-NPRM at 5; Associations-NPRM at 2; ARDA-NPRM at 17; Bank One-NPRM at 4; BofA-NPRM at 4; Best Buy-NPRM at 1; Cendant-NPRM at 5-6; Citigroup-NPRM at 4; Comcast-NPRM at 3; CMC-NPRM at 6; Cox-NPRM at 2, 4; DMA-NPRM at 33, 34; Eagle Bank-NPRM at 2; Roundtable-NPRM at 5; Gottschalks-NPRM at 1; NCTA-NPRM at 4; NRF-NPRM at 13; SIIA-NPRM at 2-3; Time-NPRM at 6; VISA-NPRM at 3.

Twelve of the states that have an “established business relationship” exemption limit it to a specific time period after a transaction has occurred, ranging from six months to 36 months.
135
Industry commenters suggested various time periods to limit the exemption. Several suggested 24 to 36 months, while others stated that a shorter period (12 months) would be more appropriate.
136
The Commission believes, based on the record evidence and statements from Congress regarding the TCPA's “established business relationship,” that a company should be able to claim the exemption only if there has been a relatively recent transaction between the customer and the seller sufficient to support the existence of an “established business relationship.”

135
Six months (Louisiana, Missouri); 12 months (Pennsylvania, Tennessee); 18 months (Colorado, Illinois); 24 months (Alaska, Massachusetts, Oklahoma); 36 months (Arkansas, Kansas). In addition, New York apparently has adopted an 18-month time period: the New York statute does not contain a time limit; however, at the June 2002 Forum, NYSCPB stated that New York applies an 18-month time limit. June 2002 Tr. I at 115 (“We have two separate exemptions. . . . The second thing is a prior business relationship, which we define as an exchange of goods and services for consideration within the preceding 18 months. . . .”). Indiana's statute does not have an exemption for “established business relationships.”

136
Industry commenters generally supported a 24-month time period, but did not submit data that would tend to show that a shorter time period would not serve their purposes. The breakdown of suggested time periods is as follows: “recently terminated or lapsed” (New Orleans-NPRM at 14-15); 12 months (BofA-NPRM at 4; CMC-NPRM at 6-7); 24 months (ATA-Supp. at 8; ERA-NPRM at 38; ERA-Supp. at 19; MPA-Supp. at 11; NAA-NPRM at 11; June 2002 Tr. I at 109 (PMA)); 36 months (ARDA-NPRM at 20; Associations-Supp. at 3-4). In a supplement to their comment, FDS supported limiting telemarketing sales calls to customers who have made a purchase in the past 12 months, while allowing strictly informational calls to persons who have had a transaction within the past 36 months. Federated-Supp. at 1-2.

Based on the comments, the Commission finds little support for a 36-month time period. Most of the commenters who suggested that time period did so as part of a joint comment filed by five associations.
137
In the comments the individual associations filed separately, however, they suggested a time period of 24 months.
138
NAA initially suggested 24 months, but expanded that to 36 months in its supplemental comment. Industry commenters who advocate 24 months provide little support for their assertion that it is the appropriate length of time by which to measure “reasonableness;” nor did they submit data that would show that a shorter time period would not serve their purposes. Other industry members (such as Bank of America, Consumer Mortgage Coalition, and Federated Department Stores) suggested shorter time periods. The Commission does not believe that a relationship which terminated or lapsed two years ago would constitute a relationship that had recently terminated or lapsed. The Commission believes that if consumers received a call from a company with whom the most recent purchase, rental, lease or financial transaction occurred or lapsed two years ago or longer, consumers would likely be surprised by that call and find it to be unexpected.

137

See
Associations-NPRM at 3-4.

138

See
note 136 above.

The Commission believes that 18 months is an appropriate time frame because it strikes a balance between industry's needs and consumers' privacy rights and reasonable expectations about who may call them and when. By extending beyond a single annual sales cycle, the 18-month period allows sufficient time for businesses to renew contact with prospects who may only purchase once a year. Moreover,

limiting the “established business relationship” to 18 months from the date of the last purchase or transaction would be at least as restrictive as the majority of states that have such an exemption, thus achieving greater consistency for both industry and consumers. The experience of states that have an “established business relationship” exemption in their “do-not-call” laws indicates that a relatively limited “established business relationship” exemption does not conflict with consumers' expectations. At the June 2002 Forum, the representatives from New York and Missouri spoke about consumer expectations in connection with their states' “do-not-call” lists.
139
Both noted that consumers appeared to be comfortable with such an exemption because they had received few complaints from consumers regarding companies with whom they had an established relationship.
140
The states' experience is not contradicted by the comments of individual consumers in response to a specific question included on the Commission's website inviting email comments from the public. Although 60 percent of consumers who responded to this question stated that they opposed an exemption for “established business relationship,” 40 percent favored such an exemption.
141

139

See
June 2002 Tr. I at 110-21.

140

Id.
at 118-19 (New York: “Well, [consumers are not unhappy], and a lot of times they complain, and you could say they're [sic] prima facie evidence they're unhappy. We call them back and say, gee, did you have a transaction with these folks? They claim you did on X, Y and Z, and they furnished us this paperwork. And then they say, oh, yeah. They don't seem to be mad.”) (Missouri: “Most people when you call them back are delighted that 70 to 80 percent of their phone calls have been caused to not come in, so when we explain to them that you had a relationship or you explain to them that some of these calls are exempt, they understand when you explain that to them, and they're delighted, because our anecdotal information shows that 70 to 80 percent of the calls people had been receiving, they're not receiving now.”).

141
Analysis of consumer email comments in the Commission's TSR comment database indicates that about 860 favored an exemption for calls from firms with whom they already have an established relationship, while about 1,080 opposed such an exemption. Furthermore, over 13,000 of the 14,971 comments submitted by Gottschalks' customers supported allowing Gottschalks to call them even if they signed up on a “do-not-call” registry to block other calls.

Furthermore, a study conducted in 2002 by the Information Policy Institute found that consumers preferred a “nuanced approach” to the “do-not-call” issue, wanting to limit some calls to their household, but not all calls.
142
According to the study, 50 percent of consumers surveyed supported regulations that would allow local or community-based organizations to call during specific hours of the day.
143
Furthermore, slightly less than half of the respondents supported legislation that would allow calls, but only from local or community-based organizations with whom they have an existing relationship.
144
The survey showed that consumers were less likely to welcome calls from national companies, although 40 percent indicated that they would allow calls from national organizations with whom they had an existing relationship.
145

142
Michael A. Turner, “Consumers, Citizens, Charity and Content: Attitudes Toward Teleservices” (Information Policy Institute, June 2002) at 4, 8 (hereinafter “Turner study”).

143

Id.

144

Id.

145

Id.

In sum, consumers are split over whether they favor an “established business relationship” exemption. Given the difference of opinion among consumers, and industry's convincing arguments regarding the detrimental effects the lack of an exemption would cause, the Commission is persuaded to provide an exemption for “established business relationships.”

The definition of “established business relationship” in the amended Rule would limit the exemption in the case of inquiries and applications to three months after the date of the application or inquiry (except with the consumer's express consent or permission to continue the relationship). The Commission believes that a consumer's reasonable expectations are different in the case of inquiries and applications as compared to purchase, rental, and lease transactions. A simple inquiry or application would reasonably lead to an expectation of a prompt follow-up telephone contact close in time to the initial inquiry or application, not one after an extended period of time. Comments from NYSCPB at the June 2002 Forum also warned of possible abuse in the creation of an “established business relationship” based on inquiries from consumers.
146
The Commission believes three months should be a sufficient time frame in which to respond to a consumer's inquiry or application.

146
[146]: June 2002 Tr. I at 116 (NYSCPB) (“[D]oes a mere inquiry constitute a business relationship? And our answer to that is no, because we have had some what I would say are really sleazy operators. They will call up and leave a message on your phone. They won't even identify who they are. They will simply say `Call us back, it's very important.' You call back out of curiosity or whatever, okay, and then all of a sudden they feel free to bombard you for the next few years with calls.”). The Commission intends that such a practice would not entitle a seller or telemarketer to make calls to consumers by claiming to have an “established business relationship.”

The amended Rule allows for an 18-month time limit where there has been a purchase, rental or lease, or other financial transaction between the customer and seller. The 18-month time limit for an “established business relationship” based on a purchase, lease, rental, or financial transaction runs from the date of the last payment or transaction, not from the first payment. In instances where consumers pay in advance for future services (
e.g.
, purchase a two-year magazine subscription or health club membership), the seller may claim the exemption for 18 months from the last payment or shipment of the product. For such ongoing relationships, it makes little difference to likely consumer expectations whether the purchase was financed over time or paid for up front. Sellers who provide products or services where the consumer is required to pay in advance can also get the consumer's express agreement to call, as provided in § 310.4(b)(1)(iii)(B)(
i
).

Several financial services industry commenters urged that any “established business relationship” exemption should encompass all affiliates of a seller.
147
These commenters noted that regulatory requirements often dictate the corporate structure of financial institutions, which must market products and services across holding company affiliates and subsidiaries.
148
For that reason, they suggested that any exemption for an “established business relationship” should extend to all members of a corporate family, including affiliates and subsidiaries, so long as the individual has an “established business relationship” with any member of that corporate family.
149
They also suggested that agents of the seller be included within the exemption if the consumer reasonably would expect the agent to be included under the exception.
150

147

See, e.g.
, BofA-NPRM at 4; Bank One-NPRM at 4; Eagle Bank-NPRM at 2; Roundtable-NPRM at 5; Fleet-NPRM at 4; VISA-NPRM at 3-4.

148

See
Bank One-NPRM at 4; Fleet-NPRM at 4.

149

See
Eagle Bank-NPRM at 2; HSBC-NPRM at 2; Roundtable-NPRM at 5.

150

See
Roundtable-NPRM at 5.

The Commission believes that such a broad definition of “established business relationship” is inappropriate in the context of a “do-not-call” registry which is intended to protect consumers' privacy. As stated earlier, the Commission believes that such an exemption must be narrowly crafted to avoid defeating the purpose of the “do-not-call” registry. In determining whether affiliates or subsidiaries should

be encompassed within an “established business relationship,” the Commission looks to consumer expectations: If consumers received a call from a company that is an affiliate or subsidiary of a company with whom they have a relationship, would consumers likely be surprised by that call and find it inconsistent with having placed their telephone number on the national “do-not-call” registry?

The Commission used similar reasoning in resolving this issue in connection with the definition of “seller” in the original Rule. In the discussion on the definition of “seller,” the Commission stated that there were several factors that it would consider in determining how it would view the Rule's application to diversified companies or divisions within one parent organization. Among those factors was “whether the nature and type of goods or services offered by the division are substantially different from those offered by other divisions of the corporation or the corporate organization as a whole.”
151
This distinction looks to consumer expectations and whether a consumer would perceive the division to be the same as or different from other divisions or from the corporate organization as a whole. For example, a consumer who had purchased aluminum siding from Company A's aluminum and vinyl siding subsidiary would likely not be surprised to receive a call from kitchen remodeling service also owned by, and operating under the name of, Company A.

151
60 FR at 43844.

Thus, under the amended Rule, some but not all affiliates will be able to take advantage of the “established business relationship” exemption to the national “do-not-call” registry. The Commission intends that the affiliates that fall within the exemption will only be those that the consumer would reasonably expect to be included given the nature and type of goods or services offered and the identity of the affiliate. The consumer's expectations of receiving the call are the measure against which the breadth of the exemption must be judged.

§ 310.2(o) — Free-to-pay conversion

Section 310.2(o) of the amended Rule sets out a new definition:—“free-to-pay conversion.” In connection with an offer or agreement to sell or provide goods or services, a “free-to-pay conversion” is “a provision under which a customer receives a product or service for free for an initial period and will incur an obligation to pay for the product or service if he or she does not take affirmative action to cancel before the end of that period.” The term “free-to-pay conversion” is the terminology commonly used in the telemarketing industry to describe what was referred to throughout the Rule Review proceeding as a “free trial offer.”
152

152

See, e.g.
, Electronic Retailing Association, GUIDELINES FOR ADVANCE CONSENT MARKETING, http://www.retailing.org/regulatory/publicpolicy_consent.html; Magazine Publishers of America, Resources - Research: “Advance Consent Subscription Plans,” http://www.magazine.org/resources/advance_consent.html.

A “free-to-pay conversion” is a form of “negative option feature”—a term that is also newly defined in the amended Rule and is discussed below. The term “free-to-pay conversion” comes into play in the amended Rule in three provisions. First, as a form of negative option feature, any “free-to-pay conversion” is subject to the newly-added disclosure requirements in § 310.3(a)(1)(vii). Second, where a telemarketing offer involves a “free-to-pay conversion,” and is accepted by a consumer using a payment method subject to the express verifiable authorization requirements of § 310.3(a)(3), the seller or telemarketer may not use the written confirmation form of authorization generally available under § 310.3(a)(3)(iii). Third, under the new unauthorized billing provision at § 310.4(a)(6), the amended Rule sets forth specific requirements to obtain express informed consent in any transaction involving preacquired account information and a “free-to-pay conversion.” Each of these provisions is discussed in detail below.

§ 310.2(q)—Material

The amended Rule retains unchanged the definition of “material” from the original Rule, except for extending it to charitable contributions pursuant to the mandate of the USA PATRIOT Act. The Commission received no comments on this definition in response to the NPRM. The amended Rule has deleted the designations for subsections (a) and (b) that had been proposed in the NPRM. This is merely a formatting change and does not alter the substantive content of the definition. The amended Rule's definition of “material,” therefore, reads: “likely to affect a person's choice of, or conduct regarding, goods or services or a charitable contribution.”

§ 310.2(t)—Negative option feature

The amended Rule includes new requirements in § 310.3(a)(1)(vii) for specific material disclosures necessary to

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A03-1811. Public record. Not legal advice.