Telemarketing Sales Rule

FEDERAL TRADE COMMISSION

16 CFR Part 310

Telemarketing Sales Rule

AGENCY: Federal Trade Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document, the Federal Trade Commission (``FTC'' or

``Commission'') proposes to implement the Telemarketing and Consumer

Fraud and Abuse Prevention Act (``Telemarketing Act'' or ``the Act'').

Section 3 of the Act directs the FTC to prescribe rules, within 365

days of enactment of the Act, prohibiting deceptive telemarketing acts

or practices and other abusive telemarketing acts or practices.

DATES: Written comments must be submitted on or before March 31, 1995.

Due to the time constraints of this rulemaking proceeding, the

Commission does not contemplate any extensions of this comment period

or any additional periods for written comment or rebuttal comment.

Following the period for written comments, Commission staff plan to

conduct a Public Workshop Conference to afford Commission staff and

interested parties an opportunity to explore and discuss issues raised

during the comment period. Notification of interest in representing an

affected, interested party at the Public Workshop-Conference must be

submitted on or before March 6, 1995. A list of affected interests

appears in Section D of the Supplementary Information section.

The Public Workshop-Conference will be held in Chicago, Illinois on

April 18 through 20, 1995, from 9 a.m. until 5 p.m. each day.

ADDRESSES: Five paper copies of each written comment should be

submitted to the Office of the Secretary, Room 159, Federal Trade

Commission, Washington, DC 20580. To encourage prompt and efficient

review and dissemination of the comments to the public, all comments

also should be submitted, if possible, in electronic form, on either a

5\1/4\ or a 3\1/2\ inch computer disk, with a label on the disk stating

the name of the commenter and the name and version of the word

processing program used to create the document. (Programs based on DOS

are preferred. Files from other operating systems should be submitted

in ASCII text format to be accepted.) Individuals filing comments need

not submit multiple copies or comments in electronic form. Submissions

should be captioned: ``Proposed Telemarketing Sales Rule,'' FTC File

No. R411001.

Notification of interest in the Public Workshop-Conference should

be submitted in writing to Carole Danielson, Division of Marketing

Practices, Federal Trade Commission, Washington, D.C. 20580.

The Public Workshop-Conference will be held in Chicago, Illinois,

at the Chicago Hilton Hotel, 720 South Michigan Avenue, Chicago,

Illinois 60605.

FOR FURTHER INFORMATION CONTACT: David M. Torok, (202) 326-3140, or

Judith M. Nixon, (202) 326-3173, Division of Marketing Practices,

Bureau of Consumer Protection, Federal Trade Commission, Washington, DC

20580.

SUPPLEMENTARY INFORMATION:

Section A. Background

On August 16, 1994, the President signed into law the Telemarketing

Act, Public Law No. 103-297. In enacting the Telemarketing Act,

Congress made the following findings, set forth in section 2 of the

Act:1

\1\15 U.S.C. 6101.

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(1) Telemarketing differs from other sales activities in that it

can be carried out by sellers across State lines without direct contact

with the consumer. Telemarketers also can be very mobile, easily moving

from State to State.

(2) Interstate telemarketing fraud has become a problem of such

magnitude that the resources of the Federal Trade Commission are not

sufficient to ensure adequate consumer protection from such fraud.

(3) Consumers and others are estimated to lose $40 billion a year

in telemarketing fraud.

(4) Consumers are victimized by other forms of telemarketing

deception and abuse. [[Page 8314]]

(5) Consequently, Congress should enact legislation that will offer

consumers necessary protection from telemarketing deception and abuse.

Based on the above findings, Congress directed the Commission to

issue a rule, within 365 days from the date of enactment of the Act,

prohibiting deceptive and abusive telemarketing acts and

practices.2 The Act specifies that the rule shall contain a

definition of deceptive telemarketing acts or practices.3

According to the statute, this definition may include acts or practices

of entities or individuals that assist or facilitate deceptive

telemarketing, including credit card laundering.4 The Act further

specifies that, in order to prohibit other abusive acts or practices,

the rule shall include:

\2\15 U.S.C. 6102(b).

\3\15 U.S.C. 6102(a)(2).

\4\Id.

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(1) A requirement prohibiting a pattern of unsolicited telephone

calls which the reasonable consumer would consider coercive or abusive

of such consumer's right to privacy;

(2) Restrictions on the hours when unsolicited telephone calls can

be made to consumers; and

(3) A requirement that telemarketers promptly and clearly disclose

to the person receiving the call that the purpose of the call is to

sell goods or services, and make any other disclosures the Commission

deems appropriate, including the nature and price of the goods or

services being sold.5 The Act also directs the Commission to

consider recordkeeping requirements.6

\5\15 U.S.C. 6102(a)(3).

\6\Id.

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Enforcement actions for violations of the final rule will be

brought by the Commission in the same manner as for other rules with

respect to unfair or deceptive acts or practices under section 5 of the

FTC Act.7 In addition, Section 4 of the Telemarketing Act8

authorizes the attorneys general of the States to enforce compliance

with the final rule by instituting Federal court enforcement actions,

after serving prior written notice upon the Commission when feasible.

Moreover, Section 5 of the Telemarketing Act9 authorizes actions,

in Federal district court, by private persons adversely affected by any

pattern or practice of telemarketing which violates the final rule,

where the amount in controversy exceeds $50,000 in actual damages for

each such person. As with State actions, such private persons must give

prior written notice to the Commission, when feasible.

\7\15 U.S.C. 45. The Telemarketing Act provides that the FTC

rule shall be treated as a rule issued under section 18(a)(1)(B) of

the FTC Act, 15 U.S.C. 57a(a)(1)(B).

\8\15 U.S.C. 6103.

\9\15 U.S.C. 6104.

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Section B of this notice discusses the proposed rule that the

Commission has drafted pursuant to the Telemarketing Act.

Section B. Discussion of the Proposed Rule

Section 310.1 Scope of the Regulations

Section 310.1 states that this part implements the Telemarketing

Act, and shall be referred to as the ``Telemarketing Sales Rule.''

Section 310.2 Definitions

Section 310.2 of the proposed rule defines the following terms:

Acquirer; attorney general; business venture; cardholder; Commission;

credit card; credit card sales draft; credit card system; customer;

goods or services; investment opportunity; material; merchant; merchant

agreement; person; premium; prize; prize promotion; seller; State;

telemarketer; telemarketing; telephone solicitation; and verifiable

retail sales price.

The definition of ``telemarketing'' sets the parameters of the

proposed rule's coverage. It tracks the definition of ``telemarketing''

included in the Telemarketing Act, with certain additions noted

below.10 As set forth in the Act, telemarketing is defined as any

plan, program, or campaign which is conducted to induce payment for

goods or services by use of one or more telephones and which involves

more than one interstate telephone call.11 One addition to the

definition in the proposed rule clarifies that telemarketing includes

the use of a facsimile machine, computer modem, or any other telephonic

medium.12 Another addition to the definition explicitly states

that telemarketing includes not just calls initiated by telemarketers,

but also calls initiated by persons in response to any form of

promotional messages used by or on behalf of the seller, including

postcards, brochures and advertisements.

\10\See 15 U.S.C. 6106(4).

\11\The Act's definition of the term ``telemarketing'' states

that the plan, program, or campaign must be conducted to induce the

purchase of goods or services. The proposed rule states that the

plan, program, or campaign must be conducted to induce payment for

goods or services. This change is intended to make clear that the

definition of telemarketing includes plans, programs, or campaigns

conducted to induce rentals or leases, as well as certain donations.

\12\Since telemarketing includes the use of computer modems and

other telephonic media, the proposed definition states that

telemarketing involves not just telephone calls, but also telephone

connections.

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The Telemarketing Act and the proposed rule exempt from the

definition of telemarketing all solicitations of sales through the

mailing of a catalog,13 when the person making the solicitation

does not call customers but only receives calls from customers in

response to the catalog and only takes orders during those calls,

without further solicitation. The proposed rule states that during such

calls from customers, the person taking the order may provide further

information to the customer about, or may try to sell, any other item

included in the same catalog which prompted the customer's calls

without losing the exemption from the definition of ``telemarketing.''

\13\The Telemarketing Act and the proposed rule require catalogs

to include multiple pages of written descriptions or illustrations

of the goods or services being offered for sale, to include a

business address of the seller, and to be issued not less frequently

than once a year.

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A number of terms are used in the proposed rule's prohibitions on

credit card laundering. The term ``acquirer'' is defined, in

Sec. 310.2(a) of the proposed rule, to include any business

organization, financial institution, or agent of such organization or

institution that has authority from an organization that operates or

licenses a credit card system to authorize merchants to accept,

transmit, or process payment by credit card through the credit card

system for anything of value. The term ``credit card'' is defined

expansively, in Sec. 310.2(f), to include any instrument or device,

however named, used by a cardholder to obtain money, goods, services,

or anything else of value. Sec. 310.2(g) defines a ``credit card sales

draft'' as any record or evidence, including a writing or an electronic

or magnetic transmission or record, of a credit card transaction. The

term ``credit card system'' is defined, in Sec. 310.2(h), as any method

or procedure used to generate, transmit, or process for payment a

credit card sales draft. For purposes of this rule, the term

``merchant'' is narrowly defined, in Sec. 310.2(m), to include only

those persons authorized under a written contract with an acquirer to

honor or accept, transmit, or process credit cards in payment for goods

or services. Finally, Sec. 310.2(n) defines the term ``merchant

agreement'' as the written contract between a merchant and an acquirer.

The proposed rule includes certain requirements for the

telemarketing sale of business ventures and investment opportunities.

The term ``business venture'' is defined, in Sec. 310.2(c) of the

[[Page 8315]] proposed rule, to include any written or oral business

arrangement, however named, including but not limited to

franchises,14 which consists of the payment of consideration for

(1) the right or means to offer, sell, or distribute goods or services,

and (2) the promise of more than nominal assistance in establishing,

maintaining or operating a new business, or an existing business that

is entering into a new line or type of business. The term ``investment

opportunity'' is defined, in Sec. 310.2(k), to include anything,

tangible or intangible, except a business venture, that is offered,

offered for sale, sold, or traded either for purposes of profit or

income or based on express or implied representations about income,

profit, or appreciation.15 In addition, these two definitions

state that any business arrangement in which persons acquire, or

purportedly acquire, government-issued licenses, or interests in one or

more businesses derived from the possession of such licenses, are

considered to be an ``investment opportunity,'' and not a ``business

venture.''

\14\The term ``franchise'' is defined in the FTC Franchise Rule,

formally entitled ``Disclosure Requirements and Prohibitions

Concerning Franchising and Business Opportunity Ventures,'' at 16

CFR 436.2(a).

\15\The application of the proposed rule to investment

opportunities is limited, to some extent, by sections 3(d) and (e)

of the Telemarketing Act, 15 U.S.C. 6102(d) and (e), which exclude

from rule coverage any of the following persons: A broker, dealer,

transfer agent, municipal securities dealer, municipal securities

broker, government securities broker, government securities dealer

(as those terms are defined in section 3(a) of the Securities and

Exchange Act of 1934, 15 U.S.C. 78c(a)), an investment adviser (as

that term is defined in Section 202(a)(11) of the Investment

Advisers Act of 1940, 15 U.S.C. 80b-2(a)(11)), an investment company

(as that term is defined in section 3(a) of the Investment Company

Act of 1940, 15 U.S.C. 80a-3(a)), any individual associated with

those persons, or any persons described in section 6(f)(1) of the

Commodity Exchange Act, 7 U.S.C. 8, 9, 15, 13b, 9a.

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The term ``goods or services'' is defined expansively, in

Sec. 310.2(j), to cover virtually any item for which payment can be

induced over the telephone. A list of specific items is included in the

definition for illustrative purposes only.16

\16\The term ``goods or services'' specifically includes any

charitable service that is promoted in conjunction with any offer of

a prize, chance to win a prize, or opportunity to purchase any other

goods or services. Thus, plans, programs, or campaigns conducted to

induce payment for such charitable services are the only charitable

solicitations covered by the proposed rule. In addition, only

charitable solicitations conducted by an entity ``organized to carry

on business for its own profit or that of its members'' are within

the jurisdiction of the Commission. See 15 U.S.C. 44.

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The proposed definition for ``material,'' in Sec. 310.2(l), is

taken from the Commission's deception statement.17 It states that

material means likely to affect a consumer's choice of, or conduct

regarding, goods or services.

\17\The Commission's Deception Statement, first set out in a

letter dated October 14, 1983, to the Honorable John D. Dingell,

Chairman, Subcommittee on Oversight and Investigations, Committee on

Energy and Commerce, is attached as an appendix to Cliffdale

Associates, 103 F.T.C. 110 (1984). See also Thompson Medical Co.,

104 F.T.C. 648, 816 (1984).

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The proposed rule defines ``prize'' and ``premium'' in a relatively

parallel fashion. Section 310.2(q) states that a ``prize'' means

anything offered, or purportedly offered, to a person at no cost and

with no obligation to purchase goods or services and given, or

purportedly given, by chance. A ``premium,'' on the other hand, is

defined in Sec. 310.2(p) as anything offered or given, independent of

chance, to customers as an incentive to purchase goods or services

offered through telemarketing.

The proposed definition of ``prize promotion,'' set forth in

Sec. 310.2(r), includes the traditional sweepstakes or other game of

chance as well as any oral or written representation that a person has

won, has been selected to receive, or may be eligible to receive a

prize or purported prize. Thus, the definition of ``prize promotion''

covers not only legitimate contests or sweepstakes, but also fraudulent

representations that a consumer has won a prize, when no such prize is

to be distributed.

A ``seller'' is defined, in Sec. 310.2(s) of the proposed rule, as

any person who, in conjunction with telemarketing, provides or offers

to provide goods or services in exchange for consideration or a

donation. A ``telemarketer,'' on the other hand, is defined in

Sec. 310.2(u) as any person who, in connection with telemarketing,

initiates or receives a telephonic communication from a customer. Since

many of the provisions in the proposed rule apply to both the seller

and the telemarketer, these two definitions make clear that the

proposed rule's obligations run not only to the person making or

answering a telephone call or telephonic communication from a consumer,

but also to the business providing the goods or services to be sold

during that call.18

\18\It is possible for a person to be both a seller and a

telemarketer in the same transaction, if that person both provides

the goods or services in exchange for consideration or a donation

and engages in the telephone calls with consumers.

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The definition of ``telephone solicitation,'' in Sec. 310.2(w) of

the proposed rule, is intended to include only out-bound sales calls,

i.e., telephone calls that are initiated by a telemarketer to a

customer to induce payment for goods or services.

Finally, the definition of ``verifiable retail sales price,'' in

Sec. 310.2(x), is based on the Commission's Guides Against Deceptive

Pricing.19 The term means the actual, bona fide price at which one

or more retailers, in the area of the seller's principal place of

business, has made a substantial number of sales. The seller must be

able to document such a retail sales price.

\19\16 CFR Part 233.

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Section 310.3 Deceptive Telemarketing Acts or Practices

Section 310.3 of the proposed rule includes lists of specific,

deceptive telemarketing acts or practices prohibited under the rule. It

also sets forth prohibited acts or practices that assist and facilitate

deceptive telemarketing. This Section ends with prohibitions on the

practice of credit card laundering.

1. Prohibited Deceptive Telemarketing Acts or Practices

Section 310.3(a) of the proposed rule states that certain acts or

practices, when conducted by any seller or telemarketer, are considered

deceptive telemarketing acts or practices and violations of the rule.

The first subsection prohibits the failure to disclose certain

information before payment is requested for goods or services. The

second subsection lists a series of prohibited misrepresentations

covering all telemarketing transactions, while the third subsection

lists prohibited misrepresentations in connection with the offer, offer

for sale, or sale of any business venture. The final two subsections

prohibit obtaining funds without proper authorization.

Section 310.3(a)(1) of the proposed rule states that it is a

prohibited deceptive telemarketing practice for any seller or

telemarketer to fail to disclose certain material information before

payment is requested for goods or services offered.20 These

disclosures must be made in the same manner and form as the payment

request. The information required to be disclosed is as follows: First,

the total costs, terms and material restrictions, limitations, or

conditions of receiving any goods or services; second, the quantity of

any goods or services sold; and third, all material terms and

conditions of the seller's refund, cancellation, exchange, or

repurchase policies, including a [[Page 8316]] statement that no such

policies exist, if that is the case.

\20\The proposed rule permits sellers or telemarketers to

discuss the price of goods or services with potential customers

before disclosing the required information, but they may not ask

that payment be made until after the disclosures are made.

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Section 310.3(a)(2) sets forth 24 different misrepresentations

prohibited in connection with telemarketing. The first five subsections

go to the heart of any telemarketing sales transaction, prohibiting

misrepresentations of the total costs, terms or material restrictions,

limitations, or conditions21 of receiving any goods or services.

These subsections also prohibit misrepresentations of the quantity of

any goods or services, or any material aspect of the performance,

efficacy, or central characteristics of any goods or services. In

addition, sellers and telemarketers are prohibited from misrepresenting

the duration of any offer made, as well as the nature or terms of the

seller's refund, cancellation, exchange, or repurchase policies.

\21\ Given the definition of the term ``material,'' in Section

310.2(l) of the proposed rule, any seller or telemarketer would be

prohibited from misrepresenting any restriction, limitation, or

condition that would be likely to affect a consumer's choice of, or

conduct regarding, goods or services.

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Sections 310.3(a)(2) (vi) through (viii) of the proposed rule

prohibit misrepresentations about prizes. It is a violation of the

proposed rule to misrepresent that any person has been selected to

receive a prize, i.e. an item offered, or purportedly offered, at no

cost and with no other obligation to make a purchase and given, or

purportedly given, by chance. Therefore, a telemarketer could not claim

that a consumer has won a prize, when in fact the consumer must pay

shipping and handling charges to receive the prize. In addition, a

seller or telemarketer is prohibited from misrepresenting that a

premium is a prize. Thus, for example, a telemarketer could not claim

that a consumer has ``won'' an item, when in fact many consumers will

be given that item as an incentive to purchase goods or services,

without any element of chance involved in selecting the ``winners.''

Finally, a seller or telemarketer is prohibited from misrepresenting

the odds of winning any prize.

The next three prohibited practices, in Secs. 310.3(a)(2) (ix)

through (xi) of the proposed rule, deal with misrepresentations about

compliance with various laws or about an affiliation with law

enforcement authorities. Any seller or telemarketer is prohibited from

misrepresenting its compliance with any Federal, State, or local law,

statute, regulation, or ordinance, or from falsely claiming that such

compliance constitutes an endorsement or approval, by the government

agency, of the seller's or telemarketer's business or conduct. Thus, a

telemarketer cannot falsely claim that it is registered with a State,

or, even if registered, that such registration indicates that the State

had approved the telemarketer's method of operation. In addition, it is

also a violation of the proposed rule to misrepresent any affiliation,

association, connection, or relationship with law enforcement, a public

safety organization, or other Federal, State, or local government

agency.

Under Sec. 310.3(a)(2)(xii) of the proposed rule, any seller or

telemarketer is prohibited from misrepresenting the purpose for which

the seller or telemarketer will use information relating to a person's

checking, savings, share, or similar account number, credit card

account number, or social security number. This prohibits, for example,

a telemarketer from asking for a consumer's credit card number ``to

verify'' the consumer's identity, when in fact the telemarketer plans

to charge a fee to that account.

Sections 310.3(a)(2)(xiii) and (xiv) of the proposed rule prohibit

misrepresentations particularly common to certain charitable

solicitations.22 Any seller or telemarketer is prohibited from

misrepresenting the seller's or telemarketer's non-profit, tax-exempt,

or charitable status, purpose, affiliation, or identity. Also

prohibited are misrepresentations that a person is eligible or likely

to receive a tax deduction, loan, or other benefit if the person pays

money to the seller or telemarketer.

\22\Based on the definition of ``goods or services,'' in

Sec. 310.2(j) of the proposed rule, only charitable services

promoted in conjunction with an offer of a prize, chance to win a

prize, or opportunity to purchase any goods or services would be

covered by these provisions.

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It is a prohibited deceptive telemarketing act or practice, under

Sec. 310.3(a)(2)(xv) of the proposed rule, for any seller or

telemarketer to misrepresent the nature, terms, or existence of any

prior affiliation, association, connection, or relationship with any

person. Under Sec. 310.3(a)(2)(xvi), neither a seller nor a

telemarketer may misrepresent the nature, terms, or existence of any

prior purchase or agreement to purchase by any person. These sections

prohibit, for example, claims that a telemarketer is calling to confirm

a prior order, when no such order exists, or claims that a telemarketer

is calling all of its customers to ask if they would like to purchase

additional products, when in fact the person called was not a prior

customer of that telemarketer.

Sections 310.3(a)(2)(xvii) through (xx) of the proposed rule

prohibit misrepresentations concerning investment opportunities. Any

seller or telemarketer is prohibited from misrepresenting key

attributes of any investment opportunity, such as the level of risk,

liquidity, markup over acquisition costs, past performance, earnings

potential, or market value. Any seller or telemarketer is also

prohibited from misrepresenting the likelihood that the market value

for an investment opportunity will either increase or decrease. In

addition, a seller or telemarketer cannot misrepresent the seller's

success in assisting persons to liquidate goods or services they

purchased from the seller, or the profit derived from such liquidation.

Thus, for example, false claims about an ability to resell an

investment opportunity for a profit are prohibited.

Sections 310.3(a)(2)(xxi) and (xxii) of the proposed rule address

the problem of deceptive credit repair or credit opportunity

telemarketing claims. Section 310.3(a)(2)(xxi) prohibits

misrepresentations that certain goods or services can or are likely to

improve a person's credit history, credit record, or credit rating, or

that certain goods or services can result in a person obtaining credit.

Section 310.3(a)(2)(xxii) prohibits misrepresentations about the

eligibility or likelihood that a person, regardless of that person's

credit history, will obtain a loan or other credit-related service.

Section 310.3(a)(2)(xxiii) of the proposed rule prohibits

misrepresentations that a seller or telemarketer can recover or

otherwise effect or assist in the return of money or any other item of

value to a person. This would prohibit, for example, telemarketers from

falsely claiming that for a fee, paid in advance, they can obtain a

refund for a consumer who has been victimized in the past by a

telemarketing scam.

Finally, Sec. 310.3(a)(2)(xxiv) of the proposed rule prohibits the

misrepresentation of any other information required to be disclosed

under this rule. For example, a telemarketer cannot misrepresent the

verifiable retail sales price of a prize or premium, or misrepresent

that the sales price of a prize or premium is less than $20.00, when

that information is required to be disclosed under Secs. 310.4(d)(3)

and (4) of the proposed rule.

The next section of the proposed rule, Sec. 310.3(a)(3), prohibits

any seller or telemarketer from misrepresenting important information

in connection with the offer, offer for sale, or sale of any business

venture. This information [[Page 8317]] includes the level of earnings

for the business venture, the extent or nature of the market for the

goods or services to be sold, and the nature or availability of any

territory. Thus, a seller of business ventures could not falsely

inflate the sales levels of previous owners, or incorrectly claim that

a purchaser would obtain exclusive rights to market goods or services

in a certain territory. The proposed rule also prohibits

misrepresentations about (1) the existence, availability, or provision

of retail outlets or accounts; (2) the locations or sites for vending

machines, rack displays, or any other sales display; or (3) the nature

or availability of any services offered to secure any such outlets,

accounts, locations, sites or displays. Also prohibited are

misrepresentations that any person owns or operates a business venture

purchased from the seller, or that a person can give an accurate,

independent description of his or her experience as an owner or

operator of such a business venture. These provisions prohibit, for

example, false claims that a shill--a phony reference that is paid to

tout a business opportunity he does not own or operate--has actually

purchased a business venture, or false claims about any person's

experience as a business venture owner.

Under Sec. 310.3(a)(4) of the proposed rule, it is a prohibited

deceptive telemarketing act or practice for a seller or telemarketer to

obtain or submit for payment from a person's checking, savings, share,

or similar account, a check, draft, or other form of negotiable paper

without that person's express written authorization. For example, a

telemarketer cannot submit an unsigned draft on a consumer's bank

account without that consumer's prior written authorization. Similarly,

Sec. 310.3(a)(5) of the proposed rule prohibits the collection of any

amount of money from a person through any means, unless such amount is

expressly authorized by the person. This section is intended to cover

other forms of payment, in addition to unsigned drafts, and to prohibit

misrepresentations of the amount collected. For example, if a consumer

pays for goods or services by credit card, no amount may be charged to

the consumer's account unless the consumer authorizes that charge. This

authorization does not have to be in writing, however.

2. Assisting and Facilitating

Section 310.3(b)(1) of the proposed rule sets forth a general

prohibition against assisting or facilitating deceptive telemarketing

acts or practices. This section states that it is a deceptive

telemarketing act or practice, and a violation of the rule, for a

person to provide substantial assistance or support to any seller or

telemarketer when that person knows or should know that the seller or

telemarketer is engaged in any act or practice that violates the rule.

Section 310.3(b)(2) of the proposed rule lists five specific types

of conduct that provide substantial assistance or support to

telemarketing. This list is not meant to limit, in any way, the general

scope of Sec. 310.3(b)(1) concerning assisting or facilitating

deceptive telemarketing acts or practices.23 Assistors who engage

in these activities will violate the rule if they know, or should know,

that the person they are assisting is engaged in an act or practice

that violates the rule.

\23\Thus, practices not included on this list could still be

found to provide substantial assistance or support to telemarketing.

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The five types of assisting and facilitating activities listed in

the proposed rule are as follows: First, providing lists of customer

contacts to a seller or telemarketer (e.g., serving as a list broker);

second, receiving consideration in exchange for providing a

testimonial, endorsement, certification, appraisal, or financing, or

for serving as a reference, with respect to any business venture or

investment opportunity (e.g., acting as a paid shill or an art

appraiser, or providing financing for a business opportunity); third,

securing retail outlets or accounts for the sale of goods or services,

or locations or sites for vending machines, rack displays, or any other

sales displays, used in connection with any business venture (e.g.,

operating as a locating company); fourth, furnishing any certificate or

coupon which may later be exchanged for goods or services (e.g.,

producing generic vacation certificates used in prize promotion scams);

and fifth, providing any script, advertising, brochure, promotional

material, or direct marketing piece to be used in telemarketing.

3. Credit Card Laundering

Section 310.3(c) of the proposed rule prohibits credit card

laundering, or the practice of depositing into the credit card system a

sales draft that is not the result of a credit card transaction between

the cardholder and a merchant.\24\ For example, credit card laundering

involves a merchant with access to the credit card system deceiving an

acquirer by submitting for payment credit card transactions that are

not the merchant's own. This deception is crucial for telemarketers

engaged in fraud, since such telemarketers find it difficult, if not

impossible, to obtain merchant accounts to process their credit card

transactions. Credit card laundering facilitates deceptive

telemarketing acts or practices by providing fraudulent telemarketers

with ready access to cash through the credit card system.

\24\As defined in Sec. 310.2(m), a merchant is the person who is

under a contractual agreement with an acquirer to honor or accept,

transmit, or process credit cards in payment for goods or services.

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This Section of the proposed rule is divided into three parts.

Section 310.3(c)(1) of the proposed rule deals with merchants who

engage in credit card laundering. Under this section, it is a deceptive

telemarketing act or practice, and a violation of the rule, for a

merchant to present to or deposit into the credit card system for

payment, a credit card sales draft generated by a telemarketing

transaction that is not the result of a telemarketing credit card

transaction between the cardholder and the merchant. It is also a

deceptive act or practice for a merchant to cause another person to

present to or deposit into the credit card system for payment such a

credit card sales draft.

Section 310.3(c)(2) of the proposed rule deals with telemarketers,

brokers, or others who employ merchants to engage in credit card

laundering. This section states that it is a deceptive telemarketing

act or practice, and a violation of the proposed rule, for any person

to employ, solicit, or otherwise cause a merchant or an employee,

representative, or agent of a merchant, to present to or deposit into

the credit card system for payment, a credit card sales draft generated

by a telemarketing transaction that is not the result of a

telemarketing credit card transaction between the cardholder and the

merchant.

Finally, Sec. 310.3(c)(3) prohibits joint ventures or other

business relationships between a merchant and a telemarketer for the

purpose of engaging in credit card laundering. Specifically, this

section prohibits any person from obtaining access to the credit card

system through the use of a business relationship or an affiliation

with a merchant, when such access is not authorized by the merchant

agreement.

Section 310.4 Abusive Telemarketing Acts or Practices

Section 310.4 of the proposed rule begins with a list of specific

abusive conduct that is prohibited. This section also prohibits

repeated telemarketing calls and calls to persons who have stated that

they do not wish to receive such calls. In addition, this section sets

[[Page 8318]] restrictions on the times when telemarketers may make

calls, and includes oral and written disclosures that must be made.

This Section of the proposed rule ends with a prohibition on the sale

or distribution of lists of customer contacts by persons found to have

violated certain provisions of this rule.

1. Abusive Conduct Generally

Section 310.4(a) of the proposed rule sets forth eight different

abusive telemarketing acts or practices that are violations of the

rule. The first such practice is the use of threats or intimidation in

connection with telemarketing. The second prohibited practice is

providing for or directing a courier to pick up a payment from a

customer. This prohibition is intended to address a prevalent practice

used by fraudulent telemarketers of sending an overnight courier to a

consumer's home to pick up cash or a check shortly after a successful

sales pitch. In this manner, the telemarketer obtains payment from the

consumer before the consumer has adequate time to think about the

transaction or obtain information about the telemarketer. The proposed

rule would prohibit this practice.

Section 310.4(a)(3) of the proposed rule restricts the

telemarketing of credit repair services. This section prohibits any

seller or telemarketer from requesting or receiving payment of any fee

or consideration for goods or services represented to improve a

person's credit history, credit record, or credit rating until the

contract for the services has expired and the promised results have

been achieved. Specifically, two events must occur before payment can

be requested or received for these services: first, either the term of

the contract or the time frame in which the seller has represented the

goods or services will be provided has expired; and second, the seller

has provided the purchaser with documentation showing that the promised

results have been achieved. This documentation may be either (1) from

the original furnisher or provider of the information to the consumer

reporting agency, confirming that the promised results have been

achieved; or (2) in the form of a consumer report from the consumer

reporting agency demonstrating that the promised results have been

achieved. Such a report must have been issued more than six months

after the results were achieved.\25\

\25\The proposed rule makes clear that nothing in the rule

alters the requirement in the Fair Credit Reporting Act, 15 U.S.C.

1681, that a consumer report may only be obtained for a specified

permissible purpose.

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Recovery room scams are the focus of Sec. 310.4(a)(4). In these

operations, a telemarketer typically calls a consumer who has lost

money in a previous scam, promising that, for a fee paid up front, the

telemarketer can recover the money the consumer previously lost. After

the consumer pays the requested fee, the promised services are not

delivered. In fact, the consumer may never hear from the telemarketer

again. This Section of the proposed rule prohibits any seller or

telemarketer from requesting or receiving payment of any fee or

consideration for goods or services represented to recover or otherwise

effect or assist in the return of money or any other item of value to a

person until three days after such money or other item is delivered to

that person. The proposed rule states that this provision does not

apply to goods or services provided to a person by a licensed attorney

or licensed private investigator pursuant to a written agreement with

that person.

Section 310.4(a)(5) of the proposed rule is intended to limit

advance fee loan scams and similar practices, in which telemarketers

guarantee that they will obtain a loan or other credit-related service

for a consumer, if the consumer pays them a fee in advance. As with

recovery room scams, after the consumer pays the fee, the promised

services typically are not provided. Under this section of the proposed

rule, any seller or telemarketer is prohibited from requesting or

receiving payment of any fee or consideration in advance of obtaining a

loan or any credit service when the seller or telemarketer has

guaranteed or represented a high likelihood of success in obtaining or

arranging a loan or credit service for a person.

Prize promotions conducted through telemarketing are the subject of

Sec. 310.4(a)(6). Any seller or telemarketer conducting such promotions

must distribute all prizes or purported prizes offered within 18 months

of the initial offer to any person.

Section 310.4(a)(7) of the proposed rule addresses the problem of

reloading, the practice of offering to sell additional goods or

services to a person who previously has made a purchase from that

seller. In deceptive telemarketing scams, consumers may be victimized

numerous times by reloading that occurs prior to delivery of the first

items sold, before realizing they have been deceived. This serial

deception often occurs because consumers have not seen the goods or

services already purchased, and therefore do not know that they were

deceived in the previous transaction. The proposed rule prohibits any

seller or telemarketer from offering or selling goods or services

through a telephone solicitation to a person who previously has paid

the same seller for goods or services, until all terms and conditions

of the initial sales transaction have been fulfilled.\26\ The proposed

rule makes clear that all prizes or premiums offered in conjunction

with the initial transaction must also be distributed before a second

offer or sale can be made.

\26\By limiting this prohibition to offering or selling goods or

services through telephone solicitations, this Section does not

prevent consumers from calling telemarketers to make an additional

purchase before the first transaction is complete.

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The final abusive telemarketing act or practice prohibited by the

proposed rule concerns the use of shills. Section 310.4(a)(8) of the

proposed rule prohibits any seller or telemarketer from identifying a

person as a reference for a business venture unless the following three

criteria are satisfied: (1) Such person has actually purchased the

business venture; (2) such person has operated the business venture for

at least six months or the seller or telemarketer has disclosed the

length of time the reference has operated the business venture; and (3)

such person does not receive consideration for any statements made to

prospective purchasers.

2. Pattern of Calls

Section 310.4(b) of the proposed rule deals with repeated

telemarketing calls, and calls to persons who have indicated an

unwillingness to receive such calls. This section prohibits a

telemarketer from engaging in such calls, or a seller from causing a

telemarketer to engage in such calls.\27\ Specifically, this Section

states that it is an abusive act or practice and a violation of the

rule to call a person's residence to offer, offer for sale, or sell, on

behalf of the same seller, the same or similar goods or services more

than once within any three-month period. This prohibition does not

apply if the person gives prior consent to more frequent calls,\28\ or

if the person is not reached during an earlier attempted call. It also

does not apply to verification calls--those calls made solely to verify

a previous telephone sale.

\27\A seller may cause a telemarketer to engage in such calls by

providing the telemarketer with a customer contact list that

includes customers that should not be called.

\28\The person may give prior consent either orally or in

writing.

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The proposed rule also prohibits calls to a person's residence when

that person previously has stated that he or she does not wish to

receive telephone solicitations made by or on behalf of the

[[Page 8319]] seller whose goods or services are being offered.

Sellers and telemarketers are given a limited safe harbor against

liability for violating these provisions. Section 310.4(b)(2) of the

proposed rule states that a seller or telemarketer will not be liable

for such violations once in any calendar year per person called if the

following four requirements are met: (1) It has established and

implemented written procedures to comply with Secs. 310.4(b)(1)(i) and

(ii); (2) it has trained its personnel in those procedures; (3) the

seller, or the telemarketer acting on behalf of the seller, has

maintained and recorded lists of persons who may not be contacted, in

compliance with Secs. 310.4(b)(1)(i) and (ii); and (4) any subsequent

call is the result of administrative error.

3. Calling Time Restrictions

Under Sec. 310.4(c) of the proposed rule, any telemarketer is

prohibited from engaging in telephone solicitations\29\ to a person's

residence at any time other than between 8 a.m. and 9 p.m. local time

at the called person's location. This prohibition does not apply if the

person called gives his or her prior consent to receive a call at a

different time.\30\

\29\Based on the definition of ``telephone solicitation'' in

Sec. 310.2(w) of the proposed rule, these calling time restrictions

apply only to outbound telemarketing calls.

\30\As with the pattern of calls requirement in

Sec. 310.4(b)(1), the person may give prior consent either orally or

in writing.

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4. Required Oral Disclosures

Section 310.4(d) of the proposed rule sets forth certain oral

disclosures that must be made in telemarketing.\31\ The preamble to

this section states that it is an abusive telemarketing act or

practice, and a violation of the rule, for a telemarketer to fail to

make any of these required oral disclosures.

\31\The disclosures required by this section are in addition to

the disclosures required under Sec. 310.3(a)(1) of the proposed

rule, which must be made before any payment is requested for goods

or services.

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All telephone solicitations must begin by disclosing key

information to the person called. This information includes the

caller's true first and last name, the seller's name, and that the

purpose of the call is to sell goods or services. The proposed rule

does not require that the telemarketer's name be disclosed, if it is

different from the seller's. In addition, the proposed rule does not

set forth the exact language that must be used to convey the message

that the purpose of the call is to sell goods or services. The choice

of language is left to the telemarketer.

If the telephone solicitation includes a charitable solicitation,

slightly different and additional information must be disclosed at the

beginning of the call. Not only must the caller's true first and last

name and the name of the seller or charity be disclosed, but the

telemarketer's name also must be disclosed in these calls. In addition,

the telemarketer's status as a paid professional fundraiser must be

disclosed, as well as the fact that the purpose of the call is to

solicit charitable donations. If other goods or services are offered

for sale during the call, the caller must disclose that the purpose of

the call is also to sell goods or services.

Section 310.4(d)(2) of the proposed rule states that if a caller

verifies a telemarketing sale, either during the call containing the

original sales presentation or in a separate call, the caller verifying

the sale must repeat all of the disclosures required under

Sec. 310.3(a)(1).\32\ In this fashion, consumers will hear all of the

important terms and conditions of the sale at the time they are

verifying that purchase.

\32\These disclosures include the total costs, terms, and

material restrictions, limitations, or conditions of receiving any

goods or services, the quantity of any goods or services, and all

material terms and conditions of the seller's refund, cancellation,

exchange, or repurchase policies.

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Section 310.4(d)(3) of the proposed rule requires three additional

oral disclosures for any telemarketing which includes a prize

promotion. The first disclosure is that no purchase or payment is

necessary to win.\33\ Second, the caller must disclose the verifiable

retail sales price of each prize offered, or a statement that the

retail sales price of the prize offered is less than $20.00.\34\ The

third required disclosure is the odds of winning each prize offered. A

true statement that the odds of winning cannot be determined in

advance, or that the odds of winning are determined by the number of

entrants, would satisfy this requirement.

\33\If a purchase or payment were required in a prize promotion

that by definition involves a game of chance, that promotion would

be an illegal lottery. See 18 U.S.C. 1301.

\34\Misrepresenting the retail sales price would be a violation

of Sec. 310.3(a)(2)(xxiv) of the proposed rule because such

information is required to be disclosed under the rule.

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Under Sec. 310.4(d)(4) of the proposed rule, any telemarketing

which includes an offer of a premium must make the additional

disclosure of the verifiable retail sales price of such premium or

comparable item, or a statement that the retail sales price of the

premium is less than $20.00.

5. Written Disclosures/Acknowledgements

Section 310.4(e) of the proposed rule states that it is an abusive

telemarketing act or practice for a seller or telemarketer that

conducts a prize promotion or offers for sale any investment

opportunity to request or accept any payment from a person without

first providing the person with a written disclosure, in duplicate, and

receiving from the person a written acknowledgement that the person has

read the disclosure. The information required to be disclosed must be

printed in not less than 10-point type (unless otherwise noted), in a

color or shade that readily contrasts with the background of the

notice. The information in the investment opportunity disclosure must

be segregated from all other information that may be included in the

document, while the information in the prize promotion disclosure must

be on one page.

Both disclosures must be sent in an envelope that contains no other

enclosures except for a return envelope, if the seller or telemarketer

wishes to include such an envelope. The envelope for the prize

promotion disclosure may not contain any writing representing that the

person to whom the envelope is addressed has been selected or may be

eligible to receive a prize.

For prize promotions, the following information is required: (1)

The seller's legal name and telephone number, and the complete street

address of the seller's principal place of business; (2) if the seller

has been in operation under any other name(s), each such name and the

length of time the seller operated under each name; (3) the verifiable

retail sales price of each prize offered, or a statement that the

retail sales price of the prize offered is less than $20.00; (4) the

odds of winning each prize offered and the number of persons who will

receive each prize; (5) the total amount and description of any

shipping or handling fees or any other charges that must be paid to

receive or use a prize; (6) a complete description of any restrictions,

conditions, or limitations on eligibility to receive or use a prize,

including all steps a person must take to receive the most valuable

prize offered; (7) the statement: ``No purchase or payment is necessary

to win,'' with a description of the no-purchase entry method; (8) a

statement that a list of winners is available and the address to which

a person may write to obtain such a list; (9) a statement that it is a

violation of this rule for the seller to accept payment in any form

unless the [[Page 8320]] seller has received from the person a written

disclosure acknowledgement; and (10) the statement: ``I have read and

understand this disclosure.'' This final statement must be in at least

12-point bold face type, immediately preceding a signature block.

For investment opportunities, the following information must be

included in the written disclosure: (1) The seller's legal name and

telephone number, and the complete street address of the seller's

principal place of business; (2) if the seller has been in operation

under any other name(s), each such name and the length of time the

seller operated under that name; (3) the complete cost to make the

investment and a detailed list of all present charges and any

anticipated future charges; (4) a description of all known risks

associated with the investment opportunity, including the possibility

that additional payments might be required for a person purchasing the

investment opportunity to retain that person's interest in the

investment opportunity, to realize the projected or stated returns of

the investment opportunity, to prevent total loss of the investment

opportunity, or for any other reason; (5) the length of time the seller

has been in business and has offered the particular investment

opportunity; (6) a statement disclosing whether or not the seller is

licensed and, if so, with whom, the type of license, and the length of

time the seller has held such license; (7) a statement that it is a

violation of this rule for the seller to effect an investment

transaction unless the seller has received from the person a written

disclosure acknowledgement; and (8) the statement: ``I have read and

understand this disclosure.'' This final statement must be in at least

12-point bold face type, immediately preceding a signature block.

Additional written disclosures, provided in duplicate, are required

for certain types of investment opportunities. If a seller or

telemarketer offers for sale any investment opportunity involving

tangible assets, Sec. 310.4(e)(2)(ii) of the proposed rule requires the

following additional information to be included in the written

investment disclosure: (1) The percentage markup that the seller places

on the item above its own cost in acquiring the item; and (2) an

estimate of the value that persons would be likely to receive if they

were to liquidate the asset through a market sale immediately following

the purchase. The proposed rule makes clear that all such estimates

must be substantiated by competent and reliable evidence.

If sellers or telemarketers offer for sale any investment

opportunity involving tangible assets sold on credit or leverage, they

must include in the written disclosure all of the information set forth

in Secs. 310.4(e)(2)(i) and (ii) of the proposed rule, as well as the

following: (1) The percentage of a person's down payment that would be

devoted to fees and costs by the end of the first six months after the

investment is made; (2) the percentage of a person's down payment that

would be devoted to fees and costs by the end of the first year after

the investment is made; and (3) a statement that all such investment

opportunities are extremely risky.

Finally, if a seller or telemarketer offers for sale any investment

opportunity involving the acquisition of government-issued licenses or

interests in businesses derived from the possession of such licenses,

the following additional information must be included in the written

disclosure set forth in Sec. 310.4(e)(2)(i) of the proposed rule: (1)

All material terms and limitations of any government-issued license(s)

that serve as the basis for the investment opportunity, including

whether and to whom the license or licenses have been issued; (2) the

percentage of the person's payment that will be used to acquire any

applicable license(s) from the licensee(s) or from any person or entity

not affiliated in any way with the seller; and (3) the percentage of

the person's payment that will be used to capitalize any business

derived from such license(s).

6. Distribution of Lists

The final abusive practice set forth in Sec. 310.4 of the proposed

rule involves the distribution of lists of customer contacts. Section

310.4(f) states that it is an abusive telemarketing act or practice,

and a violation of the rule, for any person, subject to any federal

court order resolving a case in which the complaint alleged a violation

of Sec. 310.3, 310.4(a), or 310.4(e) of this rule,35 and the court

did not dismiss or strike all such allegations from the case, to sell,

rent, publish, or distribute any list of customer contacts from that

person. In other words, any such person will be prohibited from

circulating its customer contact lists in any fashion.

\35\The enumerated sections cover all of the prohibited

deceptive telemarketing acts or practices, the eight general abusive

telemarketing acts or practices, and the written disclosures and

acknowledgements required for prize promotions and investment

opportunities.

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Section 310.5 Recordkeeping Requirements

Section 310.5 of the proposed rule requires any seller or

telemarketer to keep, for 24 months from the date the record is

produced, certain records relating to its telemarketing activities.

Failure to keep those records shall be considered a violation of the

rule. The seller and its telemarketer are not required to keep

duplicative records, if they have entered into a written agreement

allocating responsibility for the recordkeeping requirements of the

proposed rule. The terms of any such agreement shall govern, unless

those terms are unclear as to whom must maintain any required records.

In that case, the responsibility for recordkeeping shall fall on the

seller.

Section 310.5(c) of the proposed rule sets forth the parties

responsible for maintaining records at the end of, or after a change in

ownership of, the seller's or telemarketer's business. In the event of

dissolution or termination of such business, the principal of the

seller or telemarketer is required to maintain these records. On the

other hand, in the event of any sale, assignment, succession, or other

change in ownership of the seller's or telemarketer's business, the

successor business is required to maintain the records.

Section 310.6 Exemptions

Certain acts or practices are exempt from the proposed rule. The

first exemption, set forth in Sec. 301.6(a), is for incidental

telemarketing sales--that is, sales by any person who engages in fewer

than ten sales each year through the use of the telephone. Second,

telephonic contacts between businesses also are exempt, except for such

contacts that involve the sale of office or cleaning supplies, or the

inducement of payment for any charitable service promoted in

conjunction with (1) an offer of a prize, (2) a chance to win a prize,

or (3) the opportunity to purchase any goods or services. Finally, on

Sec. 310.6(c) of the proposed rule exempts any telephonic contact made

solely by a person, when there has been no initial sales contact

directed to that particular person, by telephone or otherwise, from the

seller or telemarketer. However, this exemption does not apply to calls

regarding employment services where the seller or telemarketer requests

or receives payment prior to providing the promised services, business

ventures, investment opportunities, prize promotions, or credit-related

programs.

Given the definition of ``telemarketing'' in Sec. 310.2(v) and the

[[Page 8321]] exemptions set forth in this section, the proposed rule

covers all outbound telephone calls intended to induce payment for

goods or services, except for calls made by a person who engages in

fewer than ten telephone sales each year, or for telephonic contacts

made from one business to another that do not involve the sale of

office or cleaning supplies or certain charitable solicitations. The

only inbound telemarketing calls covered are those received from a

person who is responding to an initial communication, other than a

catalog, from the seller or telemarketer that was directed to that

particular person. In addition, all inbound telemarketing calls related

to business ventures, investment opportunities, prize promotions, or

credit-related programs are covered.

Section 310.7 Actions by States and Private Persons

The Telemarketing Act permits certain State officials and private

persons to bring civil actions in an appropriate Federal district court

for violations of this rule.36 Section 310.7 of the proposed rule

sets forth the notice such parties must provide to the Commission

concerning those actions. Such parties must serve written notice of its

action on the Commission, if feasible, prior to initiating an action

under this rule. The notice must include a copy of the complaint and

any other pleadings to be filed with the court. If prior notice is not

feasible, the State official or private person must serve the

Commission with the required notice immediately upon instituting its

action.

\36\See 15 U.S.C. 6103 and 6104.

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Section 310.8 Federal Preemption

Section 310.8 of the proposed rule states that nothing in the rule

shall be construed to preempt any State law that is not in direct

conflict with any provision of the rule. Thus, State statutes

concerning telemarketing that contain prohibitions or requirements that

are not imposed by this rule would remain in effect, as long as those

statutes do not conflict with this rule.

Section 310.9 Severability

Section 310.9 of the proposed rule sets forth the Commission's

intent that the provisions of this rule be separate and severable from

one another. Thus, if any provision is stayed or determined to be

invalid, the remaining provisions shall continue in effect.

Section C. Invitation to Comment

Before adopting this proposed rule as final, consideration will be

given to any written comments submitted to the Secretary of the

Commission on or before March 31, 1995. Comments submitted will be

available for public inspection in accordance with the Freedom of

Information Act (5 U.S.C. 552) and Commission regulations, on normal

business days between the hours of 8:30 a.m. and 5 p.m. at the Public

Reference Section, Room 130, Federal Trade Commission, 6th Street and

Pennsylvania Avenue, N.W., Washington, D.C. 20580.

Section D. Public Workshop-Conference

The FTC staff will conduct a Public Workshop-Conference to discuss

written comments received in response to the Notice of Proposed

Rulemaking. The purpose of the conference is to afford Commission staff

and interested parties a further opportunity to openly discuss and

explore issues raised in the rulemaking proceeding, and, in particular,

to examine publicly any areas of significant controversy or divergent

opinions that are raised in the written comments. The conference is not

intended to achieve a consensus opinion among participants or between

participants and Commission staff with respect to any issue raised in

the rulemaking proceeding. Commission staff will consider the views and

suggestions made during the conference, in conjunction with the written

comments, in formulating its final recommendation to the Commission

concerning the proposed rule.

Commission staff will select a limited number of parties, from

among those who submit written comments, to represent the significant

interests affected by the proposed regulations. These parties will

participate in an open discussion of the issues. It is contemplated

that the selected parties might ask and answer questions based on their

respective comments.

In addition, the conference will be open to the general public.

Members of the general public who attend the conference may have an

opportunity to make a brief oral statement presenting their views on

issues raised in the rulemaking proceeding. Oral statements of views by

members of the general public will be limited to a few minutes in

length. The time allotted for these statements will be determined on

the basis of the time allotted for discussion of the issues by the

selected parties, as well as by the number of persons who wish to make

statements.

Written submissions of views, or any other written or visual

materials, will not be accepted during the conference. The discussion

will be transcribed and the transcription placed on the public record.

To the extent possible, Commission staff will select parties to

represent the following affected interests: Sellers; telemarketers;

list providers; representatives of the credit card system; consumers;

Federal, State and local law enforcement and regulatory authorities;

and any other interests that Commission staff may identify and deem

appropriate for representation.

Parties to represent the above-referenced interests will be

selected on the basis of the following criteria:

1. The party submits a written comment during the 45-day comment

period.

2. The party notifies Commission staff of its interest and

authorization to represent an affected interest within 20 days of

publication of the Notice of Proposed Rulemaking.

3. The party's participation would promote a balance of interests

being represented at the conference.

4. The party's participation would promote the consideration and

discussion of a variety of issues raised in the rulemaking proceeding.

5. The party has expertise in activities affected by the proposed

regulations.

6. The party adequately reflects the views of the affected

interest(s) which it purports to represent, not simply a single entity

or firm within that interest.

7. The number of parties selected will not be so large as to

inhibit effective discussion among them.

A neutral third-party facilitator will be retained for the

conference. It will be held over the course of three consecutive days,

on April 18-20, 1995. Parties interested in participating and

authorized to represent an affected interest at the conference must

notify Commission staff by March 6, 1995. Prior to the conference,

parties selected to represent an affected interest will be provided

with computer disks containing copies of the comments received in

response to this notice.

Section E. Communications by Outside Parties to Commissioners or

Their Advisors

Pursuant to Commission Rule 1.26(b)(5), communications with respect

to the merits of this proceeding from any outside party to any

Commissioner or Commissioner advisor during the course of this

rulemaking shall be subject to the following treatment. Written

communications, including written communications from members of

Congress, shall be forwarded promptly to the Secretary for placement on

the public record. Oral communications, not including oral

[[Page 8322]] communications from members of Congress, are permitted

only when such oral communications are transcribed verbatim or

summarized at the discretion of the Commissioner or Commissioner

advisor to whom such oral communications are made and are promptly

placed on the public record, together with any written communications

and summaries of any oral communications relating to such oral

communications. Oral communications from members of Congress shall be

transcribed or summarized at the discretion of the Commissioner or

Commissioner advisor to whom such oral communications are made and

promptly placed on the public record, together with any written

communications and summaries of any oral communications relating to

such oral communications.

Section F. Regulatory Flexibility Act

The provisions of the Regulatory Flexibility Act relating to an

initial and final regulatory analysis (5 U.S.C. 603, 604) are not

applicable to this document because it is believed that these

regulations, if promulgated, will not have a significant economic

impact on a substantial number of small entities (5 U.S.C. 605).

The Telemarketing Act requires the Commission to issue regulations,

not later than 365 days after the date of enactment, prohibiting

deceptive telemarketing acts or practices and other abusive

telemarketing acts or practices. The Act limits the scope of the

regulations to entities that engage in telemarketing through one or

more interstate telephone calls; telemarketing sales by local companies

to local customers would most likely be intrastate calls and thus

outside the parameters of the proposed rule. The Act also exempts

certain catalog sales operations from the scope of the regulations. In

addition, the proposed rule exempts incidental telemarketing sales,

i.e., calls made by any person who engages in fewer than ten sales each

year through the use of the telephone. The proposed rule also exempts

certain contacts between businesses, and certain calls initiated by a

person when there is no initial sales contact directed to that

particular person from a seller or telemarketer.

As a result of these statutory and regulatory limitations, we

believe that many small entities will fall outside the scope of the

regulations. In addition, any economic costs imposed on small entities

remaining within the parameters of the rule are, in many instances,

specifically imposed by statute. Where they are not, efforts have been

made to make the proposed rule's requirements flexible, in part to

minimize any unforeseen burden on small entities, as described

elsewhere in this notice.

To ensure that no substantial economic impact is being overlooked,

public comment is requested on the effect of the proposed regulations

on the costs to, profitability and competitiveness of, and employment

in small entities. Subsequent to the receipt of public comments, it

will be decided whether the preparation of a final regulatory

flexibility analysis is warranted. Accordingly, based on available

information, the Commission hereby certifies under the Regulatory

Flexibility Act, 5 U.S.C. 605(b), that the proposed regulations will

not have a significant economic impact on a substantial number of small

entities. This notice serves as certification to that effect for the

purposes of the Small Business Administration.

Section G. Questions on the Proposed Rule

The Commission seeks comments on various aspects of the proposed

rule. Without limiting the scope of issues it seeks comment on, the

Commission is particularly interested in receiving comments on the

questions that follow. Responses to these questions should be itemized

according to the numbered questions in this Notice. In responding to

these comments, include detailed, factual supporting information

whenever possible.

Section 310.2 Definitions

1. The proposed rule defines the following terms for use in the

prohibition on credit card laundering: ``acquirer,'' ``cardholder,''

``credit card,'' ``credit card sales draft,'' ``credit card system,''

``merchant,'' and ``merchant agreement.''

a. Are these definitions clear, meaningful, and appropriate?

b. Are there other approaches to defining these terms that would be

more useful?

2. The proposed rule defines the term ``business venture.''

a. Is this definition clear, meaningful, and appropriate? What are

the advantages and disadvantages of defining the term in this manner?

b. Is the definition as drafted sufficiently comprehensive to

encompass the types of business ventures which have been, are, or may

be sold through telemarketing?

c. Are there other approaches to defining the term ``business

venture'' that would be more useful?

3. The proposed rule defines the term ``goods or services.''

a. Is this definition clear, meaningful, and appropriate? What are

the advantages and disadvantages of defining the term in this manner?

b. Is the definition as drafted sufficiently comprehensive to

encompass the types of products, services, or other offers which have

been, are, or may be sold through telemarketing?

c. Are there other approaches for defining the term ``goods or

services'' that would be more useful?

4. The proposed rule defines the term ``investment opportunity.''

a. Is this definition clear, meaningful, and appropriate? What are

the advantages and disadvantages of defining the term in this manner?

b. Is the definition as drafted sufficiently comprehensive to

encompass the types of investment opportunities which have been, are,

or may be sold or traded through telemarketing?

c. Are there other approaches to defining the term ``investment

opportunity'' that would be more useful?

5. The proposed rule defines the terms ``premium,'' ``prize,'' and

``prize promotion.''

a. Are these definitions clear, meaningful, and appropriate? Are

the distinctions between a ``premium'' and a ``prize'' clear,

meaningful, and appropriate? What are the advantages and disadvantages

of defining these terms in this manner?

b. Are the definitions as drafted sufficiently comprehensive to

encompass the types of premiums, prizes, and prize promotions which

have been, are, or may be offered through telemarketing?

c. Are there other approaches to defining these terms that would be

more useful?

6. The proposed rule defines the terms ``seller'' and

``telemarketer.''

a. Are these definitions clear, meaningful, and appropriate? Are

the distinctions between a ``seller'' and a ``telemarketer'' clear,

meaningful, and appropriate? What are the advantages and disadvantages

of defining these terms in this manner?

b. Are there other approaches to defining these terms that would be

more useful?

c. Since most of the provisions of the proposed rule apply to

sellers and/or telemarketers, do these definitions reflect the

appropriate scope of the rule?

7. The proposed rule states that the term ``telemarketing''

includes the use of a facsimile machine, computer [[Page 8323]] modem,

or any other telephonic medium, as well as calls initiated by persons

in response to postcards, brochures, advertisements, or any other

printed, audio, video, cinematic, or electronic communications by or on

behalf of the seller.

a. Is this definition clear, meaningful, and appropriate?

b. Is the definition of ``telemarketing'' sufficiently broad to

encompass current as well as future technology?

c. Are there other approaches to defining the term

``telemarketing'' that would be more useful?

8. The proposed definition of ``telemarketing'' includes within the

rule's coverage on-line information services which a person accesses by

computer modem.

a. Is such coverage appropriate?

b. Is the proposed rule as drafted sufficiently comprehensive to

regulate the types of plans, programs, or campaigns for the sale of

goods or services that have been, are, or may be conducted through such

computer information services?

9. The proposed definition of ``telemarketing'' tracks the

Telemarketing Act in exempting catalog sales from coverage under the

rule. One of the requirements of this exemption is that ``the person

making the solicitation * * * only receives calls initiated by

customers in response to the catalog and during those calls takes

orders only without further solicitation.'' The proposed rule states

that the term ``further solicitation'' does not include providing the

customer with information about, or attempting to sell, any other item

included in the same catalog which prompted the customer's call.

a. Does the proposed rule sufficiently clarify the types of

solicitation activities that are permitted in connection with catalog

sales?

b. How much will the additional flexibility provided by this

definition benefit catalog sellers? How will it affect law enforcement

efforts to stop fraudulent or deceptive telemarketers?

10. The proposed rule defines the term ``verifiable retail sales

price.''

a. Is this definition clear, meaningful, and appropriate?

b. Are there other approaches to defining this term that would be

more useful?

Section 310.3 Deceptive Telemarketing Acts or Practices

11. Section 310.3(a) of the proposed rule sets forth certain

conduct that will be considered a deceptive telemarketing act or

practice and a violation of the rule, including the failure to make

certain disclosures and the misrepresentation of certain information.

Questions 13 through 18 seek comments on the particular types of acts

and practices included in this Section of the proposed rule. Looking at

Sec. 310.3(a) as a whole:

a. Would it be appropriate to include in the final rule a general

prohibition against material misrepresentations or the failure to

disclose material information? What would be the advantages and

disadvantages to this approach?

b. Are there other approaches to prohibiting deceptive

telemarketing acts or practices that would be more useful to consumers?

That would be more useful to law enforcement authorities? If so, how

would these alternatives affect the burden the rule places on

businesses forced to comply with it?

c. Are there other approaches to prohibiting deceptive

telemarketing acts or practices that would reduce the burden imposed on

legitimate businesses attempting to comply with the rule's

requirements? If so, how would these alternatives affect the usefulness

of the rule to consumers? To law enforcement authorities?

12. Section 310.3(a) of the proposed rule makes both the seller and

the telemarketer equally liable for any deceptive telemarketing acts or

practices.

a. Are there parts of this Section that should apply only to the

seller or to the telemarketer? If so, what specific Sections should

apply only to sellers? To telemarketers? Why are such limitations

appropriate?

b. What are the benefits of making both sellers and telemarketers

jointly liable for violations?

c. What additional costs or other burdens will the rule impose on

sellers and/or telemarketers if the rule makes both liable for any

violations of this Section? If the rule makes telemarketers jointly

liable with sellers, will this reduce the ability of telemarketers to

respond to the needs of their clients in a timely fashion?

d. If telemarketers are not jointly liable for deceptive practices

of the sellers for whom they work, would some telemarketers simply seek

to avoid knowledge of any questionable practices of the sellers from

whom they work? Are there alternative ways to keep telemarketers from

taking such an approach, without imposing full liability for all of the

actions taken by their clients?

13. Section 310.3(a)(1) of the proposed rule requires that certain

disclosures be made before payment is requested for any goods or

services offered, and that the disclosures be made in the same manner

and form as the payment request.

a. Are there other disclosures that should be required? Are any of

the required disclosures unnecessary?

b. Is the description of the information to be disclosed clear,

meaningful, and appropriate?

c. What are the current practices of sellers and telemarketers

regarding such disclosures?

d. What costs will this disclosure requirement impose on legitimate

businesses?

e. What are the advantages or disadvantages of requiring these

disclosures before payment is requested? Is it more appropriate to

require these disclosures at some other time?

14. As part of the prohibition against deceptive telemarketing acts

or practices, Sec. 310.3(a)(2) of the proposed rule prohibits specific

misrepresentations in connection with telemarketing.

a. Are there other misrepresentations that should be included in

the prohibited list? Are any of the prohibited misrepresentations

unnecessary?

b. Is the description of the prohibited misrepresentations clear,

meaningful, and appropriate?

c. How will this section benefit consumers or law enforcement

efforts? What, if any, costs will this Section impose on legitimate

businesses?

15. As part of the prohibition against deceptive telemarketing acts

or practices, Sec. 310.3(a)(3) of the proposed rule prohibits specific

misrepresentations in connection with the offer, offer for sale, or

sale of any business venture.

a. Are there other misrepresentations that should be included in

the prohibited list? Are any of the prohibited misrepresentations

unnecessary?

b. Is the description of the prohibited misrepresentations clear,

meaningful, and appropriate?

c. How will this section benefit consumers or law enforcement

efforts? What, if any, costs will this Section impose on legitimate

businesses?

16. Section 310.3(a)(4) of the proposed rule prohibits obtaining or

submitting a check, draft, or other form of negotiable paper for

payment from a person's checking, savings, share, or similar account

without that person's express written authorization.

a. Is this prohibition clear, meaningful, and appropriate?

b. What are the advantages or disadvantages of this prohibition?

[[Page 8324]]

c. Is the proposed prohibition sufficiently broad to encompass all

forms by which a person's account could be debited in this manner for

payment of goods or services?

d. What will be the economic impact on sellers and telemarketers of

requiring express written authorization prior to debiting a person's

account in this manner?

e. What are the current practices of entities regarding

authorizations for debiting a person's checking, savings, share, or

similar account?

17. Section 310.3(a)(5) of the proposed rule prohibits obtaining

any amount of money from a person through any means unless the amount

is expressly authorized by the person.

a. Is this prohibition clear, meaningful, and appropriate?

b. What are the advantages or disadvantages of this prohibition?

c. Is the proposed prohibition sufficiently broad to encompass all

forms by which a seller or telemarketer could obtain unauthorized

amounts of money?

18. Under Sec. 310.3(b)(1) of the proposed rule, it would be a

deceptive telemarketing act or practice for any person to provide

substantial assistance or support to any seller or telemarketer when

that person knows or should know that the seller or telemarketer is

engaged in any act or practice that violates the rule.

a. What are the advantages or disadvantages to providing such a

general prohibition against ``assisting and facilitating?''

b. Is this general prohibition against ``assisting and

facilitating'' clear, meaningful, and appropriate?

c. Are there other approaches to prohibiting ``assisting and

facilitating'' that would be more useful to consumers? That would be

more useful to law enforcement authorities? If so, how would these

alternatives affect the burden the rule places on businesses forced to

comply with it?

d. Are there other approaches to prohibiting ``assisting and

facilitating'' that would reduce the burden imposed on legitimate

businesses attempting to comply with the rule's requirements? If so,

how would these alternatives affect the usefulness of the rule to

consumers? To law enforcement authorities?

19. Section 310.3(b)(2) of the proposed rule lists specific acts or

practices that provide substantial assistance or support to

telemarketing.

a. Is it appropriate to single out the acts and practices listed in

this section?

b. Are there other acts or practices which should be included in

this section?

c. Is the description of the listed acts or practices clear,

meaningful, and appropriate?

20. Under Sec. 310.3(c) of the proposed rule, certain acts or

practices that constitute ``credit card laundering'' will be considered

deceptive and a violation of the rule.

a. Is the description of prohibited acts or practices clear,

meaningful, and appropriate?

b. What are the advantages or disadvantages of this provision?

c. Is the proposed prohibition sufficiently comprehensive to

encompass all forms of credit card laundering which have been, are, or

may be used in connection with telemarketing?

d. Are there other approaches to prohibiting credit card laundering

that would be more useful to consumers? To law enforcement authorities?

If so, how would these alternatives affect the burden the rule places

on businesses required to comply with it?

e. Are there other approaches to prohibiting credit card laundering

that would reduce the burden imposed on legitimate businesses

attempting to comply with the rule's requirements? If so, how would

these alternatives affect the usefulness of the rule to consumers? To

law enforcement authorities?

f. Will the regulations against credit card laundering interfere

with current practices of legitimate businesses?

Section 310.4 Abusive Acts or Practices

21. Section 310.4(a) of the proposed rule lists specific activities

that will be considered to be abusive telemarketing acts or practices

and a violation of the Telemarketing Sales Rule. Is there other conduct

that should be included in Sec. 310.4(a)?

22. Section 310.4(a) of the proposed rule makes both the seller and

the telemarketer equally liable for engaging in the listed abusive

telemarketing acts or practices.

a. Are there parts of this Section that should apply only to the

seller or to the telemarketer? If so, what specific sections should

apply only to sellers? To telemarketers? Why are such limitations

appropriate?

b. What are the benefits of making both sellers and telemarketers

jointly liable for violations?

c. What additional costs or other burdens will the rule impose on

sellers and/or telemarketers if the rule makes both liable for any

violations of this Section? If the rule makes sellers and telemarketers

jointly liable, will this reduce the ability of telemarketers to

respond to the needs of their clients in a timely fashion?

d. If telemarketers are not jointly liable for abusive practices of

the sellers for whom they work, would some telemarketers simply seek to

avoid knowledge of any questionable practices of the sellers from whom

they work? Are there alternative ways to keep telemarketers from taking

such an approach, without imposing full liability for all of the

actions taken by their clients?

23. Section 310.4(a)(1) of the proposed rule prohibits any seller

or telemarketer from engaging in threats or intimidation.

a. Is it appropriate to include this practice as an abusive act or

practice?

b. Is the description of the prohibited activity clear, meaningful,

and appropriate?

c. Are there other approaches to prohibiting this type of activity?

d. Do the terms ``threats'' and ``intimidation'' need additional

definition in order to specify the type of behavior that would violate

the rule, or are the terms self-explanatory?

24. Section 310.4(a)(2) prohibits a seller or telemarketer from

providing for or directing a courier to pick up payment from a

customer.

a. Is it appropriate to include this practice as an abusive act or

practice?

b. Is the description of the prohibited activity clear, meaningful,

and appropriate?

c. Are there other approaches to prohibiting this type of activity?

d. What will be the economic impact, and the costs and benefits, of

this provision?

e. Do legitimate telemarketers use couriers to pick up payments? If

so, in what circumstances? How would these businesses be affected if

they could not use couriers to pick up payments?

f. Will a prohibition on courier pick-ups be effective in reducing

the consumer injury that results from telemarketing fraud? How will a

fraudulent telemarketer adjust his or her practices in response to this

prohibition?

25. Section 310.4(a)(3) of the proposed rule prohibits requesting

or receiving payment of any fee or consideration for ``credit repair''

goods or services until the time frame in which the seller has

represented the goods or services will be provided has expired and the

seller has provided documentation that the promised results have been

achieved.

a. Is it appropriate to include this practice as an abusive act or

practice?

b. Is the description of the prohibited activity clear, meaningful,

and appropriate? [[Page 8325]]

c. Are there other approaches to prohibiting this type of activity?

d. What will be the economic impact, and the costs and benefits, of

this provision?

e. Are there any legitimate services that could not be provided, or

would be more costly to provide, if this prohibition were promulgated?

If such services exist, how could the rule be crafted to prohibit

deceptive credit repair services while still permitting these

legitimate activities?

26. Section 310.4(a)(4) of the proposed rule prohibits requesting

or receiving payment of any fee or consideration for goods or services

represented to recover or otherwise assist in the return of money or

any other item of value to a person until three days after such money

or other item is delivered to that person. This provision does not

apply to a licensed attorney or licensed private investigator who has a

written agreement with that person.

a. Is it appropriate to include this practice as an abusive act or

practice?

b. Is the description of the prohibited activity clear, meaningful,

and appropriate?

c. Are there other approaches to prohibiting this type of activity?

d. What will be the economic impact, and the costs and benefits, of

this provision?

e. Are there any legitimate services that could not be provided, or

would be more costly to provide, if this prohibition were promulgated?

If such services exist, how could the rule be crafted to prohibit

deceptive recovery services while still permitting these legitimate

activities?

f. Is it necessary, useful, and appropriate to exempt licensed

attorneys and licensed private investigators from this provision?

g. Does this prohibition impact on legitimate businesses other than

licensed attorneys or licensed private investigators?

27. Section 310.4(a)(5) of the proposed rule prohibits requesting

or receiving payment of any fee or consideration in advance of

obtaining a loan or any credit service when the seller or telemarketer

has guaranteed or represented a high likelihood of success in obtaining

or arranging a loan or credit service for a person.

a. Is it appropriate to include this practice as an abusive act or

practice?

b. Is the description of the prohibited activity clear, meaningful,

and appropriate?

c. Are there other approaches to prohibiting this type of activity?

d. What will be the economic impact, and the costs and benefits, of

this provision?

e. Are there any legitimate services that could not be provided, or

would be more costly to provide, if this prohibition were promulgated?

If such services exist, how could the rule be crafted to prohibit

deceptive advance-fee loan schemes while still permitting these

legitimate activities?

28. Section 310.4(a)(6) of the proposed rule prohibits failing to

distribute all prizes or purported prizes offered in a telemarketing

prize promotion within 18 months of the initial offer to any person.

a. Is it appropriate to include this practice as an abusive act or

practice?

b. Is the description of the prohibited activity clear, meaningful,

and appropriate?

c. Are there other approaches to prohibiting this type of activity?

d. What will be the economic impact, and the costs and benefits, of

this provision?

e. What are the current practices of sellers or telemarketers

regarding the time frame within which prizes are distributed in

telemarketing prize promotions?

f. Is 18 months an appropriate period of time in which to require

that all prizes or purported prizes be distributed?

29. Section 310.4(a)(7) of the proposed rule prohibits offering or

selling goods or services through a telephone solicitation to a person

who previously has paid the same seller for goods or services, until

all terms and conditions of the initial transaction have been

fulfilled, including the distribution of all prizes and premiums

offered in conjunction with the initial transaction.

a. Is it appropriate to include this practice as an abusive act or

practice?

b. Is the description of the prohibited activity clear, meaningful,

and appropriate?

c. Are there other approaches to prohibiting this type of activity?

d. What will be the economic impact, and the costs and benefits, of

this provision?

e. What are the current practices of sellers and telemarketers

regarding making additional telephone solicitations before fulfilling

the terms and conditions of the initial sales transaction?

f. Are there telemarketing activities for which this prohibition

would not be feasible?

30. Section 310.4(a)(8) of the proposed rule prohibits identifying

a person as a reference for a business venture unless certain

requirements are met.

a. Is it appropriate to include this practice as an abusive act or

practice?

b. Are the descriptions of the prohibited activity and of the

stated requirements clear, meaningful, and appropriate?

c. Are there other approaches to prohibiting this type of activity?

d. What will be the economic impact, and the costs and benefits, of

this provision?

e. What are the current practices of telemarketers regarding the

use of references in the telemarketing of business ventures?

31. Section 310.4(b)(1) of the proposed rule prohibits more than

one telephone solicitation in any three-month period to a person's

residence to offer, offer for sale, or sell the same or similar goods

or services on behalf of the same seller, without the person's prior

consent. The requirement does not apply to calls made solely to verify

previous sales or attempted calls which do not reach a person. This

Section also would prohibit calling a person's residence when that

person has stated that he or she does not wish to receive further

telephone solicitations made by or on behalf of the seller.

a. Are the descriptions of the prohibited activities clear,

meaningful, and appropriate?

b. Are there other approaches to prohibiting this type of activity?

c. Should these prohibitions be extended to business-to-business

calls?

d. What will be the economic impact, and the costs and benefits, of

prohibiting more than one telephone solicitation within any three-month

period? Is a three-month period of time appropriate?

e. What will be the economic impact, and the costs and benefits, of

prohibiting further calls after a person has asked not to receive

telephone solicitations by or on behalf of the seller?

f. What are the current practices of sellers and telemarketers

regarding the number of calls to a person's residence within a

specified period of time for the same or similar goods or services on

behalf of the same seller?

g. What are the current practices of sellers and telemarketers

regarding identifying those persons who do not wish to receive further

telephone solicitations by or on behalf of the seller?

32. Section 310.4(b)(2) of the proposed rule sets forth certain

actions that a seller or telemarketer can take that would provide a

defense against liability for violating Secs. 310.4(b)(1).

[[Page 8326]]

a. Is it appropriate to provide a defense against potential

liability with regard to these activities?

b. Is it appropriate to limit this defense to one erroneous call

per person called in any calendar year?

c. Are there other requirements which should be included in the

list of practices which provide a defense against potential liability?

Are any of the activities required by the proposed rule inappropriate?

d. Is the description of the requirements to avoid liability clear,

meaningful, and appropriate?

e. Are there other approaches to providing a defense for potential

liability that would be more useful?

f. What will be the economic impact, and the costs and benefits, of

taking the actions set forth in Sec. 310.4(b)(2)?

g. What are the current practices of sellers or telemarketers with

respect to the activities set forth in Sec. 310.4(b)(2)?

33. Section 310.4(c) of the proposed rule prohibits telephone

solicitations to a person's residence at any time other than between

the hours of 8 a.m. and 9 p.m. local time at the called person's

location, without the prior consent of the person being called.

a. Is the description of the prohibited activity clear, meaningful,

and appropriate?

b. What will be the economic impact, and the costs and benefits, of

this provision?

c. What are the current practices of telemarketers regarding the

times during which telephone solicitations are made to residences?

d. Should the period when telephone solicitations are permitted be

narrowed or expanded? Why or why not?

e. Should this prohibition be extended to contacts between

businesses?

34. Section 310.4(d)(1) of the proposed rule requires that certain

oral disclosures be made at the beginning of all telephone

solicitations.

a. Are the descriptions of the required disclosures clear,

meaningful, and appropriate?

b. Are there other oral disclosures that should be required? Are

any of the required disclosures unnecessary?

c. What will be the economic impact of requiring these disclosures

at the beginning of the telephone solicitation? If these disclosures

are not required at the beginning of the telephone solicitation, when

should they be required? What are the advantages or disadvantages of

this alternative?

d. Are the disclosure requirements for those engaged in charitable

solicitations necessary? Will these disclosure requirements provide

useful information to consumers? If so, how will this information be

useful to consumers? What impact will these disclosure requirements

have on professional fundraisers? What impact will these disclosure

requirements have on charities that use these professional fundraisers?

e. Do telemarketers currently make the disclosures required by

Sec. 310.4(d)(1)? Why or why not?

f. The proposed rule would prohibit the use of aliases by persons

making telephone solicitations. Is this appropriate? What are the costs

and benefits of prohibiting the use of aliases? Is there an alternative

approach that would permit the use of aliases while still ensuring that

consumers and law enforcement authorities could identify a particular

caller? What are the costs and benefits of such an alternative?

35. Section 310.4(d)(2) of the proposed rule requires that certain

oral disclosures be made whenever a caller verifies a telemarketing

sale.

a. Are the descriptions of the required disclosures clear,

meaningful, and appropriate?

b. Are there other oral disclosures that should be required? Are

any of the required disclosures unnecessary?

c. What will be the economic impact of requiring these disclosures

in any verification call?

d. Do telemarketers currently make the disclosures required by

Sec. 310.4(d)(2)? Why or why not?

36. Sections 310.4(d)(3) and (4) of the proposed rule require

additional disclosures where telemarketing includes a prize promotion

or an offer of a premium.

a. Is it appropriate to classify the failure to make these

additional disclosures as an abusive act or practice?

b. Are the descriptions of the required disclosures clear,

meaningful, and appropriate?

c. Are there other oral disclosures that should be required? Are

any of the required disclosures unnecessary?

d. What will be the economic impact of requiring these additional

oral disclosures? Will these additional oral disclosures help consumers

protect themselves from fraudulent or deceptive telemarketers?

e. Is it appropriate to require that these disclosures be made both

orally and in writing, as is required by Sec. 310.4(e)(1), or would it

be sufficient to permit either an oral or a written disclosure alone?

How would the economic costs of this Section be affected if the latter

approach were adopted?

f. What are the current practices of telemarketers regarding the

disclosure of the information required by Secs. 310.4(d)(3) and (4)?

37. In addition to the oral disclosures required during telephone

solicitations, Sec. 310.4(e) of the proposed rule requires that written

disclosures be provided in duplicate in connection with telemarketing

involving a prize promotion or the offer for sale of any investment

opportunity.

a. What are the advantages and disadvantages of these required

disclosures? Are written disclosures appropriate or necessary?

b. Is it appropriate to include a failure to make these disclosures

as an abusive act or practice?

c. Are the descriptions of the required disclosures, their timing,

size, and other requirements clear, meaningful, and appropriate?

d. Are there other written disclosures that should be required? Are

any of the required written disclosures unnecessary?

e. Are there any forms of prize promotions or investment

opportunities for which the disclosures would not be feasible?

f. Section 310.4(e) specifies the size of the disclosures, what

else can be included in the envelope with the disclosure, and, for

prize promotions, what may appear on the face of the envelope. Are

these specifications necessary to ensure the clarity of the disclosures

and to ensure that consumers pay attention to them, or would a more

general standard (e.g., clear and conspicuous) be equally or more

effective? How would the costs of complying with the requirements of

this Section be affected if the more general standard were employed?

g. Section 310.4(e)(2)(iii) of the proposed rule requires, for the

sale of any investment opportunity involving tangible assets sold on

credit or leverage, the written disclosure of the percentage of the

purchaser's down payment that would be devoted to fees and costs by the

end of both the first six months and the first year after the

investment is made. Are these time frames useful and appropriate? Would

it be better not to have a time frame in this disclosure requirement?

h. What will be the economic impact, and the costs and benefits, of

requiring these disclosures? Of requiring a written acknowledgement

prior to payment?

i. What are the current practices of telemarketers regarding the

disclosures required in Sec. 310.4(e)? Regarding written

acknowledgement prior to payment? [[Page 8327]]

j. What will be the economic impact, and the costs and benefits, of

requiring that the written disclosures be provided in duplicate? Will

this requirement ensure that consumers retain a copy of the required

disclosure, or are there other approaches to achieve this goal? What

are the costs and benefits of these alternative approaches?

k. How many telemarketing campaigns per year will be required to

comply with the written disclosure requirements? How many prize

promotions per year are conducted as part of telemarketing campaigns?

How many people participate in the average prize promotion conducted

via telemarketing?

l. How many telemarketing campaigns per year involve sales of

investment goods? What particular investment goods are sold via

telemarketing by legitimate sellers? On average, how many people buy

investments as a result of a telemarketing campaign?

38. Section 310.4(f) of the proposed rule prohibits any person who

is subject to any federal court order resolving a case in which the

complaint alleged a violation of certain sections of the rule, and the

court did not dismiss or strike all such allegations from the case, to

sell, rent, publish, or distribute any list of customer contacts from

that person.

a. Is this prohibition appropriate? Is the description of the

prohibited activities clear, meaningful, and appropriate?

b. What will be the economic impact, and the costs and benefits, of

prohibiting the sale of lists by such persons?

c. What are the current practices of telemarketers regarding the

sale of lists? Specifically, under what circumstances do sellers or

telemarketers sell or otherwise distribute lists to others?

d. What would be the effect if this prohibition only applied for a

certain period of time after the court order was entered? How would

this limitation hinder law enforcement efforts? What would be an

appropriate period of time following the entry of an order to prohibit

list sales?

e. Should this prohibition extend to a broader class of rule

violations than that currently proposed? A narrower class?

39. In addition to or in lieu of some of the provisions in

Sec. 310.4 of the proposed rule, would it be more appropriate that

telemarketing sales be subject to a cooling-off rule, or a period of

time in which the purchaser can cancel a transaction? How would such a

rule be structured? Should all telemarketing sales be subject to such a

rule? What is an appropriate ``cooling-off'' time period? Should

payment be permitted at the time of sale, or should payment be

prohibited until the end of the cooling-off period? Would it be more

appropriate to impose a mandatory right to a refund in all

telemarketing sales? How long of a period would be appropriate for

consumers to examine a product before returning it?

Section 310.5 Recordkeeping Requirements

40. Section 310.5(a) of the proposed rule requires sellers or

telemarketers to keep certain records relating to their telemarketing

activities for a period of 24 months from the date the record is

produced.

a. Are the specified records appropriate to verify compliance with

the rule? Are any of the required records unnecessary to verify

compliance with the rule? Should any additional records be required?

Specifically, should sellers and telemarketers keep copies of any

consumer complaints they receive? How burdensome would it be to

maintain such complaints? How many consumer complaints will the average

legitimate firm have involving its telemarketing sales?

b. Is the 24-month record retention period appropriate? Why or why

not? If not, what period is appropriate?

c. Are there other approaches to recordkeeping requirements that

would be more useful?

d. What are the current record retention policies and practices of

sellers and telemarketers with respect to the records listed in

Sec. 310.5? Specifically, what records, required to be maintained by

Sec. 310.5(a), currently are maintained by sellers or telemarketers?

How long are they maintained?

e. What will be the economic impact, and the costs and benefits, of

these recordkeeping requirements?

f. If the records listed are not required to be retained, how would

rule compliance be verified?

g. What has been the experience of State and local law enforcement

agencies with respect to record retention requirements? Have such

requirements been useful? If yes, how? If no, why not? What types of

enforcement issues could arise if recordkeeping were not required?

h. What volume of records will have to be maintained to comply with

the requirements of Sec. 310.5(a)? In particular, how many

telemarketing campaigns will the average firm conduct on an annual

basis? How many different scripts are used during an average campaign?

How many consumers are called during an average telemarketing campaign,

and what percentage of the persons called agree to buy goods or

services? How many employee records will have to be maintained by the

average firm engaged in telemarketing?

41. Under Section 310.5(b) of the proposed rule, a seller and a

telemarketer calling on behalf of that seller need not keep duplicative

records, but can enter into a written agreement allocating

recordkeeping responsibilities between themselves. Section 310.5(c) of

the proposed rule sets forth the recordkeeping requirements in the

event of the dissolution, termination, or change in ownership of a

seller or telemarketer.

a. Are these provisions clear, meaningful, and appropriate?

b. What are the advantages or disadvantages to these provisions?

c. What are the current practices of sellers and telemarketers

regarding the distribution of responsibility for maintaining records?

Regarding the maintenance of records in the event of the dissolution,

termination, or change in ownership of a seller or telemarketer?

Section 310.6 Exemptions

42. The proposed rule exempts the solicitation of sales by any

person who engages in fewer than ten telephone sales per year.

a. Is this proposed exemption clear, meaningful, and appropriate?

b. Is the scope of the proposed rule sufficiently limited to exempt

those persons who do not regularly engage in telemarketing?

c. Are there other approaches to limiting the scope of the rule

that would be more useful?

d. Does this exemption pose problems for law enforcement efforts to

stop deceptive or abusive telemarketing acts or practices?

43. The proposed rule also exempts telephonic contacts between

businesses, except such contacts involving the sale of office or

cleaning supplies or certain charitable solicitations.

a. Is this proposed exemption clear, meaningful, and appropriate?

b. Are there other types of goods or services sold in business-to-

business contacts which should not be exempted from the rule?

c. Are there other approaches to limiting the scope of the rule

that would be more useful?

d. Does this exemption pose problems for law enforcement efforts to

stop deceptive or abusive telemarketing acts or practices?

44. Finally, the proposed rule exempts a telephonic contact made

solely by a person when there has been no initial sales contact

directed to that particular person by the seller or

[[Page 8328]] telemarketer, except for such contacts related to certain

employment services, business ventures, investment opportunities, prize

promotions, or credit-related programs.

a. Is this proposed exemption clear, meaningful, and appropriate?

b. Is the scope of the proposed rule sufficiently limited to exempt

businesses, such as restaurants, car rental companies, travel agents,

and providers of services, such as plumbers, that rely on the telephone

for the taking of orders or the scheduling of appointments?

c. Is it appropriate to exclude from this exemption contacts

related to employment services, business ventures, investment

opportunities, prize promotions, or credit-related programs? Are there

other types of goods or services sold through these types of contacts

that should not be exempted from the rule?

d. Is this exemption appropriate for on-line computer information

services? How would this exemption affect advertising on computer

bulletin boards? Is it more appropriate to include all contacts made

over computer information services in the rule?

e. Are there other approaches to limiting the scope of the rule

that would be more useful?

f. Does this exemption pose problems for law enforcement efforts to

stop deceptive or abusive telemarketing?

45. Are there other telemarketing activities, such as the sale of

particular products or other particular kinds of telemarketing,

currently covered by the proposed rule but which should be exempted?

How would the exemption of these firms or activities affect the ability

of law enforcement to stop deceptive or abusive telemarketing acts or

practices? How would such exemptions affect consumers? How would they

benefit the firms exempted from the rule's coverage? How many firms

would be exempted from the coverage of the rule if any proposed change

were adopted?

46. How many firms in the United States sell their products, either

in whole or in part, through telemarketing, as that term is defined in

the proposed rule? How many of these firms engage in telemarketing on

their own behalf? How many employ others to engage in telemarketing for

them? How would the number of firms subject to the rule be changed if

one or more of the exemptions in Sec. 310.6 were eliminated?

Section 310.8 Federal Preemption

47. Under Sec. 310.8 of the proposed rule, State laws are preempted

only when they are in direct conflict with any provision of the rule.

Is this preemption standard clear, meaningful, and appropriate?

Other

48. Is it appropriate for the proposed rule to take effect 30 days

after its date of publication in the Federal Register?

a. Would 30 days be sufficient time to come into compliance with

the rule? Why or why not?

b. For which specific provisions of the rule would compliance be

possible within 30 days, and for which specific provisions would

compliance take longer? Would a staggered effective date be more

appropriate?

c. If 30 days is an insufficient period of time, what time period

would be sufficient?

49. One of the findings which led Congress to pass the

Telemarketing Act was that telemarketing differs from other sales

activities because it can be carried out across State lines without

direct, face-to-face contact with the consumer. Are there new types of

technology by which sales can be made without direct contact between

the buyer and seller? Is the proposed rule broad enough to encompass

such forms of technology? Will the proposed rule requirements be

appropriate and/or feasible for such other technology?

50. What kinds of technological changes may be anticipated in the

area of telemarketing? Will the proposed rule requirements be

appropriate and/or feasible after these technological changes are

implemented?

51. As already noted in Section F, comment is invited on the effect

of the proposed rule with regard to costs, profitability,

competitiveness, and employment of small business entities.

52. To the extent not otherwise addressed by the questions above,

are there any regulatory alternatives that would reduce any adverse

economic impact of the proposed rule, yet fully implement the

Telemarketing Act?

53. What are the aggregate costs and benefits of the proposed rule?

Are there any provisions in the proposed rule that are not necessary to

implement the statute or that impose costs not outweighed by benefits?

Who will benefit and who will bear the cost? Can we expect either the

costs or benefits of the rule to dissipate over time?

54. Does the proposed rule overlap or conflict with other Federal,

State, or local government laws or regulations?

List of Subjects in 16 CFR Part 310

Telemarketing, Trade practices.

Accordingly, it is proposed that chapter I of 16 CFR be amended by

adding a new part 310 to read as follows:

PART 310--TELEMARKETING SALES RULE

Sec.

310.1 Scope of regulations in this part.

310.2 Definitions.

310.3 Deceptive telemarketing acts or practices.

310.4 Abusive telemarketing acts or practices.

310.5 Recordkeeping requirements.

310.6 Exemptions.

310.7 Actions by states and private persons.

310.8 Federal preemption.

310.9 Severability.

Authority: 15 U.S.C. 6101-6108.

Sec. 310.1 Scope of regulations in this part.

This part implements the Telemarketing and Consumer Fraud and Abuse

Prevention Act (15 U.S.C. 6101-6108).

Sec. 310.2 Definitions.

(a) Acquirer means a business organization, financial institution,

or an agent of a business organization or financial institution that

has authority from an organization that operates or licenses a credit

card system to authorize merchants to accept, transmit, or process

payment by credit card through the credit card system for money, goods

or services, or anything else of value.

(b) Attorney General means the chief legal officer of a State.

(c) Business venture means any written or oral business

arrangement, however denominated, including but not limited to a

``franchise,'' as that term is defined in the ``Franchise Rule,'' 16

CFR 436.2(a), which consists of the payment of any consideration for:

(1) The right or means to offer, sell, or distribute goods or

services (whether or not identified by a trademark, service mark, trade

name, advertising, or other commercial symbol); and

(2) The promise of more than nominal assistance to any person or

entity in connection with or incidental to the establishment,

maintenance, or operation of a new business or the entry by an existing

business into a new line or type of business.

The term ``business venture'' does not include any business

arrangement in which persons acquire, or purportedly acquire,

government-issued licenses or interests in one or more businesses

derived from the possession of such licenses.

(d) Cardholder means a person to whom a credit card is issued or

who is authorized to use a credit card on behalf of or in addition to

the person to whom the credit card is issued.

(e) Commission means the Federal Trade Commission.

(f) Credit card means any instrument or device, whether known as a

credit [[Page 8329]] card, credit plate, bank service card, banking

card, check guarantee card, charge card, or debit card, or by any other

name, issued with or without a fee for the use of the cardholder in

obtaining money, goods, services, or anything else of value.

(g) Credit card sales draft means any record or evidence of a

credit card transaction, including but not limited to any paper, sales

record, instrument, or other writing, or any electronic or magnetic

transmission or record.

(h) Credit card system means any method or procedure used to

generate, transmit, or process for payment a credit card sales draft.

(i) Customer means any person who is or may be required to pay for

goods or services offered through telemarketing.

(j) Goods or services means any goods or services, including but

not limited to: Any investment opportunity; any business venture; any

certificate or coupon which may be later exchanged for a product or

service; any membership; any license right; any timeshare or campground

interest; any offer to list a timeshare or campground interest for

sale; any real property interest; any offer to improve a person's

credit record, history, rating, or to obtain an extension of credit;

any charitable service promoted in conjunction with an offer of a

prize, chance to win a prize, or the opportunity to purchase any other

goods or services; any service promoted by an employment agency; any

multi-level marketing service; and any offer of advice or assistance to

a person.

(k) Investment opportunity means anything, tangible or intangible,

excluding a business venture, that is offered, offered for sale, sold,

or traded (1) to be held, wholly or in part, for purposes of profit or

income; or (2) based wholly or in part on representations, either

express or implied, about past, present or future income, profit, or

appreciation. The term ``investment opportunity'' includes, but is not

limited to, any business arrangement where persons acquire, or

purportedly acquire, government-issued licenses or interests in one or

more businesses derived from the possession of such licenses.

(l) Material means likely to affect a person's choice of, or

conduct regarding, goods or services.

(m) Merchant means a person who is authorized under a written

contract with an acquirer to honor or accept, transmit, or process

credit cards in payment for goods or services.

(n) Merchant agreement means a written contract between a merchant

and an acquirer authorizing the merchant to honor or accept, transmit,

or process credit cards in payment for goods or services.

(o) Person means any individual, group, unincorporated association,

limited or general partnership, corporation, or other business entity.

(p) Premium means anything offered or given, independent of chance,

to customers as an incentive to purchase goods or services offered

through telemarketing.

(q) Prize means anything offered, or purportedly offered, to a

person at no cost and with no obligation to purchase goods or services

and given, or purportedly given, by chance.

(r) Prize promotion means:

(1) A sweepstakes or other game of chance; or

(2) An oral or written representation that a person has won, has

been selected to receive, or may be eligible to receive a prize or

purported prize.

(s) Seller means any person who, in connection with telemarketing,

provides or offers to provide goods or services in exchange for

consideration or a donation.

(t) State means any State of the United States, the District of

Columbia, Puerto Rico, the Northern Mariana Islands, and any territory

or possession of the United States.

(u) Telemarketer means any person who, in connection with

telemarketing, initiates or receives a telephonic communication from a

customer.

(v) Telemarketing means a plan, program, or campaign which is

conducted to induce payment for goods or services by use of one or more

telephones (including the use of a facsimile machine, computer modem,

or any other telephonic medium) and which involves more than one

interstate telephone call or connection. The term includes, but is not

limited to, calls initiated by persons in response to postcards,

brochures, advertisements, or any other printed, audio, video,

cinematic or electronic communications by or on behalf of the seller.

The term does not include the solicitation of sales through the mailing

of a catalog which: Contains a written description or illustration of

the goods or services offered for sale; includes the business address

of the seller; includes multiple pages of written material or

illustrations; and has been issued not less frequently than once a

year, when the person making the solicitation does not solicit

customers by telephone but only receives calls initiated by customers

in response to the catalog and during those calls takes orders only

without further solicitation. For purposes of the previous sentence,

the term ``further solicitation'' does not include providing the

customer with information about, or attempting to sell, any other item

included in the same catalog which prompted the customer's call.

(w) Telephone solicitation means the initiation of a telephone call

by a telemarketer to induce payment for goods or services.

(x) Verifiable retail sales price means the actual, bona fide price

at which one or more retailers, in the area of the seller's principal

place of business, has made a substantial number of sales, which the

seller has documented.

Sec. 310.3 Deceptive telemarketing acts or practices.

(a) Prohibited deceptive telemarketing acts or practices.

It is a deceptive telemarketing act or practice and a violation of

this Rule for any seller or telemarketer to engage in the following

conduct:

(1) Before payment is requested for goods or services offered,

failing to disclose any of the following information in the same manner

and form as the payment request:

(i) The total costs, terms, and material restrictions, limitations,

or conditions of receiving any goods or services;

(ii) The quantity of any goods or services; and

(iii) All material terms and conditions of the seller's refund,

cancellation, exchange, or repurchase policies, including, if

applicable, a statement that no such policies exist;

(2) Misrepresenting, directly or by implication, any of the

following:

(i) The total costs, terms, or material restrictions, limitations,

or conditions of receiving any goods or services;

(ii) The quantity of any goods or services;

(iii) Any material aspect of the performance, efficacy, or central

characteristics of any goods or services;

(iv) The duration of any offer made;

(v) The nature or terms of the seller's refund, cancellation,

exchange, or repurchase policies;

(vi) That any person has been selected to receive a prize;

(vii) That a premium is a prize;

(viii) The odds of winning any prize;

(ix) That a seller or telemarketer is in compliance with any

Federal, State, or local law, statute, regulation, or ordinance;

(x) That compliance with any Federal, State, or local law, statute,

regulation, or ordinance constitutes an endorsement or approval of the

seller's or telemarketer's business or conduct;

(xi) Any affiliation, association, connection, or relationship with

law [[Page 8330]] enforcement, a public safety organization, or any

Federal, State, or local government agency;

(xii) The purpose for which the seller or telemarketer will use a

person's checking, savings, share, or similar account number, credit

card account number, social security number, or related information;

(xiii) The nonprofit, tax-exempt, or charitable status, purpose,

affiliation, or identity of the seller or telemarketer;

(xiv) A person's eligibility or likelihood to receive a tax

deduction, loan, or other benefit if the person pays money to the

seller or telemarketer;

(xv) The nature, terms, or existence of any prior affiliation,

association, connection, or relationship with any person;

(xvi) The nature, terms, or existence of any prior purchase or

agreement to purchase by any person;

(xvii) The level of risk, liquidity, markup over acquisition costs,

past performance, or earnings potential of any investment opportunity;

(xviii) The market value of any investment opportunity;

(xix) The likelihood that the market value for an investment

opportunity will either increase or decrease;

(xx) The seller's success in assisting persons to liquidate goods

or services they purchased from the seller, or the profit derived from

such liquidation;

(xxi) That goods or services can or are likely to improve a

person's credit history, credit record, or credit rating, or result in

a person obtaining credit;

(xxii) The eligibility of, or likelihood that, a person, regardless

of that person's credit history, will obtain a loan or other credit-

related service;

(xxiii) That a seller or telemarketer can recover or otherwise

effect or assist in the return of money or any other item of value to a

person; or

(xxiv) Any other information required to be provided under this

Rule;

(3) Misrepresenting, directly or by implication, in connection with

the offer, offer for sale, or sale of any business venture, any of the

following:

(i) The level of earnings;

(ii) The extent or nature of the market for the goods or services

to be sold;

(iii) The nature or availability of any territory;

(iv) The existence, availability, or provision of retail outlets or

accounts for the sale of goods or services;

(v) The existence, availability, or provision of locations or sites

for vending machines, rack displays, or any other sales display;

(vi) The nature or availability of any services offered to secure

any retail outlets, accounts, sites, locations, or displays;

(vii) That any person owns or operates a business venture purchased

from the seller; or

(viii) That a person can give an accurate, independent, description

of his or her experience as an owner or operator of a business venture

purchased from the seller;

(4) Obtaining or submitting for payment from a person's checking,

savings, share, or similar account, a check, draft, or other form of

negotiable paper without the person's express written authorization; or

(5) Obtaining any amount of money from a person through any means,

unless such an amount is expressly authorized by the person.

(b) Assisting and facilitating. (1) It is a deceptive telemarketing

act or practice and a violation of this Rule for a person to provide

substantial assistance or support to any seller or telemarketer when

that person knows or should know that the seller or telemarketer is

engaged in any act or practice that violates this Rule.

(2) Substantial assistance or support to telemarketing for purposes

of Sec. 310.3(b)(1) includes, but is not limited to, the following:

(i) Providing lists of customer contacts to a seller or

telemarketer;

(ii) Receiving consideration in exchange for providing a

testimonial, endorsement, certification, appraisal, or financing, or

for serving as a reference, with respect to any business venture or

investment opportunity offered by a seller;

(iii) Securing retail outlets or accounts for the sale of goods or

services, or locations or sites for vending machines, rack displays, or

any other sales displays, used in connection with any business venture;

(iv) Providing any certificate or coupon which may later be

exchanged for goods or services; or

(v) Providing any script, advertising, brochure, promotional

material, or direct marketing piece to be used in telemarketing.

(c) Credit card laundering. It is a deceptive telemarketing act or

practice, and a violation of this Rule, for:

(1) A merchant to present to or deposit into, or cause another to

present to or deposit into, the credit card system for payment, a

credit card sales draft generated by a telemarketing transaction that

is not the result of a telemarketing credit card transaction between

the cardholder and the merchant;

(2) Any person to employ, solicit, or otherwise cause a merchant or

an employee, representative, or agent of the merchant, to present to or

deposit into the credit card system for payment, a credit card sales

draft generated by a telemarketing transaction that is not the result

of a telemarketing credit card transaction between the cardholder and

the merchant; or

(3) Any person to obtain access to the credit card system through

the use of a business relationship or an affiliation with a merchant,

when such access is not authorized by the merchant agreement.

Sec. 310.4 Abusive telemarketing acts or practices.

(a) Abusive conduct generally. It is an abusive telemarketing act

or practice and a violation of this Rule for any seller or telemarketer

to engage in the following conduct:

(1) Threats or intimidation;

(2) Providing for or directing a courier to pick up payment from a

customer;

(3) Requesting or receiving payment of any fee or consideration for

goods or services represented to improve a person's credit history,

credit record, or credit rating until:

(i) The term of the contract, or time frame in which the seller has

represented all of the goods or services will be provided to that

person, has expired; and

(ii) The seller has provided the person with documentation:

(A) From the original furnisher or provider of the information to

the consumer reporting agency, confirming that the promised results

have been achieved; or

(B) In the form of a consumer report from the consumer reporting

agency demonstrating that the promised results have been achieved, such

report having been issued more than six months after the results were

achieved. Nothing in this Rule alters the requirement in the Fair

Credit Reporting Act, 15 U.S.C. 1681, that a consumer report may only

be obtained for a specified permissible purpose.

(4) Requesting or receiving payment of any fee or consideration for

goods or services represented to recover or otherwise assist in the

return of money or any other item of value to a person until three (3)

days after such money or other item is delivered to that person. This

provision shall not apply to goods or services provided to a person by

a licensed attorney or licensed private investigator pursuant to a

written agreement with that person;

(5) Requesting or receiving payment of any fee or consideration in

advance of obtaining a loan or any credit service when the seller or

telemarketer has guaranteed or represented a high likelihood of success

in obtaining or [[Page 8331]] arranging a loan or credit service for a

person;

(6) Failing to distribute all prizes or purported prizes offered in

a prize promotion, within 18 months of the initial offer to any person;

(7) Offering or selling goods or services through a telephone

solicitation to a person who previously has paid the same seller for

goods or services, until all terms and conditions of the initial

transaction have been fulfilled, including but not limited to the

distribution of all prizes or premiums offered in conjunction with the

initial transaction; or

(8) Identifying a person as a reference for a business venture

unless:

(i) Such person has actually purchased the business venture;

(ii) Such person has operated that business venture for a period of

at least six (6) months, or the seller or telemarketer discloses the

length of time the person has operated such business venture; and

(iii) Such person does not receive consideration for any statements

made to prospective business venture purchasers.

(b) Pattern of calls. (1) It is an abusive telemarketing act or

practice and a violation of this Rule for a telemarketer to engage in,

or for a seller to cause a telemarketer to engage in, the following

conduct:

(i) Without a person's prior consent, calling that person's

residence to offer, offer for sale, or sell, on behalf of the same

seller, the same or similar goods or services more than once within any

three (3) month period. This requirement does not apply to attempted

calls which do not reach a person or to calls made solely to verify a

previous telephone sale; or

(ii) Calling a person's residence when that person previously has

stated that he or she does not wish to receive telephone solicitations

made by or on behalf of the seller whose goods or services are being

offered.

(2) A seller or telemarketer will not be liable for violating

Sec. 310.4(b)(1) once in any calendar year per person called if:

(i) It has established and implemented written procedures to comply

with Sec. 310.4(b)(1) (i) and (ii);

(ii) It has trained its personnel in the procedures established

pursuant to Sec. 310.4(b)(2)(i);

(iii) The seller, or the telemarketer acting on behalf of the

seller, has maintained and recorded lists of persons who may not be

contacted, in compliance with Sec. 310.4(b)(1) (i) and (ii); and

(iv) Any subsequent call is the result of administrative error.

(c) Calling time restrictions. Without the prior consent of a

person, it is an abusive telemarketing act or practice and a violation

of this Rule for a telemarketer to engage in telephone solicitations to

a person's residence at any time other than between 8 a.m. and 9 p.m.

local time at the called person's location.

(d) Required oral disclosures. It is an abusive telemarketing act

or practice and a violation of this Rule for a telemarketer to fail to

make any oral disclosures set forth in this section.

(1) All telephone solicitations shall begin by disclosing:

(i) The caller's true first and last name, the seller's name, and

that the purpose of the call is to sell goods or services; or

(ii) If a telephone solicitation includes a charitable

solicitation, the caller's true first and last name, the telemarketer's

name, the telemarketer's status as a paid professional fundraiser, the

seller's name, that the purpose of the call is to solicit charitable

donations, and if other goods or services are offered, that the purpose

of the call is also to sell goods or services.

(2) If a caller verifies a telemarketing sale, the caller verifying

the sale must repeat the disclosures required under Sec. 310.3(a)(1).

(3) Any telemarketing which includes a prize promotion must

disclose, in addition to all other disclosures required under this

Section, the following information:

(i) That no purchase or payment is necessary to win;

(ii) The verifiable retail sales price of each prize offered or a

statement that the retail sales price of the prize offered is less than

$20.00; and

(iii) The odds of winning each prize offered.

(4) Any telemarketing which includes an offer of a premium must

disclose, in addition to all other disclosures required under this

Section, the verifiable retail sales price of such premium or

comparable item, or a statement that the retail sales price of the

premium is less than $20.00.

(e) Written disclosures/acknowledgements. It is an abusive

telemarketing act or practice and a violation of this Rule for a seller

or telemarketer to fail to make any written disclosures set forth in

this section.

(1) Prize promotions. If a seller or telemarketer conducts a prize

promotion, the seller or telemarketer may not request that a person pay

for goods or services, or accept a payment in any form from a person,

without first providing the person with a written disclosure, in

duplicate, and receiving from the person a written acknowledgement that

the person has read the disclosure. The information shall be disclosed

on one page, in not less than 10-point type (unless otherwise noted),

and of a color or shade that readily contrasts with the background of

the notice. This disclosure shall be sent in an envelope that contains

no writing representing that the person to whom the envelope is

addressed has been selected or may be eligible to receive a prize and

shall contain no other enclosures except for a return envelope, if the

seller or telemarketer wishes to include such an envelope. This

disclosure must contain the following information:

(i) The seller's legal name and telephone number, and the complete

street address of the seller's principal place of business;

(ii) If the seller has been in operation under any other name(s),

each such name and the length of time the seller has operated under

each name;

(iii) The verifiable retail sales price of each prize offered or a

statement that the retail sales price of the prize offered is less than

$20.00;

(iv) The odds of winning each prize offered and the number of

persons who will receive each prize;

(v) The total amount and description of any shipping or handling

fees or any other charges that must be paid to receive or use a prize;

(vi) A complete description of any restrictions, conditions, or

limitations on eligibility to receive or use a prize, including all

steps a person must take to receive the most valuable prize offered;

(vii) The statement: ``No purchase or payment is necessary to

win,'' with a description of the no-purchase entry method;

(viii) A statement that a list of winners is available and the

address to which a person may write to obtain such a list;

(ix) A statement that it is a violation of this Rule for the seller

to accept payment in any form unless the seller has received from the

person the written disclosure acknowledgment required pursuant to

Sec. 310.4(e)(1); and

(x) The statement: ``I have read and understand this disclosure,''

in at least 12-point bold face type immediately preceding a signature

block.

(2) Investment opportunities. (i) If a seller or telemarketer

offers for sale any investment opportunity, the seller or telemarketer

may not request that a person pay, or accept a payment in any form from

a person, for that investment opportunity without first providing the

person with a written disclosure, in [[Page 8332]] duplicate, and

receiving from the person a written acknowledgement that the person has

read the disclosure. The information shall be disclosed in not less

than 10-point type (unless otherwise noted), of a color or shade that

readily contrasts with the background of the notice, and segregated

from all other information. This disclosure shall be sent in an

envelope that contains no other enclosures except for a return

envelope, if the seller or telemarketer wishes to include such an

envelope. This disclosure must contain the following information:

(A) The seller's legal name and telephone number, and the complete

street address of the seller's principal place of business;

(B) If the seller has been in operation under any other name(s),

each such name and the length of time the seller has operated under

each name;

(C) The complete cost to make the investment and a detailed list of

all present charges and any anticipated future charges;

(D) A description of all known risks associated with the investment

opportunity, including the possibility that additional payments might

be required for a person purchasing the investment opportunity to

retain that person's interest in the investment opportunity, to realize

the projected or stated returns of the investment opportunity, to

prevent total loss of the investment opportunity, or for any other

reason;

(E) The length of time the seller has been in business and has

offered the particular investment opportunity;

(F) A statement disclosing whether or not the seller is licensed

and, if so, with whom, the type of license, and the length of time the

seller has held such license;

(G) A statement that it is a violation of this Rule for the seller

to effect an investment transaction unless the seller has received from

the person the written disclosure acknowledgement required pursuant to

Sec. 310.4(e)(2); and

(H) The statement: ``I have read and understand this disclosure,''

in at least 12-point bold face type immediately preceding a signature

block.

(ii) If a seller or telemarketer offers for sale any investment

opportunity involving tangible assets, the following additional

information must be included in the written disclosure set forth in

Sec. 310.4(e)(2)(i):

(A) The percentage markup that the seller places on the item above

its own cost in acquiring the item; and

(B) An estimate of the value that persons are likely to receive if

they were to liquidate the asset through a market sale immediately

following the purchase. All such estimates must be substantiated by

competent and reliable evidence.

(iii) If a seller or telemarketer offers for sale any investment

opportunity involving tangible assets sold on credit or leverage, the

following additional information, as well as the information set forth

in Sec. 310.4(e)(2)(ii), must be included in the written disclosure set

forth in Sec. 310.4(e)(2)(i):

(A) The percentage of a person's down payment that would be devoted

to fees and costs by the end of the first six months after the

investment is made;

(B) The percentage of a person's down payment that would be devoted

to fees and costs by the end of the first year after the investment is

made; and

(C) A statement that all such investment opportunities are

extremely risky.

(iv) If a seller or telemarketer offers for sale any investment

opportunity involving the acquisition of government-issued licenses or

interests in businesses derived from the possession of such licenses,

the following additional information must be included in the written

disclosure set forth in Sec. 310.4(e)(2)(i):

(A) All material terms and limitations of any government-issued

license(s) that serve as the basis for the investment opportunity,

including but not limited to whether and to whom the license or

licenses have been issued;

(B) The percentage of the person's payment that will be used to

acquire any applicable license(s) from the licensee(s) or from any

person or entity not affiliated in any way with the seller; and

(C) The percentage of the person's payment that will be used to

capitalize any business derived from such license(s).

(f) Distribution of lists. It is an abusive telemarketing act or

practice and a violation of this Rule for any person who is subject to

any federal court order resolving a case in which the complaint alleged

a violation of Secs. 310.3, 310.4(a) or 310.4(e) of this Rule, and the

court did not dismiss or strike all such allegations from the case, to

sell, rent, publish, or distribute any list of customer contacts from

that person.

Sec. 310.5 Recordkeeping requirements.

(a) Any seller or telemarketer shall keep, for a period of 24

months from the date the record is produced, the following records

relating to its telemarketing activities:

(1) All advertising, brochures, telemarketing scripts, and

promotional materials;

(2) The name and address of each prize recipient and the prize

awarded;

(3) The name and address of each customer, the goods or services

purchased, the date such goods or services were shipped or provided,

and the amount paid by the customer for the goods or services;

(4) The name, home address and telephone number, and job title(s)

for all current and former employees directly involved in telephone

sales; and

(5) Any written notices, disclosures, and acknowledgements required

to be provided or received under this Rule.

(b) Failure to keep all records required by Sec. 310.5(a) shall be

a violation of this Rule. The seller and telemarketer calling on behalf

of the seller are not required to keep duplicative records if the

seller and telemarketer have entered into a written agreement

allocating responsibility for the recordkeeping required by this

Section. When a seller and telemarketer have entered into such an

agreement, the terms of that agreement shall govern. If the agreement

is unclear as to whom must maintain any required record(s), the seller

shall be responsible for keeping such record(s).

(c) In the event of any dissolution or termination of the seller's

or telemarketer's business, the principal of that seller or

telemarketer shall maintain all records as required under this Section.

In the event of any sale, assignment, succession, or other change in

ownership of the seller's or telemarketer's business, the successor

business shall maintain all records required under this Section.

Sec. 310.6 Exemptions.

The following acts or practices are exempt from this Rule:

(a) The solicitation of sales by any person who engages in fewer

than ten (10) sales each year through the use of the telephone;

(b) Telephonic contacts between businesses, except such contacts

involving the sale of office or cleaning supplies or the inducement of

payment for any charitable service promoted in conjunction with an

offer of a prize, chance to win a prize, or the opportunity to purchase

any goods or services; and

(c) A telephonic contact made solely by a person when there has

been no initial sales contact directed to that particular person, by

telephone or otherwise, from the seller or telemarketer; provided,

however, that this exemption does not apply to such

[[Page 8333]] contacts related to employment services where the seller

or telemarketer requests or receives payment prior to providing the

promised services, business ventures, investment opportunities, prize

promotions, or credit-related programs.

Sec. 310.7 Actions by States and private persons.

Any attorney general or other officer of a State authorized by the

State to bring an action under the Telemarketing and Consumer Fraud and

Abuse Prevention Act, and any private person who brings an action under

that Act, shall serve written notice of its action on the Commission,

if feasible, prior to its initiating an action under this Rule. The

notice shall be sent to the Office of the Director, Bureau of Consumer

Protection, Federal Trade Commission, Washington, D.C. 20580, and shall

include a copy of the State's or private person's complaint and any

other pleadings to be filed with the court. If prior notice is not

feasible, the State or private person shall serve the Commission with

the required notice immediately upon instituting its action.

Sec. 310.8 Federal preemption.

Nothing in this Rule shall be construed to preempt any State law

that is not in direct conflict with any provision of this Rule.

Sec. 310.9 Severability.

The provisions of this Rule are separate and severable from one

another. If any provision is stayed or determined to be invalid, it is

the Commission's intention that the remaining provisions shall continue

in effect.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 95-3537 Filed 2-13-95; 8:45 am]

BILLING CODE 6750-01-P