[Federal Register Volume 60, Number 110 (Thursday, June 8, 1995)]
[Proposed Rules]
[Pages 30406-30428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13814]




[[Page 30405]]

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Part III





Federal Trade Commission





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16 CFR Part 310



Telemarketing Sales Rule; Proposed Rule

  Federal Register / Vol. 60, No. 110 / Thursday, June 8, 1995 / 
Proposed Rules  
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[[Page 30406]] 


FEDERAL TRADE COMMISSION

16 CFR Part 310


Telemarketing Sales Rule

AGENCY: Federal Trade Commission.

ACTION: Revised notice of proposed rulemaking.

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SUMMARY: In this document, the Federal Trade Commission (``FTC'' or 
``Commission'') issues a revised notice of proposed rulemaking to 
implement the Telemarketing and Consumer Fraud and Abuse Prevention Act 
(``Telemarketing Act'' or ``the Act''). Section 3 of that Act directs 
the FTC to prescribe rules, within 365 days of enactment of the Act, 
prohibiting deceptive telemarketing acts or practices and other abusive 
telemarketing acts or practices.

DATES: Written comments must be submitted on or before June 30, 1995. 
Due to the time constraints of this rulemaking proceeding, the 
Commission does not contemplate any extensions of this comment period 
or any additional periods for written comment or rebuttal comment.

ADDRESSES: Six paper copies of each written comment should be submitted 
to the Office of the Secretary, Room 159, Federal Trade Commission, 
Washington, D.C. 20580. To encourage prompt and efficient review and 
dissemination of the comments to the public, all comments also should 
be submitted, if possible, in electronic form, on either a 5\1/4\ or a 
3\1/2\ inch computer disk, with a label on the disk stating the name of 
the commenter and the name and version of the word processing program 
used to create the document. (Programs based on DOS are preferred. 
Files from other operating systems should be submitted in ASCII text 
format to be accepted.) Individuals filing comments need not submit 
multiple copies of comments in electronic form. Submissions should be 
captioned: ``Proposed Telemarketing Sales Rule,'' FTC File No. R411001.

FOR FURTHER INFORMATION CONTACT: Judith M. Nixon, (202) 326-3173, or 
David M. Torok, (202) 326-3140, Division of Marketing Practices, Bureau 
of Consumer Protection, Federal Trade Commission, Washington, D.C. 
20580.

SUPPLEMENTARY INFORMATION:

Section A. Background

    On August 16, 1994, the President signed into law the Telemarketing 
Act,\1\ which directs the Commission to prescribe rules, within 365 
days of enactment of the Act, prohibiting deceptive and abusive 
telemarketing acts or practices. The Commission published a notice of 
proposed rulemaking (``NPR'') in the Federal Register on February 14, 
1995.\2\

    \1\ 15 U.S.C. 6101-08.
    \2\ 60 FR 8313-33.
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    In response to the NPR, the Commission received over 300 comments 
from industry, law enforcement and consumer representatives, as well as 
from individual consumers and businesses.\3\ In general, consumers 
commented that the initially proposed Rule did not go far enough to 
stop unwanted telemarketing calls. Law enforcement officials uniformly 
praised the Commission's proposal for its thorough and useful treatment 
of the various means employed by fraudulent telemarketers to get 
consumers' money through deception or abuse. Finally, most industry 
representatives generally maintained that the initially proposed Rule 
unnecessarily burdened legitimate businesses, adding needless costs 
through overbroad proposals that failed to aim specifically at 
deceptive and abusive telemarketing practices.

    \3\ A list of the commenters, and the acronyms which will be 
used to identify each commenter in this notice, is appended to 
Section A of this notice.
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    Between April 18 and 20, 1995, staff of the Commission conducted a 
public workshop conference in Chicago, Illinois. Twenty associations or 
individual businesses, each with an affected interest and ability to 
represent others with similar interests, were selected to engage in a 
roundtable discussion.\4\ Howard Bellman served as the conference 
facilitator. Participants discussed various aspects of the initially 
proposed Rule, addressed each other's comments and questions, and 
responded to questions from Commission staff members. The conference 
was open to the public, and more than 150 observers attended. Oral 
comments from members of the public were invited each day, and 37 
individuals spoke during the course of the three-day conference. The 
entire proceeding was transcribed, and the transcript was placed on the 
public record.\5\

    \4\ The selected participants were: AARP, ATA, ATFA, APAC, ANA, 
DMA, DSA--Nev., DSA, EMA, ISA, ICTA, MPA, Monex, NAAG, NACAA, NAPA, 
NCL, NRF, PMAA, and USPS.
    \5\ References to the conference transcript are cited as ``Tr.'' 
followed by the appropriate page designation. References to comments 
are cited as ``[acronym of commenter] at [page number].''
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    On May 3, 1995, Commission staff briefed all the Commissioners, in 
an open meeting, about the rulemaking process, the issues raised in the 
written comments and the public workshop, and stated possible 
approaches to address the issues commenters raised. The briefing was 
transcribed and the transcript was placed on the public record. The 
entire public record to date, including the comments, the conference 
transcript, and the Commission open briefing transcript is available on 
CD-ROM and has been placed on the Internet.\6\

    \6\ The FTC gopher server address is CONSUMER.FTC.GOV 2416. For 
World Wide Web access, the URL is GOPHER://CONSUMER.FTC.GOV:2416.
    Based on the Act's legislative history, the written comments 
received, and the information learned at the workshop conference, the 
Commission has decided to modify its regulatory approach in this 
revised proposed Rule. The Commission believes this modification is 
necessary to effectuate appropriately Congress' directive that the FTC 
in its rulemaking ``develop criteria of behavior'' and ``issue a * * * 
rule [that is] flexible enough to encompass the changing nature of 
[deceptive] activity, while at the same time providing telemarketers 
with guidance as to the general nature of the prohibited conduct.'' \7\ 
The Commission's revised approach addresses many commenters' concerns 
that the initially proposed Rule cast too broad a net and imposed 
unnecessary burdens on the legitimate telemarketing industry without 
adequately focussing on deceptive and abusive telemarketing practices. 
Additionally, the revised proposed Rule addresses law enforcement 
concerns that the Rule needs to provide enough enforcement flexibility 
to reach deceptive and abusive telemarketing acts or practices 
currently unknown. The Commission believes additional public comment on 
a revised proposal will assist in producing a final Rule that most 
effectively prohibits deceptive and abusive telemarketing practices, 
while not unduly burdening legitimate businesses.

    \7\ H. R. Rep. No. 20, 103rd Cong., 1st Sess. 8; S. Rep. No. 80, 
103rd Cong., 1st Sess. 9 (hereinafter referred to as ``House 
Report'' and ``Senate Report,'' respectively).
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    Section B of this notice discusses, on a section-by-section basis, 
the Commission's revised proposed Rule.

Appendix

List of Commenters and Acronyms

Acronym and Commenter

ADS  ADS Teleservices
ADVANTA  Advanta Corp.
ALIC  Allstate Life Insurance Co.
AMCI  Allstate Motor Club., Inc.
A-MARK  A-Mark Precious Metals, Inc.
AAF  American Advertising Federation [[Page 30407]] 
AAAA  American Association of Advertising Agencies, Inc.
AARP  American Association of Retired Persons
ABA  American Bankers Association
ACRA  American Car Rental Association
ACA  American Cemetery Association
ADC  American Distributing Company
AMEX  American Express Company
AFSA  American Financial Services Association
AIG  American Impact Group
APN  American Publishers Network, Inc.
ARDA  American Resort Development Association
ASAE  American Society of Association Executives
ASTA  American Society of Travel Agents
ATA  American Telemarketing Association
ATFA  American Telephone Fundraisers Association
AWMI  American West Marketing, Inc.--Barry Engels
AWMI  American West Marketing, Inc.--Sandra Sawyer
AMERINET  AmeriNet, Inc.
ANDREWS  Andrews Satellite & Home Theater
ANN ARBOR  Ann Arbor News
APAC  APAC TeleServices
ABI  Archbold Buckeye, Inc.
AMOC  Arizona Mail Order Company, Inc.
ARA  Arizona Retailers Association
A&H  Arter & Hadden
ACB  Associated Credit Bureaus, Inc.
AAP  Association of American Publishers
AITS  Association of Independent Television Stations, Inc.
ANA  Association of National Advertisers
ATLANTA  Atlanta Journal & Atlanta Constitution
AT&T  AT&T Corp.
AUTOSCRIBE  AutoScribe Corporation
BAGGS  Baggs, Andrew
BAGWELL  Bagwell, Linda L.
BOB  Bank of Boston
BAY CITY  Bay City Times
BELLEVILLE  Belleville News-Democrat
BMCA  Beneficial Management Corporation of America
BNC  Birmingham News Company
BRADLEY  Bradley, MJP
BRANTLEY  Brantley, Lamar
BREWSTER  Brewster, The Honorable Bill K.
BFC  Brown Forman Corporation
BPIA  Business Products Industry Association
SAMPLER  Business Sampler Advertising, Inc.
BSA  Business Software Alliance
CAPITAL  Capital Press
CAPUTO  Caputo, Harriet Q.
CCA  Career College Association
CME  Center for Media Education
CHASE  Chase Manhattan Bank (USA)
CHEMICAL  Chemical Bank
CHERNIKOFF  Chernikoff, J.D.
CDI  Circulation Development, Inc
CITICORP  Citicorp/Citibank
COALITION  ``Coalition''--various companies
CPA  Colorado Press Association
CHC  Columbia House Company
COMCAST  Comcast Corporation/Jones Intercable
CA  Commercial Appeal
CBA  Consumer Bankers Association
CFA  Consumer Federation of America
CONWAY  Conway National Bank
CORNELL  Cornell Group
CMOR  Council for Marketing and Opinion Research
COX  Cox Newspapers, Inc.
CRILLY  Crilly, Thomas W.
CUCI  CUC International
DCR  Daily Court Review
DAILY NEWS  Daily News
DMBE  Department of Marketing and Business Environment, Florida 
International University
DMI  DialAmerica Marketing, Inc.
DMT&H  Dickinson, Mackaman, Tyler & Hagan, P.C.
DW&Z  Dierman, Wortley & Zola, Inc.
DSA-NEV.  Direct Sales Association of Nevada
DSI  Direct Sales International (2 copies of letter, 1 of comment)
DMA  Direct Marketing Association
DMSI  Direct Marketing Services, Inc.
DSA  Direct Selling Association
DIVERSIFIED  Diversified Marketing Service, Inc.
DONREY  Donrey Media Group
DOUBLEDAY  Doubleday Book & Music
DOW JONES  Dow Jones & Co., Inc.
OREGONIAN  East Oregonian
BAUER  Eddie Bauer, Inc.
EDMUND  Edmund Scientific Company
EMA  Electronic Messaging Association
EMMONS  Emmons, Ethel B.
EQUIFAX  Equifax Credit Information Services, Inc.
EHRLICH  Ehrlich, The Honorable Robert L., Jr.
ERIE  Erie Construction Mid-West, Inc.
ERNST  Ernst, Michael
F&W  F&W Publications
FedEx  Federal Express
FRB  Federal Reserve Banks
FRB-SF  Federal Reserve Bank of San Francisco
FINGERHUT  The Fingerhut Companies
FLINT  Flint Journal
FORNEY  Forney Messenger Inc.
FRANKLIN  Franklin Mint
GABRIEL  Gabriel, Mrs. Harry J., Jr.
GANNET  Gannett Co., Inc.
GE  GE Appliances
GA OCA  Georgia Office of Consumer Affairs
GRA  Georgia Retail Association
GIBSON  Gibson, Stewart & Jean
GGP  Gift Gallery Promotions
GCM  Good Cents Marketing
GREENE  Greene, Russ
GRIDER  Grider, Felicia
GROLIER  Grolier TeleMarketing, Inc.
GHA  Group Health Association of America
GUTHY  Guthy-Renker
HHDM  Harte-Hanks Direct Marketing
HHMS  Harte-Hanks Marketing Services
HAWES  Hawes Center, Inc.
HEAD  Head, W.L.
HEARST  Hearst Magazines
HNM&T  Hearst New Media & Technology
HELMS  Helms, The Honorable Jesse
HERRERA  Herrera, Barbara
HERTZ  Hertz Corporation
HSN  Home Shopping Network
HOUSEHOLD  Household Bank
HFC  Household Finance Corp.
HII  Household International, Inc.
H&H  Howe & Hutton, Ltd.--March 14 comment
H&H  Howe & Hutton, Ltd.--March 30 comment
HUDSON  Hudson City Savings Bank
HUNTINGTON  Huntington National Bank
HUNTSVILLE  Huntsville Times/Huntsville News
IDAG  Idaho Attorney General
IMSP  IMS Promotions
IRC  Indiana Retail Council, Inc.
ICTA  Industry Council for Tangible Assets
IMC  InfoCision Management Corporation
INFOMALL  Infomall TV Network
IMSI  Infomercial Monitoring Service, Inc.
INSP  Inspirational Network
ISA  Interactive Services Association
IBM  International Business Machines Corporation
IFI  International Fabricare Institute
IFA  International Franchise Association
IMS  International Magazine Service of Northern California
IRL  International Readers League of Indianapolis
IH  Investment Hotlines
IA DOJ  Iowa Department of Justice
ITI  ITI Marketing Services, Inc.
PENNEY  J.C. Penney Company, Inc.
JACKSON  Jackson Citizen Patriot
RIVERS  Joan Rivers Products, Inc.
JOHNSTON  Johnston, Gloria
KALAMAZOO  Kalamazoo Gazette
KAPLAN  Kaplan, Jules
KIKENDALL  Kikendall, Thomas J.
KLEID  Kleid Company
KNIGHT  Knight Ridder
KNOXVILLE  Knoxville News Sentinel Co.--Mashburn
KNOXVILLE  Knoxville News Sentinel Co.--Stevens
LANDMARK  Landmark Community Newspapers, Inc.
LARK  Lark In The Morning
LAURENZA  Laurenza, Joseph
LCS  LCS Direct Marketing Service
LEIBACHER  Leibacher, Philip J. (2 copies)
LENOX  Lenox, Inc.
LA TIMES  The Los Angeles Times
LOWE'S  Lowe's Studio
MPA  Magazine Publishers of America
MSSC  Magazine Subscription Sales Coalition
MRG  Marketing Response Group & Laser Co., Inc.
MARKETLINK  Marketlink
MARTIN  Martin Direct
MASTERCARD  Mastercard Int'l, Inc. & Visa USA, Inc.
MBNA  MBNA America Bank, N.A.
MCI  MCI Telecommunications Corporation
MCKNIGHT  McKnight Management Company
MELLON  Mellon Bank Corporation
MELTON  Melton, Carol A.
MM  Merchant Masters
MS  Merchant Sampler
MGCB  Merchants Gift Check Book
MGC  Merchants Golden Checks
MP  Merchants Promotions
M-I  Messenger-Inquirer
MRA  Michigan Retailers Association
MILLS  Mills, Susan
MS PRESS  The Mississippi Press [[Page 30408]] 
MOPA  Missouri Press Association
MORA  Missouri Retailers Association
MOBILE  Mobile Media
MPR  Mobile Press Register
MONEX  MONEX
WARD  Montgomery Ward
MMC  Moore Medical Corporation
MORSE  Morse, Larry E.
MBAA  Mortgage Bankers Association of America
MPG  MPG Newspapers
MTD  MTD Services
MURRAY  Murray Ledger & Times
MUSKEGON  Muskegon Chronicle
MUTUAL  Mutual of Omaha Companies
NAAG  National Association of Attorneys General
NACAA  National Association of Consumer Agency Administrators
NAR  National Association of Realtors
NAPA  National Automated Payment Association
NAMA  National Automatic Merchandising Association
NBR  National Bank of the Redwoods
NCTA  National Cable Television Association, Inc.
NCL  National Consumers League
NCMC  National Credit Management Corporation
NFIB  National Federation of Independent Business
NFN  National Federation of Nonprofits
NFA  National Futures Association
NNA  National Newspaper Association
NPS  National Promotional Services
NRF  National Retail Federation
NSF  National Science Foundation
NB  NationsBank
NIE  Nationwide Insurance Enterprise
NPC  Neighborhood Periodical Club
NETWORK  Network Direct
NHI  New Hampton, Inc.
NYSCPB  New York State Consumer Protection Board
NYTC  New York Times Company
NEWS  News Publishing Company
NAA  Newspaper Association of America
NIMA  NIMA International
NORDSTROM  Nordstrom
NARDA  North American Retail Dealers Association
NASAA  North American Securities Administrators Association
NYNEX  NYNEX
OHIO  Ohio Health Care Products, Inc.
OLAN  Olan Mills, Inc.
GLOBE  Old Globe
OPC  Oregonian Publishing Company
ORKIN  Orkin Lawn Care
ORKIN  Orkin Maid
ORKIN  Orkin Pest Control--March 23 comment
ORKIN  Orkin Pest Control--March 30 comment
ORKIN  Orkin Plantscaping
PACESETTER  Pacesetter Corporation
PTG  Pacific Telesis Group
PATRIOT  Patriot News
PEPPERTREE  Peppertree Resorts, Ltd.
PLP  Personal Legal Plans
PETERSON,P  Peterson, Phyllis G.
PETERSON,R  Peterson, Rosie Marie
PPI  Phone Programs Inc.
PLAIN  Plain Dealer
Plantscaping (see Orkin)
PCI  Private Citizen, Inc. (initial letter & comment)
Private Citizen (addendum)
PCH  Programmers Clearing House
PMAA  Promotional Marketing Association of America & Incentive 
Federation
PRUDENTIAL  Prudential Home Mortgage
PCH  Publishers Clearing House
PDW  Publishers Discount Warehouse--Barclay Fisher
PDW  Publishers Discount Warehouse--Gina Lewis
PDW  Publishers Discount Warehouse--J.B. Owen
PDW  Publishers Discount Warehouse--David Rains
PDW  Publishers Discount Warehouse--Jimmy Riggle
P&C  Pullman & Comley
QUICKCARD  QuickCard Systems
QVC  QVC, Inc.
RDA  Reader's Digest Association, Inc.
SEARCHLIGHT  Record Searchlight--Kjellin
SEARCHLIGHT  Record Searchlight--Dawson
REGAL COMM  Regal Communications Corporation
REGAL GROUP  Regal Group
REICHWEIN  Reichwein, Kay
RPOA  Resort Property Owners Association
RPI  Resource Publications, Inc.
RICE  Rice, Rodger D. and Barbara L.
RICH  Rich, David G.
RITCHIE  Ritchie Swimwear
RMH  RMH Telemarketing
RODRIGUEZ  Rodriguez, Ann
ROLLINS  Rollins Inc. (2 copies)
RPS  Rollins Protective Services
WEBER  Ron Weber and Associates
ROTENBERG  Rotenberg, Marion
SSI  SafeCard Services, Inc.
SAGINAW  Saginaw News
SFNA  San Francisco Newspaper Agency
SEARS  Sears Merchandise Group
SIASSR  Securities Industry Association
SCIC  Service Contract Industry Council (SCIC)
SHI  Shop at Home
SHULMAN  Shulman, Betty
SIGNATURE  The Signature Group
S&S  Simpson & Simpson, P.C.
SMITH  Smith, R.
SDRA  South Dakota Retailers Association
SBTC  Southwestern Bell Telephone Company
SPIEGEL  Spiegel, Inc.
SPRINT  Sprint Corporation
STAR  Star-Ledger
SIA  Staten Island Advance
SMSI  Strategic Marketing Specialists, Inc.
STUART  Stuart News
S&W  Sullivan & Worcester
SUN  Sun Newspapers
SSE  Superstar Satellite Entertainment
SUTTON  Sutton Marketing
SYRACUSE  Syracuse Newspapers
TALK800  Talk800
TMGI  Telatron Marketing Group, Inc.
TELENATIONAL  Telenational Marketing
TCPS  Telephone Check Payment Systems
TPA  Tennessee Press Association, Inc.
TEZANOS  Tezanos, Maritza
TCI  Thomas Cook, Inc.
TIEDT  Tiedt, Thomas N.
TIMEWARNER  Time Warner
T-I  Times-Independent
TP  Times Picayune
TITUS  Titus, The Honorable Dina (2 letters)
TMG  TMG (Television Marketing Group)
TMW  TMW Marketing
TMO  Total Marketing Outbound, Inc.
TUPPERWARE  Tupperware Worldwide (2 copies)
TVMARKET  TV Marketplace, Inc.
UCI   United Color, Inc.
UPS   United Parcel Service, Inc.
USTA   United States Telephone Association
UMI   Universal Media Inc.
USD   University of San Diego, Center for Public Interest Law
USCE   U.S. Coin Exchange
 U.S. Coin Exchange (addendum)
USPS   U.S. Postal Service
USWI   US West, Inc.
VIACOM   Viacom International
VINCENT   Vincent, Chorey, Taylor & Feil
VIRGINIA   Virginia State Corporation Commission
WACHOVIA
    Wachovia Corporation
WASHINGTON   The Washington Post
WAUGH   Waugh, John C.
WTO   West Telemarketing Outbound
WU   Western Union
WESTVACO   Westvaco, Corp.
WILLIAMS   Williams Television Time
WTC   Wilmington Trust Company
WILSON   Wilson Daily Times
WINCHESTER   Winchester Sun
WINDSOR   Windsor Vineyards
WINONA   Winona Post
WFNNB   World Financial Network National Bank
YOUNGBERG   Youngberg, Arthur D.

Section B. Discussion of the Revised Proposed Rule

Section 310.1  Scope of the Regulations

    Section 310.1 of the revised proposed Rule makes clear that this 
Rule does not apply to any activity excluded from the Commission's 
jurisdiction.8 Thus, pursuant to the following jurisdictional 
limitations set forth in Section 5(a)(2) of the Federal Trade 
Commission Act [''FTC Act''],9 this Rule does not apply to:

    \8\ The Telemarketing Act states that ``no activity which is 
outside the jurisdiction of the [FTC] Act shall be affected by this 
Act.'' 15 U.S.C. 6105(a).
    \9\ 15 U.S.C. 45(a)(2).
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Banks, savings and loan institutions described in section 
18(f)(3),[10] Federal credit unions described in section 
18(f)(4),[11] common carriers subject to the Acts to regulate 
commerce, air carriers and foreign air carriers subject to the 
Federal Aviation Act of 1958, and persons, partnerships, or 
corporations insofar as they are subject to the Packers and 
Stockyards Act, 1921, as [[Page 30409]] amended, except as provided 
in Section 406(b) of said Act.

    \10\ Section 18(f)(3) of the FTC Act, 15 U.S.C. 57(f)(3), 
describes ``savings associations as defined in section 3 of the 
Federal Deposit Insurance Act,'' 12 U.S.C. 1811 et seq.
    \11\ Section 18(f)(4) of the FTC Act, 15 U.S.C. 57(f)(4), 
describes ``Federal credit unions under sections 120 and 206 of the 
Federal Credit Union Act (12 U.S.C. 1766 and 1786).''
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    In addition, this Rule does not apply to any entity that is not 
``organized to carry on business for its own profit or that of its 
members.'' 12 Finally, this Rule does not apply to any entity 
engaged in the business of insurance to the extent that such business 
is regulated by State law.13

    \12\ See 15 U.S.C. 44.
    \13\ See Section 2 of the McCarran-Ferguson Act, 15 U.S.C. 
1012(b).
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Section 310.2  Definitions

    The revised proposed Rule amends, adds, or deletes certain 
definitions. The following definitions were deleted: ``business 
venture,'' ``goods or services,'' ``premium,'' and ``verifiable retail 
sales price.'' The Commission amended the definitions of: ``credit 
card,'' ``credit card sales draft,'' ``credit card system,'' 
``investment opportunity,'' ``merchant,'' ``merchant agreement,'' 
``prize,'' ``prize promotion,'' ``seller,'' ``telemarketer,'' 
``telemarketing, and ``telephone solicitation.'' A definition for the 
term ``credit'' was added. Each of these changes, as well as a 
discussion of the definition of the term ``material,'' are discussed 
below.
    1. Business venture. Section 310.2(a) of the initially proposed 
Rule defined the term ``business venture'' as any ``business 
arrangement, however denominated, including * * * `a franchise' as * * 
* defined in the Commission's Franchise Rule * * *'' 14 which 
consists of the payment of any consideration for: ``(1) the right or 
means to offer, sell, or distribute goods or services (whether or not 
identified by a trademark, trade name, advertising, or other commercial 
symbol); and (2) the promise of more than nominal assistance * * * in 
connection with or incidental to the establishment, maintenance, or 
operation of a new business or the entry by an existing business into a 
new line or type of business.'' 15 This definition came into play 
in Section 310.3(a)(3) of the initially proposed Rule, which prohibited 
sellers or telemarketers from misrepresenting important information in 
connection with the offer, offer for sale or sale of any business 
venture. In addition, the initially proposed rule, at Section 
310.4(a)(8), prohibited certain abusive practices concerning the use of 
shills in the sale of business ventures.

    \14\ The term ``franchise'' is defined in the FTC's ``Franchise 
Rule,'' 16 CFR 436.2(a).
    \15\ 60 FR 8328.
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    The Commission's Franchise Rule contains requirements and 
prohibitions that apply to franchises and business opportunities. 
Subsequent to the publication of the NPR in this proceeding, the 
Commission issued a request for comments on the Franchise Rule as part 
of its periodic regulatory review of Commission trade regulation rules 
and guides.16 The Commission believes it is more appropriate to 
consider within the framework of that review process whether any new 
regulatory action is needed to address the sale of business ventures. 
Following this approach, the Commission ensures that any new regulatory 
requirement or prohibition applicable to franchises or business 
ventures will be codified in one regulation--the Franchise Rule--not 
spread out over two separate Rules. Accordingly, the definition of 
``business venture,'' as well as the Sections of the initially proposed 
Rule prohibiting misrepresentations and abusive practices described 
above, have been deleted from the revised proposed Rule.

    \16\ 60 FR 17656 (April 7, 1995).
    2. Credit-related definitions. The initially proposed Rule defined 
various credit-related terms that are used primarily in Section 
310.3(c) relating to credit card laundering. These terms include 
``acquirer,'' ``cardholder,'' ``credit card,'' ``credit card sales 
draft,'' ``credit card system,'' ``merchant,'' and ``merchant 
agreement.'' Very few commenters expressed concern about the foregoing 
proposed definitions, but some did suggest minor technical changes to 
reflect more accurately the credit card industry's terminology and 
practices.17 Based on those comments, the Commission proposes the 
following changes.

    \17\ See generally MasterCard; NAAG; USPS; NCL.
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    The Commission proposes adding under Section 310.2(e) a definition 
of the term ``credit'' to mean ``the right granted by a creditor to a 
debtor to defer payment of debt or to incur debt and defer its 
payment.'' This definition has been added to clarify the scope of 
Section 310.3(c) relating to credit card laundering. It was apparent 
from several comments that clarification was necessary. Some commenters 
wanted to include all electronic payment systems under credit card 
laundering.18 Based on the plain language of the statute and its 
legislative history,19 however, Congress clearly meant to prohibit 
credit card laundering predicated upon the definition of ``credit'' 
used throughout the consumer credit statutes, and did not contemplate 
coverage of all electronic payment systems. Therefore, the proposed 
definition of ``credit'' tracks the statutory definition of ``credit'' 
under the Truth in Lending Act [``TILA''],20 conforming the scope 
of Section 310.3(c) to that intended by Congress.

    \18\ See, e.g., MasterCard at 5.
    \19\ See generally House Report at 2; Senate Report at 2, 10.
    \20\ 15 U.S.C. 1603(e).
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    Based on comments similar to those that prompted the addition of 
the definition of the term ``credit,'' the Commission has modified the 
term ``credit card'' in Section 310.2(f) to make it consistent with the 
term as defined in the TILA, thereby explicitly limiting Section 
310.3(c) to credit card laundering. The revised definition of ``credit 
card'' states: ``Credit card means any card, plate, coupon book, or 
other credit device existing for the purpose of obtaining money, 
property, labor, or services on credit.'' The revised definition is 
identical to the statutory definition of ``credit card'' contained in 
the TILA.21

    \21\ 15 U.S.C. 1603(k).
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    The Commission has revised Section 310.2(g) defining the term 
``credit card sales draft'' to drop any reference to specific forms of 
records. The revised definition states: ``Credit card sales draft means 
any record or evidence of a credit card transaction.'' This revision is 
designed to be flexible enough to anticipate future technological 
changes in how credit card transactions are handled. The modification 
is not intended to contract the range of recordkeeping formats that 
would be acceptable under the Rule.
    The Commission also has modified the definition of the term 
``credit card system'' in Section 310.2(h) to address concerns Visa and 
MasterCard raised that the initially proposed definition could be 
construed to cover any system put in place, including a system put in 
place by a deceptive telemarketer.22 Visa and MasterCard suggested 
language that would preclude such an outcome by clarifying the 
intention to include only a credit card system to process credit card 
transactions involving credit cards issued or licensed by the credit 
card system operator. The Commission agrees with the observations and 
suggested language advanced by Visa and MasterCard. The revised 
proposed definition states: ``Credit card system means any method or 
procedure used to process credit card transactions involving credit 
cards issued or licensed by the operator of that system.''

    \22\ See MasterCard at 6.
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    In Sections 310.2 (l) and (m),23 the Commission has revised 
the definitions of ``merchant'' and ``merchant agreement.'' In the 
initially proposed Rule, these definitions used the phrase 
[[Page 30410]] ``honor or accept, transmit or process credit cards in 
payment for goods or services.'' Visa's and MasterCard's comments 
pointed out that, according to prevailing industry usages, a merchant 
``honors or accepts'' a credit card for payment, but does not 
``transmit or process'' credit cards. By the same token, a merchant 
``transmits or processes'' credit card payments, but does not ``honor 
or accept'' credit card payments.24 Therefore, the language of 
these definitions has been redrafted to reflect more precisely these 
distinctions.

    \23\ Initially proposed Rule Sections 310.2 (m) and (n), 
respectively.
    \24\ See MasterCard at 6.
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    3. Goods or services. Many commenters expressed confusion over the 
scope of the definition of the term ``goods or services.'' 25 The 
Commission initially included a definition of ``goods or services'' 
26 intending to clarify that all tangible and intangible goods and 
services are covered under the initially proposed Rule, including 
leases, licenses, memberships, and certain charitable solicitations. 
Based on the confusion that this attempt at ``clarification'' 
engendered, the Commission has deleted the definition of ``goods or 
services'' from the revised proposed Rule. That deletion does not 
reflect any intention to contract the scope of coverage of the Rule; 
nor does it mean that any of the foregoing goods or services and 
similar intangible goods or services are not covered under the Rule.

    \25\ See, e.g., IFI at 1-2; ATFA at 8-12.
    \26\ Initially proposed Rule Section 310.2(j).
    4. Investment opportunity. The initially proposed Rule defined the 
term ``investment opportunity'' 27 to include ``anything, tangible 
or intangible, excluding a business venture, that is offered, offered 
for sale, sold, or traded (1) to be held, wholly or in part, for 
purposes of profit or income; or (2) based wholly or in part on 
representations, either express or implied, about past, present or 
future income, profit, or appreciation.'' 28 A number of 
commenters suggested that this definition should be based solely on the 
objective test set forth in the second part of the definition; namely, 
the representations made by the seller.29 In this way, sellers 
will be given clear notice that their products are covered by the Rule. 
These commenters believed that the first part of the definition, based 
on the customer's subjective intent in making a purchase, should be 
eliminated. The Commission agrees with this suggestion, and the revised 
proposed definition is now based solely on the express or implied 
representations about income, profit or appreciation.

    \27\ Initially proposed Rule Section 310.2(k).
    \28\ As noted in the NPR, Sections 3(d) and (e) of the 
Telemarketing Act, 15 U.S.C. 6102(d) and (e), exclude from Rule 
coverage any of the following persons: a broker, dealer, transfer 
agent, municipal securities dealer, municipal securities broker, 
government securities broker, government securities dealer [as those 
terms are defined in Section 3(a) of the Securities and Exchange Act 
of 1934, 15 U.S.C. 78c(a)], an investment adviser [as that term is 
defined in Section 202(a)(11) of the Investment Advisers Act of 
1940, 15 U.S.C. 80b-2(a)(11)], an investment company [as that term 
is defined in Section 3(a) of the Investment Company Act of 1940, 15 
U.S.C. 80a-3(a)], any individual associated with those persons, or 
any persons described in Section 6(f)(1) of the Commodity Exchange 
Act, 7 U.S.C. 8, 9, 15, 13b, 9a.
    \29\ E.g., ICTA at 28-30; Monex at 6; A-Mark at     2-4.
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    The initially proposed definition also expressly stated that the 
term ``investment opportunity'' includes, but is not limited to, ``any 
business arrangement where persons acquire, or purportedly acquire, 
government-issued licenses or interests in one or more businesses 
derived from the possession of such licenses.'' Upon further 
consideration, the Commission believes this clause is unnecessary 
because government-issued licenses or interests derived from such 
licenses are indisputably within the jurisdiction of the Commission. 
The Commission therefore has deleted the foregoing extraneous clause 
from the revised proposed Rule, but has added clarification that the 
definition of the term, ``investment opportunity'' does not include 
``sales of franchises subject to the Commission's [Franchise Rule] 
(cite omitted).''
    5. Material. Some commenters expressed uncertainty as to what 
specifically is meant by the term ``material,'' as used in Section 
310.2(k).30 The Commission intends this term and its definition to 
comport with the Commission's Deception Statement and established 
Commission precedent. Cliffdale Associates, 103 FTC 110 (1984); 
Thompson Medical Co., 104 FTC 648 (1984), aff'd, 791 F.2d 189 (D.C. 
Cir. 1986), cert. denied, 107 S.Ct. 1289 (1987); and the Commission's 
Deception Statement attached as an appendix to Cliffdale Associates. 
The Commission believes that further explanation of the term in the 
Rule is unnecessary given the comprehensible guidance in the cited case 
law and policy statement.

    \30\ See generally TMW; Monex. In the initially proposed Rule, 
the definition of ``material'' was numbered Section 310.2(l).
---------------------------------------------------------------------------

    6. Premium. The Commission, in its revised proposed Rule, has 
deleted the initially proposed Rule provisions relating to premiums. 
The Commission believes that those deletions obviate the need to define 
this term. The deletion of the definition of the term ``premium'' and 
its associated provisions are not intended to be construed to eliminate 
from the Rule's coverage the misrepresentation of a premium's value in 
a telemarketing transaction.
    7. Prize and prize promotion. Some modifications have been made to 
the initially proposed definition of the term ``prize.'' 31 NAAG 
suggested in its comment that the reference to ``no obligation to 
purchase'' should be deleted from the definition.32 NAAG pointed 
out that many fraudulent telemarketers seek to create the impression 
that consumers must purchase something in order to receive a prize, 
even though the promotion technically does not include such a 
requirement. In such cases, it may be difficult for law enforcement 
authorities to prove that there was ``no obligation to purchase,'' 
making inapplicable the definition of ``prize'' and the protections the 
revised proposed Rule would provide for consumers with respect to prize 
promotions. The Commission believes this is a valid concern and, 
because the limiting language about an obligation to purchase is not 
necessary to accomplish the definition's purpose, has deleted the 
language from the definition.

    \31\ The initially proposed Rule defined ``prize'' as ``anything 
offered, or purportedly offered, to a person at no cost and with no 
obligation to purchase goods or services and given, or purportedly 
given, by chance.'' Initially proposed Rule Section 310.2(q).
    \32\ NAAG at 9. See also IA DOJ at 20.
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    Another concern addressed in the revised proposed Rule involves the 
element of chance in the definition of ``prize.'' USPS noted that a 
typical deceptive prize scheme will involve a solicitation listing four 
or five items, with the consumer being told, without specificity, that 
he or she is guaranteed to receive one of them.33 Because a 
consumer is ``guaranteed'' to receive one of the stated items, it could 
be construed that there is no element of ``chance'' involved in the 
offer and the item therefore is not a ``prize.'' The Commission 
believes this concern should be addressed and has therefore clarified 
the term ``chance'' included in the revised proposed definition of 
``prize.'' The revised definition of the term ``prize'' states that 
``chance exists if a person is guaranteed to receive an item and, at 
the time of the offer or purported offer, the telemarketer does not 
identify the specific item that the person will receive.''

    \33\ USPS at 3.
    The initially proposed Rule defined ``prize promotion'' 34 to 
include [[Page 30411]] traditional sweepstakes or other games of 
chance, as well as any oral or written representation that a person has 
won, has been selected to receive, or may be eligible to receive a 
prize or purported prize. The currently proposed definition has been 
revised slightly, (Section 310.2(q) of the revised proposed Rule), to 
make clear that the representations about winning may be either express 
or implied. This addresses a concern, raised by NAAG,35 that 
fraudulent telemarketers often artfully craft their sales pitches to 
avoid express representations while delivering an implied message that 
a consumer has won a prize.

    \34\ Initially proposed Rule Section 310.2(r).
    \35\ NAAG at 10.
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    8. Seller and telemarketer. Another definition that elicited 
comments was the term ``seller.'' 36 Many commenters expressed the 
view that the definition needed clarification as to what constitutes a 
``seller'' under the Rule, particularly with respect to its application 
to diversified companies or divisions within one parent organization. 
For example, as it explained during the workshop conference, ANA 
represents many members that have divisions of large diversified 
companies, such as Orkin.37 ANA explained that in addition to pest 
and termite control that people are familiar with, Orkin also offers a 
number of other services unrelated to pests and termites.38

    \36\ Initially proposed Rule Section 310.2(s).
    \37\ Tr. at 666.
    \38\ Id.
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    After careful consideration, the Commission believes that the 
definition of the term ``seller'' is clear. The Commission intends that 
this definition encompass distinct corporate divisions as separate 
``sellers.'' The determination as to whether distinct divisions of a 
single corporate organization will be treated as separate sellers will 
depend on such factors as: (1) Whether there exists substantial 
diversity between the operational structure of the division and other 
divisions or the corporate organization and (2) whether the nature or 
type of goods or services offered by the division are substantially 
different from those offered by other divisions or the corporate 
organization.
    The term ``telemarketer,'' included in revised Section 
310.2(t),39 also elicited numerous requests for clarification. The 
Commission believes that the definition is clear. The Commission 
intends that the definition of the term ``telemarketer'' apply to 
persons making a telephone call to, or receiving a telephone call from, 
a customer 40 in connection with or about the purchase of goods or 
services. It does not include persons making or receiving customer 
service calls or similar tangential telephone contacts unless a sales 
offer is made and accepted during such calls. To provide industry with 
further guidance as to the intended scope of the term ``telemarketer,'' 
the Commission has substituted the phrase ``telephone calls to'' in 
place of ``telephonic communication.''

    \39\ Initially proposed Rule Section 310.2(u).
    \40\ Revised Section 310.2(i) defines ``customer'' as ``any 
person who is or may be required to pay for goods or services 
offered through telemarketing.''
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    Commenters also raised concerns about whether sellers and 
telemarketers should be held jointly liable under the Rule for the 
actions of the other. The Commission finds nothing in the statute or 
legislative history to support the view that it is the intent of 
Congress to impose joint and several liability between a seller and a 
telemarketer. Nor does the Commission intend such a result. However, 
the revised proposed Rule's provisions state that a seller or a 
telemarketer can be held liable for violating various parts of the Rule 
if either engages in the prohibited acts or practices. Additionally, 
liability can be imposed on a seller or telemarketer for assisting and 
facilitating a Rule violation if either meets the standard set forth in 
Section 310.3(b). Therefore, although the Rule does not impose joint 
and several liability, a seller or telemarketer can be held liable if 
either engages directly, or substantially assists or facilitates the 
other, in any violation of this Rule.
    9. Telemarketing. The definition of ``telemarketing,'' in Section 
310.2(u),41 engendered more comments by far than any other 
definition. Based on the comments submitted by law enforcement and 
industry representatives, the Commission proposes a revised definition 
of ``telemarketing.'' The revised definition states:

    \41\ Initially proposed Rule Section 310.2(v).
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Telemarketing means a plan, program, or campaign which is conducted 
to induce the purchase of goods or services by use of one or more 
telephones and which involves more than one interstate telephone 
call. The term does not include the solicitation of sales through 
the mailing of a catalog which: contains a written description or 
illustration of the goods or services offered for sale; includes the 
business address of the seller; includes multiple pages of written 
material or illustrations; and has been issued not less frequently 
than once a year, when the person making the solicitation does not 
solicit customers by telephone but only receives calls initiated by 
customers in response to the catalog and during those calls takes 
orders only without further solicitation. For purposes of the 
previous sentence, the term ``further solicitation'' does not 
include providing the customer with information about, or attempting 
to sell, any other item included in the same catalog which prompted 
the customer's call or in a substantially similar catalog.

    The revised definition of ``telemarketing'' follows more closely 
the statutory definition set forth by Congress in the Telemarketing 
Act.42 The Commission has carefully considered suggestions that 
the initially proposed definition exceeded the Commission's statutory 
authority and has determined that closer adherence to the statutory 
language is the more appropriate approach.43 This change also 
limits the definition of ``telemarketing'' to telephone calls and 
excludes from coverage other ``telephonic mediums.'' After considering 
many comments that objected to the Rule's coverage of on-line services, 
the Commission acknowledges that it does not have the necessary 
information available to it to support coverage of on-line services 
under the Rule.44

    \42\ 15 U.S.C. 6106(4).
    \43\ The Commission, however, does not adopt the view that the 
definition of ``telemarketing'' in the initially proposed Rule went 
beyond the Telemarketing Act. In enacting the Telemarketing Act, 
Congress clearly intended to cover purchases of tangible as well as 
intangible goods or services, including leases and licenses. House 
Report at 11; Senate Report at 8. In any ``purchase'' there is an 
exchange of consideration, in other words a ``payment.'' Because 
deceptive telemarketers could construe the term ``purchase'' to 
apply only to the acquisition of a ``tangible'' good or service, the 
Commission substituted the term ``payment'' for ``purchase.'' The 
Commission intended to clarify that sales of intangible goods or 
services were included in the term ``telemarketing,'' as they still 
are under the revised proposed Rule.
    \44\ Such media remain subject to the Commission's jurisdiction 
under the FTC Act, 15 U.S.C. 41 et seq. See, e.g., FTC v. Corzine, 
dba Chase Consulting No. CIV-S-94-1146-DFL JFM (E.D. Cal. Dec. 
1994).
    The revised definition of ``telemarketing'' also eliminates 
specific language relating to coverage of inbound calls. Many 
commenters expressed concern that inclusion of such calls went beyond 
the Commission's statutory authority.\45\ As will be discussed further 
in the discussion of Section 310.6, given the abundant, unambiguous 
legislative history on this point,\46\ and the omission from the 
statute of any indication that inbound calls are not within its ambit, 
the Commission rejects this view. Other commenters \47\ stated that 
including inbound calls in the proposed definition caused confusion 
about the applicability [[Page 30412]] of the proposed general 
advertising exemption contained in Section 310.6 of the initially 
proposed Rule. Because the definition of ``telemarketing'' encompasses 
coverage of inbound calls under the Rule, it is no longer necessary to 
include such calls explicitly within the revised definition of 
``telemarketing.'' Furthermore, the inbound call exemption has been 
clarified in Section 310.6 to eliminate the confusion expressed in the 
comments. The revised proposed Rule's coverage, however, extends to 
inbound calls.

    \45\ See, e.g., DSA at 6; NRF at 20-21.
    \46\ House Report at 2; Senate Report at 7-8.
    \47\ E.g., DMA at 17-18; MPA at 8-9.
---------------------------------------------------------------------------

    Many industry comments addressed the term ``further solicitation'' 
used in the part of the ``telemarketing'' definition that exempts from 
coverage solicitation of sales through the mailing of a catalog.\48\ 
Numerous industry commenters suggested that reputable catalog companies 
have substantially similar catalogs in the public domain that mirror 
each other but may also be targeted to a particular season, activity, 
or product. For example, a mail order clothing seller may have summer 
and spring catalogs that include many of the same products, but they 
are different catalogs nevertheless. Commenters suggested that offering 
a caller goods or products contained in a catalog substantially similar 
to the catalog that generated the call should not trigger Rule coverage 
for a catalog seller.\49\ Counterbalancing this point is the 
Commission's concern that exemptions from coverage be narrowly drawn to 
discourage exploitation of a perceived loophole by unscrupulous 
telemarketers. The revised proposed Rule therefore is modified to 
accommodate legitimate industry's practice of regularly mailing 
seasonal and similar catalogs, at the same time limiting the exemption 
to those catalogs that are ``substantially similar'' to the catalog 
that generated the customer's call.

    \48\ See, e.g., APAC at 9; NRF at 23-25; MPA at 10.
    \49\ E.g., NRF at 24.
---------------------------------------------------------------------------

    Several commenters also expressed uncertainty as to whether 
``telemarketing'' included calls to schedule appointments for 
subsequent face-to-face sales presentations and calls to inform persons 
about upcoming store sales or promotions.\50\ The Commission believes 
that the definition clearly reflects the intention to cover those 
telephone calls that result in the sale of goods or services over the 
telephone without any opportunity by the customer to examine the goods 
or services. Obviously, a face-to-face sales presentation provides such 
an opportunity and the notification of upcoming sales or promotions 
inviting a customer to come into a store or other in-person setting 
does not culminate in a telephone sale.

    \50\ See, e.g., WFNNB at 1.
---------------------------------------------------------------------------

    10. Telephone solicitation. The initially proposed Rule included a 
definition of the term ``telephone solicitation.'' As noted in the NPR, 
the definition was ``intended to include only outbound sales calls, 
i.e., telephone calls that are initiated by a telemarketer to a 
customer to induce payment for goods or services.'' \51\ Based on the 
comments received about other Sections of the initially proposed Rule 
that used the term ``telephone solicitation,'' the intended coverage of 
only outbound sales calls was not clear.\52\ In order to clarify this 
point, the revised proposed Rule now defines the term ``outbound 
telephone call'' in Section 310.2(n) to mean ``a telephone call 
initiated by a telemarketer to induce the purchase of goods or 
services,'' and uses it in every instance where the initially proposed 
Rule used the term ``telephone solicitation.''

    \51\ 60 FR at 8315.
    \52\ See, e.g., MPA at 19; NRF at 35.
---------------------------------------------------------------------------

    11. Verifiable retail sales price. The initially proposed Rule 
defined the term ``verifiable retail sales price.'' \53\ The Commission 
has deleted all references to ``verifiable retail sales price'' in the 
revised proposed Rule. The Commission does not believe including a 
definition of ``verifiable retail sales price'' is necessary in this 
revised proposed Rule. Where appropriate, the Commission has used the 
term ``value'' in the Rule. The Commission intends that any represented 
value have a reasonable basis in fact.

    \53\ Initially proposed Rule Section 310.2(x).
Section 310.3  Deceptive Telemarketing Acts or Practices

    1. Prohibited Deceptive Telemarketing Acts or Practices. Revised 
Section 310.3(a) continues to require affirmative disclosures and 
prohibits misrepresenting material information. As in the initial 
version of the proposed Rule, Section 310.3(a)(1) requires affirmative 
disclosures of general categories of material information. Many 
industry commenters, however, expressed concern about the uncertain 
scope of the affirmative disclosure obligation embodied in Section 
310.3(a)(1).\54\ The Commission has carefully considered these concerns 
and revised the proposed Rule accordingly. Specifically, the initially 
proposed rule required disclosure of ``the total costs, terms, and 
material restrictions, limitations, or conditions of receiving any 
goods or services.'' Revised Section 310.3(a)(1) now requires 
disclosure of ``the total costs * * * [and] all material restrictions, 
limitations, or conditions to purchase, receive or use any goods or 
services that are the subject of the sales offer.'' This revision is 
intended to narrow and clarify the scope of the disclosure obligation. 
The initially proposed rule also specified that the disclosures 
required by Section 310.3(a)(1) be made ``before payment is requested * 
* * and in the same manner and form as the payment request.'' In 
response to strong industry urging for greater flexibility in the 
manner and timing of essential disclosures,\55\ the revised proposed 
rule specifies only that the disclosures be made ``before a customer 
pays'' and that they be made ``in a clear and conspicuous manner.'' 
These disclosures may be made either orally or in writing. The 
determining factor for when a customer pays, regardless of whether by 
cash, check, credit card, demand draft, or otherwise, is when a 
customer sends funds by any means or provides credit card or bank 
account information to the seller or telemarketer to purchase goods or 
services. Additionally, Section 310.3(a)(1) no longer requires an 
affirmative disclosure of a seller's refund, cancellation, exchange, or 
repurchase policies, unless the seller or telemarketer chooses to make 
representations relating to such policies a part of the sales offer. If 
a seller or telemarketer chooses to make such policies a part of the 
sales offer, then the seller or telemarketer must disclose all the 
material aspects of the terms and conditions of such policies, orally 
or in writing, before a customer pays for the goods or services 
offered. Finally, a seller or telemarketer must disclose that no 
purchase is necessary to win if a prize promotion is offered in 
conjunction with a sales offer of goods or services.

    \54\ See NIMA at 11; ACAR at 12; TR. at 292 (Monex), 296-97 
(PMAA), 303-05 (ICTA)
    \55\ See PMAA at 80; OPC at 2-3; ADS at 1; MORA at 1.
---------------------------------------------------------------------------

    Section 310.3(a)(2) continues to prohibit misrepresentations of 
several categories of material information. The information deemed 
material under Section 310.3(a)(2) is based on established case law and 
the Commission's deception policy statement. The Commission, however, 
has determined to drop the lengthy enumeration of specific prohibited 
misrepresentations contained in Sections 310.3(a)(2)(viii)-(xxiv) of 
the initially proposed Rule. These specific prohibited 
misrepresentations, each of [[Page 30413]] which was based on 
allegations in complaints filed in recent years by the Commission under 
Section 13(b) of the FTC Act,\56\ are no longer necessary because they 
are subsumed in the general prohibitions against misrepresentations set 
forth in Section 310.3(a)(2) of the revised proposed Rule. No inference 
should be drawn that these deletions in any way alter the Commission's 
view that the misrepresentations enumerated initially in proposed 
Sections 310.3(a)(2)(viii)-(xxiv) would violate the FTC Act as well as 
the revised proposed Rule. The Commission believes that this more 
concise regulatory approach effectuates Congress' legislative intent 
and addresses the concerns of many commenters, consumer groups,\57\ law 
enforcement,\58\ and industry \59\ alike, who asserted that a general 
standard of deception was necessary either in addition to or instead of 
the enumerated acts or practices.

    \56\ 15 U.S.C. 53(b).
    \57\ See, e.g., AARP at 10.
    \58\ See, e.g., USPS at 4.
    \59\ See, e.g., APAC at 2; ATA at 5; DMA at 19; Monex at 8-9.
---------------------------------------------------------------------------

    Sections 310.3(a)(2)(i)-(ii) prohibit misrepresenting information 
required to be disclosed under Section 310.3(a)(1). The scope of 
Sections 310.3(a)(2)(i)-(ii) has been delineated more precisely than 
their counterparts in the initially proposed Rule Sections 
310.3(a)(2)(i)-(iii). Revised Sections 310.3(a)(2)(i)-(ii) now include 
the limiting phrases ``to purchase, receive, or use'' and ``that are 
the subject of a sales offer.'' The same clarifying phrases have been 
added to revised Section 310.3(a)(2)(iii), which specifies that 
misrepresenting ``any material aspect of the performance, efficacy, 
nature, or central characteristics of goods or services that are the 
subject of the sales offer'' violates this Rule. Commission case law 
and policy are clear that such information is material to a person's 
choice of or conduct regarding the purchase of goods or services. 
Similarly, representations as to a seller's refund, cancellation, 
exchange, or repurchase policies are material to a person's purchase 
decision. Section 310.3(a)(2)(iv) (identical to Section 310.3(a)(2)(v) 
of the initially proposed Rule) therefore prohibits misrepresenting the 
latter category of information.
    Section 310.3(a)(2)(v) of the revised proposed Rule prohibits 
misrepresenting ``any material aspect of a prize promotion, including 
but not limited to the odds of winning, the nature or value of a prize, 
or that payment is required to receive a prize.'' The Commission has 
enumerated specific examples of material aspects of a prize promotion 
based on misrepresentations that the Commission has alleged in 
complaints filed under Section 13(b) of the FTC Act. The Commission 
believes that treating prize promotions as a separate general category 
is warranted given the great number of deceptive prize promotions and 
the distinct characteristics associated with such promotions.60 
Moreover, the legislative history clearly shows that Congress 
specifically intended that the Rule cover prizes or awards.61 
Because there are certain aspects of a prize promotion that could be 
construed to be outside the scope of provisions narrowly limited to 
``the subject of a sales offer,'' the Commission believes that it is 
necessary to include revised Section 310.3(a)(2)(v). The prohibitions 
against prize promotion misrepresentations under Section 310.3(a)(2)(v) 
are in addition to the other prohibitions set forth in Section 
310.3(a)(2).

    \60\ Almost 32% of the 141 telemarketing cases brought by the 
Commission since 1991 related to deceptive prize promotions.
    \61\ See Senate Report at 8.
---------------------------------------------------------------------------

    Similarly, Section 310.3(a)(2)(vi) prohibits misrepresenting 
material aspects of an investment opportunity. The legislative history 
reflects Congress' recognition that deceptive investment opportunities 
account for a considerable percentage of deceptive 
telemarketing.62 Moreover, since 1991, deceptive investment scams 
account for approximately 43% of the Commission's telemarketing cases. 
The amount at risk for a consumer is generally far greater in 
investment scams than in deceptive schemes involving other types of 
consumer goods or services. Thus, investment opportunities are an area 
of heightened concern for consumers and the Commission. The revised 
proposed rule includes Section 310.3(a)(2)(vi), prohibiting 
misrepresentation of specified aspects of investment opportunities. 
This provision is included to obviate any possible construction that 
might exclude investment opportunities from the scope of Sections 
310.3(a)(2)(i)-(iii). These general initial provisions are designed to 
embrace a limitless range of goods or services but are narrowly drawn 
to prohibit misrepresentations centered on purchase, receipt or use, or 
upon ``performance, efficacy, nature, or central characteristics,'' 
which are unlike investment-specific attributes such as risk, 
liquidity, earnings potential, or profitability. The prohibitions on 
misrepresentations under Section 310.3(a)(2)(vi) are in addition to, 
not in lieu of, other provisions under Section 310.3(a)(2).

    \62\ See Senate Report at 8.
---------------------------------------------------------------------------

    Finally, the Commission has included Section 310.3(a)(2)(vii) that 
prohibits misrepresenting ``a seller's or telemarketer's affiliation 
with, or endorsement by, any government or third-party organization.'' 
The Commission believes that this Section is necessary based on its own 
experience in law enforcement actions against deceptive telemarketers 
as well as the information state law enforcement agencies provided. 
Based on the Commission's enforcement experience, deceptive 
telemarketers bolster their credibility by misrepresenting that they 
are endorsed by or affiliated with charitable, police, civic, or 
similar organizations. A separate category is required because these 
types of misrepresentations, again, could be construed as outside the 
apparent scope of Sections 310.3(a)(2)(i)-(iii). However, Section 
310.3(a)(2)(vii) is in addition to, not in lieu of, other provisions 
under Section 310.3(a)(2).
    The Commission has deleted Section 310.3(a)(3) relating to business 
ventures. The Commission, as stated in Section 310.2, believes it is 
more appropriate to consider business ventures in the context of the 
Commission's recently-initiated Franchise Rule review. This should not 
be construed to mean, however, that if a business venture is sold 
through telemarketing and does not meet the coverage requirements under 
the Franchise Rule as currently in effect, it is exempt under this 
Rule. Such a ``business venture'' will still be deemed to be covered 
under this Rule as a good or service and be subject to the Rule's 
disclosure requirements and prohibitions.
    Revised Section 310.3(a)(3) generally prohibits ``making a false or 
misleading statement to induce any person to pay for goods or 
services.'' This general provision subsumes Sections 310.3(a)(4) and 
(5) of the initially proposed Rule. Former Section 310.3(a)(4) required 
written authorization before taking any funds from a consumer's 
checking, savings, or similar account. Former Section 310.3(a)(5) 
required express authorization before ``obtaining any amount of money 
from a person through any means.'' The revised Section, through more 
economical means, reflects how deceptive sellers and telemarketers gain 
access to consumers' money through false and misleading statements 
regardless of the payment system used. While addressing those deceptive 
practices, revised Section [[Page 30414]] 310.3(a)(3) also avoids 
unduly burdening legitimate industry's nondeceptive use of various 
payment systems.63

    \63\ Several commenters and workshop participants provided 
information tending to refute the proposition that demand drafts are 
characteristic solely of deceptive telemarketers. See, e.g., NAPA; 
Autoscribe; Olan.
---------------------------------------------------------------------------

    2. Assisting and Facilitating. Section 310.3(b) received 
substantial attention from commenters. Law enforcement and consumer 
groups generally were favorable but some suggested including a more 
general prohibition against assisting and facilitating.64 Industry 
comments raised concerns that the knowledge standard in the initially 
proposed Rule was too vague or harsh and that the liability for 
assisting and facilitating should attach only where the assistance or 
support is directly linked and material to the Rule violation.65 
Some industry commenters suggested that the Rule include exemptions for 
certain practices and that this Section not impose any affirmative 
duties on third parties.66 All commenters raised valid and 
important issues that the Commission has considered.

    \64\ See generally NCL at 8; USPS at 7-8.
    \65\ See, e.g., WFNNB at 2; MPA at 11-13; ATA at 6; DMA at 22-
24; NRF at 29; Monex at 11-13.
    \66\ See generally PMAA; ADS; LCS; DMA; ISA.
    To address concerns that the ``knew or should have known'' standard 
initially proposed may have swept too broadly and exposed those only 
casually associated with deceptive telemarketing to liability as 
assistors or facilitators, the Commission now proposes the ``actual 
knowledge or conscious avoidance'' standard advanced by a number of 
participants in the public workshop.67 This standard is similar to 
the knowledge standard applicable in actions under Section 13(b) of the 
FTC Act governing individual liability to pay restitution to consumers 
for injury resulting from law violations of a corporation controlled by 
the individual 68--a type of vicarious liability somewhat 
analogous to assistor and facilitator liability. The Commission intends 
that this revision delineate the scope of assistor and facilitator 
liability more clearly and more narrowly than did the ``know or should 
have known'' standard.

    \67\ See e.g., Tr. at 372-73 (Monex); 382-85 (DMA).
    \68\  Under these cases, the knowledge requirement is well-
established and can be fulfilled by showing either actual knowledge, 
reckless indifference to the truth or falsity of the representation, 
or an awareness of a high probability of fraud coupled with an 
intentional avoidance of the truth. E.g., FTC v. American Standard 
Credit Systems, Inc., CV 93-2623 LGB (JRx) (C.D. Cal. Aug. 15, 
1994); FTC v. Amy Travel Serv., 875 F.2d 564, 573-74 (7th Cir.), 
cert. denied, 493 U.S. 954 (1989); FTC v. Kitco of Nevada, Inc., 612 
F. Supp. 1282, 1292 (D. Minn 1985); FTC v. International Diamond 
Corp., 1983-2 Trade Cas. (CCH)
    65,725 at 69,707 (N.D. Cal. 1983). This knowledge standard has 
not imposed any unduly onerous problems of proof on the Commission 
in its Section 13(b) telemarketing fraud cases and has not impeded 
the Commission's ability to obtain restitution from individual 
defendants.
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    The Commission also believes it appropriate to specify that there 
be some connection between the substantial assistance provided to a 
deceptive telemarketer and resulting violations of core provisions of 
the revised proposed Rule. Revised proposed Section 310.3(b) therefore 
requires that there be substantial assistance related to the commission 
or furtherance of a core rule violation. The provision now reads as 
follows:

It is a deceptive telemarketing act or practice and a violation of 
this Rule for a person to provide substantial assistance or support 
to any seller or telemarketer when that person knows or consciously 
avoids knowing that the seller or telemarketer is engaged in any act 
or practice that violates Secs. 310.3 (a) or (c) or 310.4 of this 
Rule and such substantial assistance is related to the commission or 
furtherance of that act or practice.

    Section 310.3(b)(2) of the initially proposed Rule set forth five 
specific examples of conduct deemed to meet the ``substantial 
assistance'' prong of the two-prong test for ``assisting and 
facilitating'' set forth in Section 310.3(b)(1), which, when coupled 
with knowledge required by the second prong, would constitute a 
violation of this Rule. The prevailing view among industry commenters 
was that this list of examples would be interpreted as condemning a 
range of commercial activities that, in and of themselves, are not 
injurious to consumers or unlawful.69 The resulting chilling 
effect could result in unnecessary costs to industry, which, of course, 
would ultimately be borne by consumers. This detrimental effect, 
combined with the potential for the Section to be construed as limiting 
the scope of assisting and facilitating to only the listed activities, 
and thus hindering effective law enforcement efforts, outweighed any 
benefits such intended guidance could likely provide. The Commission 
has eliminated examples from the prohibition, but still considers the 
acts or practices enumerated in former Section 310.3(b)(2) to be 
illustrative of those that provide substantial assistance to Rule 
violators when coupled with knowledge and a relationship to a specified 
Rule violation. Acts of substantial assistance that could meet the 
Section 310.3(b) liability standard include: providing lists of 
contacts to a seller or telemarketer that identify persons over the age 
of 55, persons who have bad credit histories, or persons who have been 
victimized previously by deceptive telemarketing or direct sales; 
providing any certificate or coupon which may later be exchanged for 
travel-related services; providing any script, advertising, brochure, 
promotional material, or direct marketing piece used in telemarketing; 
or providing an appraisal or valuation of a good or service sold 
through telemarketing when such an appraisal or valuation has no 
reasonable basis in fact or cannot be substantiated at the time it is 
rendered.

    \69\ See generally DMA; PMAA.
    3. Credit Card Laundering. The Commission received very few 
comments that offered changes or that were critical of Section 
310.3(c), which pertains to credit card laundering. Comments that did 
address this Section suggested that agents, licensees, and independent 
contractors and subcontractors be included under the definition of 
``merchant.'' 70 Visa and MasterCard stated that they believed 
this Section to be ``well designed to attack a critical link in 
telemarketing fraud,'' but proposed adding language that would not 
prohibit access to the credit card system if the credit card system 
permits such access through means other than a written merchant 
agreement.71

    \70\ E.g., DMA at 24; NRF at 30.
    \71\ See MasterCard at 10-11.
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    The Commission believes that the distinction between ``launderers'' 
and others who exploit the credit card system, and ``merchants'' and 
others who make legitimate use of such systems, rests on whether the 
operator of the system has given permission for such access. For 
example, some merchants have the permission of their credit card system 
operator to permit lessees to deposit their sales transactions through 
the merchant's account. On the other hand, the hallmark of prohibited 
laundering is providing access to a merchant account to an entity not 
authorized by the system operator to have such access. Based on the 
foregoing, the Commission does not believe it is wise to broaden the 
definition of ``merchant.'' An underlying purpose of this Section is to 
delineate clearly, in accordance with legitimate industry standards, 
those persons who are deemed to properly have access to the credit card 
system. However, the comments of Visa and MasterCard point out a way 
that the provision can be modified to allow for situations where a 
credit card system expressly permits access to the applicable system, 
other than through a [[Page 30415]] written merchant agreement. Because 
such a modification will give rise to no foreseeable problems of proof 
to law enforcement efforts, the Commission concludes that this 
modification is appropriate.72 The Commission therefore has 
determined that the modifications needed to Section 310.3(c) are to add 
language to the preamble to state that ``except where expressly 
permitted by the applicable credit card system * * *'' and to add 
similar language to the end of Section 310.3(c)(3).

    \72\ NCL requested in its comments pertaining to credit card 
laundering that the Commission consider protections relating to the 
use of ``credit card checks'' and ``credit card cash advances.'' See 
NCL at 31. NCL expressed concern that credit card protections 
contemplated in Section 310.3(c) and the Fair Credit Billing Act 
[``FCBA''], 15 U.S.C. 1666, do not extend to those alternative 
credit methods. There is no indication in the legislative history or 
the Telemarketing Act that Congress intended to include under credit 
card laundering the alternative credit methods NCL describes. 
Moreover, the Commission does not have the authority under the Act 
to expand or affect the scope of the FCBA. The Commission believes, 
however, that transactions effected through the use of the 
alternative credit methods NCL described are adequately protected 
under the FCBA dispute procedures. Id.
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Section 310.4  Abusive Telemarketing Acts or Practices

    1. Abusive Conduct Generally. Section 310.4(a) of the initially 
proposed Rule set forth eight different prohibited abusive 
telemarketing acts or practices. The revised proposed Rule deletes four 
of those provisions, and amends the other four prohibited practices. 
Each of these practices will be discussed in turn.
    (a) Threats, intimidation, or the use of profane or obscene 
language. The initially proposed Rule prohibited threats or 
intimidation in Section 310.4(a)(1). The Commission believes such acts 
are clearly abusive in telemarketing transactions, and this prohibition 
remains in the revised proposed Rule. Commenters noted that threats are 
a means of perpetrating a fraud on vulnerable victims, and that many 
older people can be particularly vulnerable to threats and 
intimidation.73 Other commenters expressed the view that the terms 
``threats'' and ``intimidation'' are vague and need to be 
defined.74 The Commission does not believe further definition of 
these terms is necessary in the text of the Rule; as drafted, this 
Section clearly contemplates that all threats be covered, including 
those particularly stressed by NCL--threats of bodily injury and 
financial ruin and threats to ruin credit. It also prohibits 
intimidation--acts which put undue pressure on a consumer or which call 
into question a person's intelligence, honesty, reliability, or concern 
for family. Repeated calls to an individual who has declined to accept 
an offer may also be an act of intimidation.75

    \73\ IA DOJ at 13; AARP at 14.
    \74\ ADC at 1; ARDA at 21.
    \75\ NCL at 32-33. Accord, USPS at 11.
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    The Commission has also added under this Section a prohibition 
against the use of profane or obscene language. The legislative history 
of the Telemarketing Act indicates that the Commission should consider 
prohibiting such abusive practices, and should ``draw upon its 
experience in enforcing standards established under the Fair Debt 
Collection Practices Act [``FDCPA''], 15 U.S.C. 1692, in defining these 
terms.'' 76 The FDCPA includes a specific prohibition on the use 
of profane or obscene language,77 and the Commission believes such 
a prohibition is equally appropriate in this Rule.

    \76\ See, e.g., House Report at 8.
    \77\ Section 806(2) of the FDCPA, 15 U.S.C. 1692d(2).
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    (b) Courier pickups. The initially proposed Rule prohibited any 
seller or telemarketer from providing for or directing a courier to 
pick up payment from a customer.78 Law enforcement and consumer 
representatives generally applauded this provision.79 IA DOJ 
noted: ``A critical component of a fraudulent telemarketing scheme is 
getting the victim's money before the victim has the opportunity to 
reconsider, or before a third party, such as a relative, banker, or law 
enforcement authority becomes involved.'' 80 In addition, NCL 
stated that over 45% of all telemarketing complaints it receives 
involve shipment by private courier, and almost all of these shipments 
contain personal checks. According to NCL, a personal check sent via a 
private courier is the single most popular method of removing money 
from the pockets of victims.81

    \78\ Initially proposed Rule Section 310.4(a)(2).
    \79\ See, e.g., NAAG at 23-24; USPS at 11-12; CFA at 3; AARP at 
14-15.
    \80\ IA DOJ at 6.
    \81\ NCL at 33-35.
    On the other hand, many industry representatives opposed this 
provision.82 Commenters noted various ways this prohibition would 
harm legitimate businesses, including: prohibiting C.O.D. transactions; 
83 preventing newspaper carriers from making door-to-door 
collections on their paper routes; 84 eliminating the merchant 
coupon book industry; 85 and precluding cable operators and others 
from using couriers to pick up payments from customers who are in 
arrears and who wish to avoid disconnection of their service.86

    \82\ See, e.g., Monex at 13-14; A-Mark at 10.
    \83\ DMA at 25; PMAA at 84; DMSI at 5; MRG at 4; UPS at 2.
    \84\ CDI at 1; CA at 3; Cox at 11; Gannet at 6; NAA at 15; 
Washington at 17.
    \85\ AWMI at 1; GGP at 2; GCM at 1; MGC at 1; MP at 1.
    \86\ Comcast at 5, n.5.
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    After reviewing these comments, the Commission agrees that a ban on 
the use of courier pickups of consumer payments is unworkable. There is 
nothing inherently deceptive or abusive about the use of couriers by 
legitimate business, and the comments show that many legitimate 
businesses use them. While fraudulent telemarketers often use couriers 
to obtain quickly the spoils of their deceit, such telemarketers engage 
in other acts or practices that clearly are deceptive or abusive, and 
that are prohibited by this Rule. Thus, the prohibition of courier use 
is unnecessary, and it has been deleted from the revised proposed Rule.
    (c) Credit repair services. Section 310.4(a)(3) of the initially 
proposed Rule prohibited any seller or telemarketer from requesting or 
receiving payment of any fee or consideration for goods or services 
represented to improve a person's credit history, credit record, or 
credit rating until the contract for the services had expired and the 
promised results had been achieved.87 A number of commenters 
strongly supported this prohibition as a necessary limitation on the 
telemarketing of deceptive credit repair services.88 The 
Commission agrees, and is retaining this provision in the revised 
proposed Rule, with the following two amendments suggested by 
commenters.

    \87\ Revised proposed Rule Section 310.4(a)(2).
    \88\ NAAG at 24; CFA at 3; USD at 4; NCL at 37; USPS at 12. ABA 
``commends'' the Commission for this provision. ABA at 9.
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    First, NCL suggested, and the Commission agrees, that the 
prohibition on advance payments should extend to services that promise 
to remove derogatory information from a consumer's credit record, in 
addition to those services that simply promise to improve a person's 
credit history, record or rating.89 Second, the revised proposed 
Rule will not permit, as documentation that the promised results have 
been achieved, records from the original furnisher or provider of the 
derogatory information to the consumer reporting agency. As noted by 
NYSCPB, the original furnisher of such information cannot control the 
actions of the consumer reporting agencies.90 [[Page 30416]] Thus, 
for a variety of reasons, a consumer's credit report may not be 
changed, even though the original furnisher has documentation 
requesting such a change to occur. The Commission, therefore, has 
revised the initially proposed Rule to require the examination of a 
consumer's credit report, to determine if the services have been 
provided, before the seller or telemarketer may request or receive 
payment from the customer.

    \89\ NCL at 38.
    \90\ NYSCPB at 8.
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    A number of commenters suggested amending this Section to clarify 
that it does not apply to credit monitoring services.91 The 
Commission did not intend to limit the actions of such legitimate 
services, and does not believe this Section would prohibit such 
services.

    \91\ ATA at 7; CUCI at 7; DMA at 25; Spiegel at 4.
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    Other commenters stated that this provision may inadvertently 
prohibit the telemarketing of secured credit cards, harming consumers 
who use such cards to develop a satisfactory credit record.92 In 
fact, these commenters suggested an exemption to this provision for the 
telemarketing of secured credit cards by depository institutions. The 
Commission does not believe such an exemption is necessary, because 
banks, savings and loans, and Federal credit unions are outside of the 
jurisdiction of the FTC, and are therefore not covered by the 
Rule.93

    \92\ ABA at 8; Citicorp at 8-9; MasterCard at 11.
    \93\ See 15 U.S.C. 45(a)(2); revised proposed Rule Section 
310.1.
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    (d) Recovery room services. The next abusive practice prohibited by 
the initially proposed Rule involved recovery room scams.94 In 
these operations, a fraudulent telemarketer will call a consumer who 
has lost money in a previous scam and make false promises that the 
telemarketer can recover that money, in exchange for a fee paid in 
advance. After the fee is paid, the promised services are never 
provided. As law enforcement commenters noted, the recovery scheme is 
especially abusive, targeting particularly vulnerable victims, 
including the elderly.95

    \94\ Initially proposed Rule Section 310.4(a)(4); revised 
proposed Rule Section 310.4(a)(3).
    \95\ See, e.g., IA DOJ at 13-15; USPS at 13; NAAG at 24. In 
fact, NACAA believes there should be an outright prohibition against 
contacting any consumer to offer these services. NACAA at 4.
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    A number of financial institutions requested clarification that 
this Section does not apply to legitimate debt collection 
activities.96 In addition, another commenter opined that this 
Section, as proposed, could impair the ability of newspapers to accept 
classified ads for lost and found items.97 The Commission believes 
that changing the phrase ``induce payment'' to ``induce purchase'' in 
the definition of ``telemarketing'' clarifies that debt collection 
practices are not the types of telemarketing practices at issue in this 
Rule. Furthermore, the Commission is revising this Section to make it 
applicable only to recovery services that promise the return of money 
or other items of value paid for or promised to the consumer in a 
previous telemarketing transaction. Thus, this Section will not apply 
to attempts to recover money or items lost outside of telemarketing.

    \96\ Chase at 4; Chemical at 6; MasterCard at 11.
    \97\ Washington at 17.
    The initially proposed Rule prohibited sellers or telemarketers 
from requesting or receiving payment of any fee for recovery services 
until three days after the recovered money or other item is delivered 
to the consumer. AARP noted that the three-day period may be 
insufficient to protect consumers, and asked that the Rule allow the 
minimum time necessary for out-of-state checks to clear.98 The 
Commission agrees, and has lengthened the time period that must elapse 
before providers of such services can request payment from consumers to 
seven business days after delivery of the recovered money or other item 
of value.

    \98\ AARP at 15-16. Fraudulent recovery rooms may use checks, 
not backed by sufficient funds for them to be paid by the out-of-
town banks on which they are drawn, to show consumer victims that 
the money has been ``recovered.''
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    Finally, the initially proposed Rule provided an exemption from 
this Section for licensed attorneys or licensed private investigators 
pursuant to a written agreement with the consumer. Some commenters 
believed that private investigators should not be exempt, because such 
an exemption would only lead to fraudulent recovery services signing up 
with unscrupulous private investigators as a method of evading this 
prohibition.99 The Commission agrees, and has removed the 
exemption for private investigators.

    \99\ NAAG at 24; DSA-Nev., Tab B at 8; NCL at 39-40. Both DSA-
Nev. and NCL also believed that licensed attorneys should not be 
exempt from this Section of the Rule. The Commission does not wish 
to hinder legitimate activities by licensed attorneys to recover 
funds lost by consumers through fraudulent telemarketing, and thus 
does not believe this prohibition should be applied to their 
services.
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    (e) Advance fee loans. Section 310.4(a)(5) of the initially 
proposed Rule prohibited any seller or telemarketer from requesting or 
receiving payment of any fee or consideration in advance of obtaining a 
loan or any credit service when the seller or telemarketer has 
guaranteed or represented a high likelihood of success in obtaining or 
arranging a loan or credit service for a person.100 DMA urged that 
the Commission clarify that this Section does not apply to services, 
such as monitoring or counseling, that are not represented to improve a 
person's credit history.101 The Commission did not intend for such 
services to be covered, and is changing the phrase ``credit service,'' 
used in the initially proposed Rule, to ``extension of credit.'' In 
this manner, the application of this prohibition only to loans or other 
extensions of credit will be clearer.102

    \100\ Revised proposed Rule Section 310.4(a)(4).
    \101\ DMA at 25.
    \102\ Prudential noted that this Section could cover a bank's 
offer to a consumer of pre-approved loans. The Commission believes 
that revised Section 310.1 will address Prudential's concerns by 
clarifying that banks are excluded from coverage of the Rule because 
they are outside of the Commission's jurisdiction under the FTC Act, 
15 U.S.C. 45(a)(2).
---------------------------------------------------------------------------

    (f) Prize distribution. The next prohibited abusive practice 
included in the initially proposed Rule concerned the distribution of 
prizes during a prize promotion. Section 310.4(a)(6) of the initially 
proposed Rule required any seller or telemarketer conducting such 
promotions to distribute all prizes or purported prizes offered within 
18 months of the initial offer to any person. The Commission believes 
that this practice is adequately covered by the prohibition against 
misrepresenting any material aspect of a prize promotion in Section 
310.3(a)(2)(v) of the revised proposed Rule. Because the practices 
included in this Section of the initially proposed Rule are addressed 
by other prohibitions, it has been deleted from the revised proposed 
Rule.
    (g) Reloading. Section 310.4(a)(7) of the initially proposed Rule 
prohibited any seller or telemarketer from offering or selling goods or 
services through a telephone solicitation to a person who previously 
has paid the same seller for goods or services, until all terms and 
conditions of the initial transaction have been fulfilled, including 
but not limited to the distribution of all prizes or premiums offered 
in conjunction with the initial transaction.
    This provision of the initially proposed Rule elicited nearly 
unanimous negative comments from industry representatives. The 
Commission learned from these comments that many legitimate businesses 
call their customers before full satisfaction has been made on a prior 
transaction. Indeed, cultivating established customers in this way is 
regarded as one of the most effective selling techniques by legitimate 
sellers. Commenters noted that the Section as proposed would preclude a 
seller or [[Page 30417]] telemarketer from calling customers to renew 
subscriptions, warranties, service contracts, and a host of other 
ongoing services prior to their expiration.103 Commenters also 
noted that this prohibition would be particularly burdensome for large, 
diversified companies with multiple divisions, sales offices and 
product lines.104

    \103\ ATA at 7-8; ANA at 14; DMA at 27-28; MPA at 14-15; Cox at 
9-10; DMSI at 6; Hearst at 2; MSSC at 20; NAA at 13-14; AMCI at 2 
(motor club memberships); CUCI at 8; ASAE at 15-16 (association 
memberships); GE at 4-6; IBM at 19-22 (computer leases); NCTA at 11-
12 (cable services); Viacom at 10-11.
    \104\ ANA at 15; DMA at 27; NRF at 31; AmEx at 1-2.
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    Given the fact there is nothing about this practice, in and of 
itself, that is inherently injurious to consumers, and given the 
widespread use of this practice by legitimate telemarketers, the 
Commission has dropped from the revised proposed Rule any attempt to 
restrict this practice. Reloading is a problem when there is deception 
in the sales offer. Because such deception is prohibited by the revised 
proposed Rule under Section 310.3(a), a separate prohibition of 
``reloading'' is unnecessary. Accordingly, it has been deleted from the 
revised proposed Rule.
    (h) The Use of Shills. Section 310.4(a)(8) of the initially 
proposed Rule prohibited identifying a person as a reference for a 
business venture unless: (1) Such person actually purchased the 
business venture; (2) such person operated that business venture for at 
least six months, or the seller or telemarketer disclosed the length of 
time the person operated such business venture; and (3) such person did 
not receive consideration for any statements made to prospective 
business venture purchasers. As stated in the discussion of Section 
310.2 of the definition of ``business venture,'' the Commission 
believes that consideration of such a prohibition is more appropriately 
included as part of its regulatory review of the Franchise Rule.
    2. Pattern of Calls. Section 310.4(b)(1)(i) of the proposed Rule 
prohibited a seller or telemarketer from making a sales call to a 
person's residence more than once within any three month period. Many 
commenters stated that this was an unreasonable and arbitrary 
prohibition that was difficult to comply with, and that should be 
eliminated.105 In addition, commenters noted that consumers 
already have the protections of the Telephone Consumer Protection Act 
[``TCPA''] rules, which require telemarketers to establish and maintain 
a ``do not call'' list of consumers who do not wish to be contacted by 
that seller.106 Given the fact that calls more frequent than once 
per month are not, in and of themselves, injurious to consumers, and 
given the consumer protections afforded by the ``do not call'' 
requirements of the TCPA 107 and this Rule, the Commission agrees 
that this provision is unnecessary and has therefore deleted it.

    \105\ ATA at 8; APAC at 6; DMA at 28; DSA at 15; MPA at 16-18; 
NRF at 33; PMAA at 75-77; CUCI at 8; Fingerhut at 25; ADS at 1; AmEx 
at 1-2; AT&T at 20; NCL at 45-46; APAC at 6; AMCI at 1; IBM at 23; 
ANA at 17.
    \106\ See, e.g., ANA at 17; Franklin at 1; Olan at 13. The FCC's 
rules, established pursuant to the TCPA, 47 U.S.C. 227, are codified 
at 47 CFR 64.1200. The revised proposed Rule includes similar ``do 
not call'' protections at Section 310.4(b)(1)(ii), discussed infra.
    \107\ 47 U.S.C. 227.
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    In its place, the Commission proposes in revised Rule Section 
310.4(b)(i) to prohibit any seller or telemarketer to cause any 
telephone to ring, or engage any person in telephone conversation, 
repeatedly or continuously with intent to annoy, abuse, or harass any 
person at the called number. Such a prohibition is included in the 
FDCPA, 108and the legislative history of the Telemarketing Act 
states that the Commission should consider the FDCPA in establishing 
prohibited abusive acts or practices.109

    \108\ 15 U.S.C. 1692d(5).
    \109\ See, e.g., House Report at 8. Moreover, commenters 
suggested that such a provision would be approprate. See, e.g., NAA 
at 20; Cox at 10 (abusive conduct involves multiple calls over a 
short period of time, such as five calls in a day, or ten calls in a 
week).
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    Section 310.4(b)(1)(ii) of the initially proposed Rule set forth 
the prohibition on calling a person's residence when that person 
previously has stated that he or she does not wish to receive such a 
call made by or on behalf of the seller whose goods or services are 
being offered. The Commission continues to believe that such a 
limitation, which is fully consistent with and complementary to similar 
provisions under the TCPA,110 will effectively implement the 
Telemarketing Act's directive to include in this Rule ``a requirement 
that telemarketers may not undertake a pattern of unsolicited telephone 
calls which the reasonable consumer would consider coercive or abusive 
of such consumer's right to privacy.'' 111 This Section did not 
elicit many comments; the only change made to this Section responds to 
the comments suggesting that the prohibition should apply to a 
particular person or telephone number, not to a residence (as the 
initially proposed version of this provision stated), because a 
residence may have more than one person who is a customer of a 
particular seller.112 The revised proposed Rule states that the 
prohibition applies to calls made to a person, rather than a person's 
residence.

    \110\ See 47 U.S.C. 227; 47 CFR 64.1200(e).
    \111\ 15 U.S.C. 6102(a)(3)(A).
    \112\ See, e.g., NRF at 33; Pacesetter at 4.
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    Section 310.4(b)(2) of the initially proposed Rule provided a 
limited safe harbor against liability for violating the ``do not call'' 
prohibitions included in Section 310.4(b)(1)(ii). This Section stated 
that a seller or telemarketer will not be liable for such violations 
once in any calendar year per person called if: (1) It has established 
and implemented written procedures to comply with the ``do not call 
provisions''; (2) it has trained its personnel in those procedures; (3) 
the seller, or the telemarketer acting on behalf of the seller, has 
maintained and recorded lists of persons who may not be contacted; and 
(4) any subsequent call is the result of administrative error.
    Two changes have been made to this Section. First, some commenters 
suggested that the safe harbor should not be limited to a certain 
number of violations per consumer or per year.113 These commenters 
maintained that if the other enumerated steps are taken by a 
telemarketer in a reasonable manner, and a call is made erroneously, a 
Rule violation should not be found. The Commission agrees, and has 
deleted this limitation to the safe harbor. Second, the safe harbor 
will apply if the subsequent call is the result of any error, not just 
an administrative error. This responds to concerns raised that 
unintentional or accidental calls should also be covered by the safe 
harbor.114

    \113\ See, e.g., IBM at 24; SBTC at 10-11.
    \114\ NRF at 35; PMAA at 83; MSSC at 21. Other commenters 
suggested that the term ``administrative error'' was too broad, and 
that a clear definition should be provided. NACAA at 5; NAAG at 27; 
USD at 5. The Commission believes that any error should be excused 
here, as long as the seller or telemarketer is complying in good 
faith with the other requirements of the safe harbor.
    3. Calling Time Restrictions. The initially proposed Rule 
prohibited any telemarketer from calling a person's residence, without 
the prior consent of the person, at any time other than between 8:00 
a.m. and 9:00 p.m. local time at the called person's location. The 
Commission included this provision in the initially proposed Rule in 
response to the Telemarketing Act's directive that the Rule should 
include ``restrictions on the hours of the day and night when 
unsolicited telephone calls can be made to consumers.'' 115 While 
some commenters suggested different time 
[[Page 30418]] restrictions,116 the FCC has established these 
calling time hours in its regulations implementing the TCPA,117 
and the Commission has been presented with no compelling reasons to 
change them. Accordingly, no substantive changes to Section 310.4(c) 
are proposed.118

    \115\ 15 U.S.C. 6102(a)(3)(B).
    \116\ DSA-Nev Tab B at 11 (7 a.m. to 10 p.m.); Monex at 15 (no 
restrictions for the precious metals market); NACAA at 5 and GA OCA 
at 2 (5:00 p.m. to 9:00 p.m. to protect vulnerable older consumers); 
NAAG at 27 (no calls before noon on Sunday).
    \117\ See 47 CFR 64.1200(e)(1).
    \118\ Certain commenters suggested that the safe harbor 
provisions of Section 310.4(b)(2) should apply to the calling time 
restrictions as well as the ``do not call'' requirements. See, e.g., 
NRF at 35; ARDA at 31. The Commission believes that the calling time 
restrictions do not present the administrative compliance 
difficulties that the ``do not call'' restrictions impose, and 
therefore does not believe a safe harbor is necessary here.
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    4. Required Oral Disclosures.
    (a) All outbound telephone calls. The Telemarketing Act requires 
the Commission to include in this Rule the following:

A requirement that any person engaged in telemarketing for the sale 
of goods or services shall promptly and clearly disclose to the 
person receiving the call that the purpose of the call is to sell 
goods or services and make other such disclosures as the Commission 
deems appropriate.119

    \119\ 15 U.S.C. 6102(a)(3)(C).

The initially proposed Rule, at Section 310.4(d)(1)(i), implemented 
this legislative directive by requiring all outbound telephone calls 
(or telephone solicitations, as they previously were called), to begin 
with the disclosure of the caller's true first and last name, the 
seller's name, and a statement that the purpose of the call is to sell 
goods or services. The divergence between the statutory language and 
that of the initially proposed Rule elicited significant comment.
    Many industry representatives objected to these disclosures being 
required ``at the beginning,'' rather than ``promptly and clearly.'' 
120 According to these commenters, requiring disclosures at the 
beginning disturbs the normal flow of a telephone call,121 allows 
no time for a seller to establish, or reestablish, a relationship with 
the consumer,122 infringes on the seller's ability to design and 
implement effective telemarketing sales presentations,123 and is 
in effect a ``kill message'' that will result in most consumers hanging 
up when they hear the required disclosures.124

    \120\ ATA at 9; ANA at 21; NRF at 36; DMA at 30; Chemical at 7; 
CUCI at 9; Gannet at 4; Olan at 16.
    \121\ See, e.g., NRF at 36.
    \122\ See, e.g., ADS at 2.
    \123\ Ann Arbor at 2 (with numerous other newspapers submitting 
a substantially similar comment).
    \124\ See, e.g., Citicorp at 8; Time Warner at 37-38. Not all 
industry representatives agreed. One telemarketer stated that 
requiring the disclosures at the beginning is very reasonable. 
``Rather than impeding business, disclosure of the information 
proposed by the Commission adds credibility to the legitimacy of the 
caller and increases consumer confidence [and] responsiveness to its 
telemarketing calls.'' TMGI at 2, 4.
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    After considering these comments, the Commission has determined 
that requiring these disclosures ``at the beginning'' may be too rigid 
a standard for achieving the statutory purpose of providing important 
information to consumers while permitting the use of the telephone in 
making sales.125 The revised proposed Rule adheres to the 
statutory requirement that the disclosures be prompt and clear. By 
adhering more closely to the statutory language, the Commission intends 
to permit some flexibility in the seller's telemarketing presentation. 
For example, a prompt disclosure would not preclude the seller or 
telemarketer from establishing some initial rapport with the customer 
before stating the purpose of the call. However, in ``multiple purpose 
calls,'' where one purpose is to sell goods or services, the sales 
purpose must be disclosed promptly.

    \125\ The Senate Report stated that the ``prompt'' disclosure 
requirement was added to the Telemarketing Act to address concerns 
raised by the market research industry (those who conduct surveys 
and public opinion polls without selling goods or services) that 
telemarketing calls should not be made under the guise of being 
calls solely for survey research or similar purposes. See Senate 
Report at 4.
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    The requirement that all outbound telephone calls include the 
disclosure of the caller's true first and last name also elicited 
significant comment. Commenters noted that ``desk names'' are commonly 
used in the industry to protect the safety and privacy of employees, 
and to protect against potential prejudice or harassment.126 Upon 
reconsideration, the Commission has determined that disclosure of the 
seller's identity is sufficient. Therefore, disclosure of the caller's 
identity need not be included in this Rule.

    \126\ See, e.g., ANA at 21; Cox at 7-8; APAC at 6; ADS at 2.
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    In addition to the disclosure of the identity of the seller and the 
fact that the purpose of the call is to sell goods or services, Section 
310.4(d) of the revised proposed Rule now requires the prompt and clear 
disclosure of the nature of the goods and services that are the subject 
of the call. The Commission revised the language of Section 310.4(d) to 
more accurately reflect language from Section 3(a)(3)(C) of the 
Telemarketing Act setting forth those additional disclosures.
    Section 310.4(d)(1)(ii) of the initially proposed Rule required a 
number of disclosures in any telephone solicitation that included a 
charitable solicitation.127 Upon careful review of the comments, 
it is clear that separate treatment of such charitable solicitations is 
unnecessary. As ATFA suggested at the workshop, the sale of goods or 
services that includes a representation that a portion of the money 
paid for such goods or services will go to charity could be treated 
under the Rule as a sale of goods or services, rather than a charitable 
solicitation.128 As a result, such a sale would be covered under 
the Rule without having to expressly cover charitable solicitations or 
donations. Because the initially proposed Rule attempted to encompass 
these specific types of sales, and given that such sales will be 
covered under the Rule's definition of ``telemarketing,'' the 
Commission has decided to delete Section 310.4(d)(1)(ii) from the 
revised proposed rule.

    \127\ The definition of ``goods or services'' in Section 
310.2(j) of the initially proposed Rule included a statement that 
the term included ``any charitable service promoted in conjunction 
with an offer of a prize, chance to win a prize, or the opportunity 
to purchase any other goods or services.''
    \128\ See Tr. at 188-93 (ATFA).
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    Additionally, many comments indicated that former Section 
310.4(d)(1)(ii) engendered a great deal of confusion on the part of 
nonprofit entities as to their coverage under the Rule. In including 
former Section 310.4(d)(1)(ii), the Commission did not intend to 
regulate nonprofit entities.129 The Commission is mindful of the 
limitations on its jurisdiction in this area. Specifically, Section 4 
of the FTC Act gives the Commission jurisdiction over corporations that 
are operated for their own profit or that of their members and over the 
business aspects of the activities of organizations serving both 
nonprofit and for-profit purposes.130 Federal courts have 
construed this to bar the Commission from suing any bona fide nonprofit 
organization under the FTC Act, thereby removing most charitable 
organizations from the scope of the FTC's authority.131 Section 
6(a) of [[Page 30419]] the Telemarketing Act states that ``no activity 
which is outside the jurisdiction of [the FTC Act] shall be affected by 
this Act.'' 132 Accordingly, as explicitly stated in Section 310.1 
of the revised proposed rule, the jurisdictional limitations of Section 
4 of the FTC Act, including those regarding nonprofit organizations, 
will apply to the Telemarketing Sales Rule.

    \129\ See generally ATFA; NFN.
    \130\ See American Medical Ass'n v. FTC, 94 F.T.C. 701, 982-93, 
aff'd, 638 F.2d 443, 448 (2d Cir. 1980), aff'd mem. by equally 
divided court, 455 U.S. 676 (1982).
    \131\ This jurisdictional limitation, however, does not prevent 
the Commission from suing a for-profit company that engages in 
deceptive practices to solicit charitable contributions from 
consumers. To this end, the Commission has recently sued several 
allegedly deceptive ``telefunders''--companies that solicit 
charitable contributions by telephone--which allegedly 
misrepresented the use to which donations would be directed and 
allegedly misrepresented the value of certain prizes. See FTC v. The 
Baylis Co., No. 94-0017-S-LMB (D. Idaho 1994); FTC v. NCH, Inc., No. 
CV-S-94-00138-LDG (LRL) (D. Nev. 1994); FTC v. International Charity 
Consultants, No. CV-S-94-00195-DWH (LRL) (D. Nev. 1994); FTC v. 
Heritage Publishing, No. LR-C-94-416 (E.D. Ark. 1994). In addition, 
the Commission may sue a sham charity that is actually a for-profit 
enterprise. FTC v. Voices for Freedom, No. 91-1542-A (E.D. Va. July 
13, 1992) (consent decree entered).
    \132\ 15 U.S.C. 6105(a).
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    (b) Verification calls. The initially proposed Rule stated that if 
a caller verifies a telemarketing sale, that caller must repeat certain 
disclosures.133 Many commenters argued forcefully that this 
Section was unnecessary and unduly burdensome, requiring duplicative 
disclosures that would add to the cost of the call and annoy potential 
customers.134 In addition, commenters stated that this disclosure 
would discourage firms from making verification calls, due to increased 
costs.135 After considering these comments, the Commission has 
determined that requiring duplicative verification disclosures is 
unnecessary and would unfairly burden legitimate telemarketers. It has 
therefore deleted this Section from the revised proposed Rule.

    \133\ Section 310.4(d)(2) of the initially proposed Rule.
    \134\ ATA at 9; MPA at 20-21; ARDA at 33; NAA at 19; Spiegel at 
5; ALIC at 3; MSSC at 22.
    \135\ AT&T at 22-23; MCI at 12; PCH at 4; SBTC at 13.
---------------------------------------------------------------------------

    (c) Outbound telephone calls that include a prize promotion. The 
initially proposed Rule required the following three additional oral 
disclosures for any telemarketing that includes a prize promotion: (1) 
The fact that no purchase or payment is necessary to win; (2) the 
verifiable retail sales price of each prize offered, or a statement 
that the retail sales price of the prize offered is less than $20.00; 
and (3) the odds of winning each prize offered.136

    \136\ Initially proposed Rule Section 310.4(d)(3).
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    The comments elicited by these requirements stressed the 
unnecessary costs that would result from duplicative disclosure 
requirements.137 The Commission wishes to avoid imposing 
unnecessary requirements for oral disclosures that increase both the 
length and the cost of calls without a very clear consumer 
benefit.138 Because the benefit to be derived from repeated 
disclosures of the same information is questionable, the Commission has 
narrowed the amount of information that must be disclosed orally. Oral 
disclosures now encompass only information that promises a clear-cut 
consumer benefit and that is not outweighed by the costs it imposes on 
legitimate industry. The revised proposed Rule requires a telemarketer 
making an outbound telephone call which includes a prize promotion to 
disclose clearly, in addition to the other disclosures required under 
revised proposed Rule Section 310.4(d), the fact that no purchase is 
necessary to win.

    \137\ See generally PMAA, DMA; IMSP.
    \138\ See, e.g., MPA at 21-22.
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    The Commission believes that this disclosure is so critical to 
consumer protection in a prize promotion that it should be stated 
during an outbound telephone call. In addition, the Commission, in 
response to concerns raised by NAAG, has specified in the revised 
proposed Rule that this disclosure must be made before the prize is 
described to the person called.139 Such a disclosure will clearly 
inform consumers that a true, legitimate ``prize'' awarded in a game of 
chance does not require any purchase.140 This disclosure will help 
dispel the false information provided during fraudulent prize 
promotions that a consumer must purchase some item in order to win the 
``fabulous'' prize offered. In order to make this ``no purchase 
necessary'' disclosure meaningful, the revised proposed Rule also 
requires the telemarketer to disclose the no-purchase entry method for 
the prize promotion, if requested by the person called.

    \139\ NAAG at 28-29.
    \140\ See e.g., 18 U.S.C. 1301. Additionally, PMAA, stated 
during the workshop that such a requirement would not be overly 
burdensome and would accurately distinguish deceptive prize 
promotions from legitimate prize promotions. Tr. at 608-10 (PMAA).
    (d) Outbound telephone calls that include a premium. The initially 
proposed Rule required any telemarketing that includes an offer of a 
premium to make the additional disclosure of the verifiable retail 
sales price of such premium or comparable item, or a statement that the 
retail sales price of the premium is less than $20.00.141 A number 
of commenters stated that this Section should be eliminated. They 
claimed that many premiums offered by legitimate telemarketers 
generally are not available for retail sale, and attempting to 
determine a retail sales price may be difficult and costly. They also 
predicted that this added cost may result in the elimination of 
premiums being offered, to the detriment of consumers.142

    \141\ Initially proposed Rule Section 310.4(d)(4).
    \142\ See, e.g., MPA at 22-23; NAA at 19-20; MasterCard at 13-
14; MBNA at 1.
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    The Commission is persuaded by these arguments; in and of itself, 
non-disclosure of the value of an offered premium is not likely to be 
injurious to consumers, and imposition of the potential costs 
associated with such a disclosure requirement is not justified. The 
prohibition against misrepresentations in Section 310.3 is sufficient 
to protect consumers against false and misleading claims about the 
value of a premium.
    5. Other Required Disclosures. The initially proposed Rule 
prohibited any seller or telemarketer conducting a prize promotion from 
requesting or accepting any payment from a person without first 
providing that person with a written disclosure, in duplicate, and 
receiving from that person a written acknowledgement that the person 
has read the disclosure.143 Numerous commenters stated that such a 
written acknowledgement requirement would effectively ban prize 
promotions in telemarketing sales by increasing costs and negating the 
efficiency of those sales.144 The Commission is persuaded that 
such an outcome would limit consumers' choices and would be 
inconsistent with Commission policy. Prize promotions in telemarketing, 
in and of themselves, are not deceptive, do not cause injury to 
consumers, and may, in fact, provide consumer benefits. The Commission 
has determined that these requirements would likely produce nominal 
consumer benefits that would be outweighed by the potential detrimental 
effects, and has therefore dropped them from the revised proposed Rule.

    \143\ Initially proposed Rule Section 310.4(e)(1).
    \144\ See, e.g., DMA at 33; MPA at 23-24; NRF at 38; PMAA at 49-
51; CUCI at 10; IBM at 26; ITI at 8-10; Spiegel at 5-6; ADS at 3; 
SDRA at 1. In fact, one commenter noted that 73 percent of prize 
winners do not return an affidavit permitting the distribution of 
prizes to them. DW&Z at 2.
---------------------------------------------------------------------------

    The initially proposed Rule also imposed written disclosure 
requirements on investment opportunities very similar to those for 
prize promotions. Specifically, any seller or telemarketer selling an 
investment opportunity was prohibited from requesting or accepting any 
payment from a person without first providing that person with a 
written disclosure, in duplicate, and receiving from that person a 
written acknowledgement that the person had read the 
disclosure.145 Industry [[Page 30420]] representatives again 
stated that a signed acknowledgement from consumers is unjustifiably 
burdensome in advance of all investment transactions.146 They also 
stated that the delay caused by this requirement is unfair to both the 
customer and the seller in certain volatile markets.147

    \145\ Initially proposed Rule Section 310.4(e)(2).
    \146\ See, e.g., A-Mark at 2, 11-12; AFSA at 7-8.
    \147\ See, e.g., Monex at 16-17.
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    After reviewing the comments in this area, and upon further 
reflection, the Commission, for reasons similar to those that prompted 
deletion of the written prize promotion disclosures, has deleted 
requirements for additional written disclosures for telemarketing 
investment opportunities. While the Commission is mindful that both 
prize promotions and investment opportunities are a major area of 
telemarketing fraud,148 the costs imposed on legitimate industry 
by these mandatory disclosures is not justified. In addition, the 
prohibitions on misrepresentations, as well as the disclosures required 
before a customer pays for goods or services, included in Section 310.3 
are sufficient to prohibit the deceptive conduct found in the 
telemarketing of prize promotions and investment opportunities.

    \148\ Approximately 60 percent of all telemarketing complaints 
received by NCL involve prize offers, while investment opportunities 
account for the greatest dollar volume of losses reported. NCL at 
49-51.
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    6. Distribution of Lists. The initially proposed Rule prohibited 
any person who is subject to any federal court order resolving a case 
in which the complaint alleged a violation of certain provisions of the 
Rule, and in which the court did not dismiss or strike all such 
allegations from the case, from selling, renting, publishing, or 
distributing any list of customer contacts from that person.149 
Industry commenters stated that the original proposal was too great a 
penalty for Rule violations, would preclude settlements of law 
enforcement actions, and should be eliminated.150 On the other 
hand, law enforcement and consumer representatives commented that the 
proposed provision does not go far enough, and should extend to all 
rule violations and to FTC enforcement actions.151

    \149\ Initially proposed Rule Section 310.4(f).
    \150\ APAC at 7; DMA at 34; MSSC at 24-25; Spiegel at 6; Monex 
at 19; NRF at 38-39.
    \151\ AARP at 22; NACAA at 5 (apply it to state orders as well); 
GA OCA at 2.
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    After considering the comments, the Commission believes that such a 
prohibition is better left to the discretion of law enforcement 
agencies to seek, and the courts to order, in individual law 
enforcement actions. This Section therefore has been deleted from the 
revised proposed Rule.
Section 310.5  Recordkeeping Requirements

    The initially proposed Rule required any seller or telemarketer to 
keep certain records relating to telemarketing activities for a period 
of 24 months from the date the record is produced.
    Many industry commenters stated that the 24-month retention period 
was burdensome and suggested that the period be shortened.152 
Others suggested that the recordkeeping provision be dropped altogether 
because Congress did not mandate that records be kept,153 and 
because fraudulent telemarketers will most likely ignore the 
requirements. Those commenters suggested that recordkeeping 
requirements would only burden legitimate business.154 On the 
other hand, law enforcement and consumer representatives commented that 
the recordkeeping provisions would be extremely helpful in preserving 
evidence of compliance, in identifying customers who may have been 
injured, and in identifying persons who might have been involved in any 
deceptive or abusive telemarketing practices.155 In fact, several 
commenters suggested that the record retention period be lengthened to 
36 months, which would parallel the IRS retention requirements.156

    \152\ See, e.g., DMA at 35; ANA at 24; IBM at 27; Olan at 14; 
NRF at 40; MSSC at 25; Ann Arbor at 2.
    \153\ Section 3(a)(3) of the Telemarketing Act authorizes the 
Commission to include recordkeeping requirements in the Rule. 15 
U.S.C. 6102(a)(3).
    \154\ See, e.g., RPI at 1; BSA at 14.
    \155\ See, e.g., NCL at 54; USPS at 24; AARP at 23; NAAG at 36; 
CFA at 6.
    \156\ See, e.g., NAAG at 36-37; CFA at 6.
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    After careful consideration of the comments, the Commission has 
decided to keep a recordkeeping requirement in the revised proposed 
Rule. Without the required records, it would be difficult to ensure 
that sellers and telemarketers are complying with the requirements of 
the revised proposed Rule, or identify persons who are involved in the 
practices, or identify customers who may have been injured.
    The Commission also has decided to leave the record retention 
period at 24 months in the revised proposed Rule. A record retention 
period shorter than a two-year period would be inadequate for the 
Commission and the States to complete investigations of noncompliance. 
Consumers who complain to an agency about alleged deceptive or abusive 
telemarketing practices often do not do so immediately. Therefore, 
there may already be a substantial ``lag time'' between the time the 
alleged violations occur and the time the Commission learns of the 
alleged violations. A two-year record retention period allows the 
Commission and State law enforcement agencies to gather information 
needed to pursue enforcement actions and to identify those persons who 
have most recently suffered injury from the alleged deceptive or 
abusive telemarketing practices.
    The Commission is mindful, however, of the burden on business in 
maintaining these records. Therefore, the revised proposed Rule 
incorporates many of the suggestions from industry on how to minimize 
the recordkeeping burden.
    First, the revised proposed Rule specifies that the records may be 
kept ``in any form.'' This language addresses the suggestions from many 
commenters that the burden could be reduced if the sellers and 
telemarketers could keep the required records in electronic 
storage.157

    \157\ See, e.g., ANA at 24; NRF at 40; Olan at 14; NCL at 54; 
IBM at 27-28; USPS at 24.
---------------------------------------------------------------------------

    Second, the revised proposed Rule specifies that sellers and 
telemarketers need to retain only substantially different advertising, 
brochures, telemarketing scripts, and promotional materials. Several 
commenters proposed this change in order to reduce the paper burden of 
maintaining large quantities of virtually identical documents.158

    \158\ See, e.g., DMA at 35; Tr. at 761, 767, and 769.
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    Third, the revised proposed Rule incorporates the suggestions of 
many commenters by requiring sellers and telemarketers to maintain a 
record only of the last known address of prize recipients, customers, 
and of current and former employees.159

    \159\ See, e.g., ATA at 9-10; NRF at 40; Olan at 14; SCIC at 6; 
IBM at 27.
---------------------------------------------------------------------------

    Fourth, the revised proposed Rule sets a de minimis amount of $25 
for record retention on prizes, as was suggested by at least one 
commenter.160 Sellers and telemarketers will not have to maintain 
records on prize recipients and prizes awarded for prizes that have a 
value less than $25.00.

    \160\ See ARDA at 36-37.
---------------------------------------------------------------------------

    Fifth, the revised proposed Rule adds the requirement that sellers 
and telemarketers maintain a record of any fictitious name used by any 
current or former employee directly involved in telemarketing sales. 
This requirement would prevent deceptive telemarketers from hiding 
behind a fictitious identity and would aid law enforcement agencies in 
identifying possible defendants.
    Some commenters requested clarification of certain recordkeeping 
[[Page 30421]] requirements in order to reduce the burden on business. 
For example, several parties read the recordkeeping requirements to 
require them to maintain records of all customer contacts, regardless 
of whether the customer actually made a purchase.161 They 
recommended that businesses only be required to maintain records 
relating to customers who actually made a purchase of goods or 
services. The Commission did not add clarifying language addressing 
this concern because it believes that the plain language in Section 
310.5(a)(3) of the revised proposed Rule is sufficiently clear that 
only records relating to actual sales need be maintained. That Section 
specifically requires information to be maintained regarding the sales 
transaction: the identity of the goods or services purchased, the 
fulfillment, and the amount paid by the customer.

    \161\ See, e.g., Wachovia at 3; ARDA at 37; IBM at 27.
    Other commenters asked that, in connection with the requirement to 
maintain employee records, the revised proposed Rule more clearly 
define who is ``directly involved in telephone sales'' in order to 
minimize the burden of maintaining records on employees who might be 
only tangentially involved in telemarketing activities.162 In 
addition, some commenters asked that the Commission clarify that 
records on former employees be kept only on those persons who are 
employees on or after the effective date of the final Rule.163

    \162\ See, e.g., DMA at 35-36; ARDA at 37.
    \163\ See, e.g., NB at 5; Citicorp at 9; ARDA at 37.
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    The revised proposed Rule does not add clarifying language 
addressing these concerns. The Commission believes that the Rule is 
sufficiently clear about the types of telemarketing activities that 
would be subject to the Rule's provisions as to minimize the number and 
type of employees on whom records must be maintained. In addition, the 
Commission intends that any Rule requirements, including recordkeeping 
requirements, will commence with the effective date of the final Rule. 
Therefore, any records relating to employees and former employees would 
be required only for those persons who are or become employees or 
former employees on or after the effective date of the Rule.
    The revised proposed Rule incorporates suggestions from some 
commenters to clarify that the seller and telemarketer need not 
duplicate those records that are already maintained in the ordinary 
course of business.164 Additionally, Section 310.5(c) of the 
revised Rule permits a seller and telemarketer to allocate between 
themselves, by written agreement, responsibility for complying with the 
recordkeeping requirements. The revised proposed Rule further clarifies 
a seller's and a telemarketer's recordkeeping responsibilities. Under 
revised Section 310.5(d), absent a written agreement described in 
Section 310.5(c), a seller is responsible for complying with Sections 
310.5(a) (1)-(3) and a telemarketer is responsible for complying with 
Section 310.5(a)(4). Revised Section 310.5(d) allows sellers and 
telemarketers to keep the required records in any manner, format, or 
place as they keep such records in the ordinary course of business.

    \164\ See, e.g., Comcast at 6.
---------------------------------------------------------------------------

    Several commenters expressed concern that sellers and telemarketers 
may not have access to all of the information required to be 
maintained, and requested that the Rule set out which parties should 
have responsibility for maintaining certain types of records.165 
After considering these comments, the Commission has determined that 
the language in Section 310.5(b) is already sufficiently clear to 
convey that the parties may enter into a written agreement allocating 
responsibility for maintaining records. Thus, there is nothing in 
Section 310.5(b) that would prohibit the parties from maintaining only 
those records to which they would normally have access, as long as each 
of the required types of information is maintained by at least one of 
the parties. Indeed, several commenters supported this Section, noting 
that it strikes a reasonable balance between maintaining necessary 
documentation and avoiding overly burdensome requirements, as well as 
noting that it is consistent with the contractual nature of the 
relationship between sellers and telemarketers.166

    \165\ See, e.g., MPA at 25; DSA at 21; OPC at 4.
    \166\ See, e.g., NRF at 41; ARDA at 37-38.
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    Finally, the Commission has deleted former Section 310.5(a)(5) that 
required that ``any written notices, disclosures, and acknowledgements 
required to be provided or received under this Rule'' be kept. The 
Commission deleted this Section because the revised proposed Rule no 
longer requires specific written disclosures and acknowledgements.

Section 310.6  Exemptions

    Section 310.6 of the initially proposed Rule exempts certain acts 
or practices from the Rule's provisions. This Section prompted 
considerable comment.
    Law enforcement and consumer groups cautioned against any 
exemptions because of the additional burden of proof exemptions place 
on law enforcement and because of the potential danger that deceptive 
telemarketers will seize upon any perceived loophole to avoid coverage 
under the Rule.167 At the workshop conference, DSA-Nev. explained 
Nevada's negative experience with legislative exemptions. DSA-Nev. 
stated that Nevada's telemarketing legislation exempted charitable 
solicitations. Shortly after its enactment, Nevada saw fraudulent 
telemarketers rushing to switch their operations to fraudulent 
``telefunding'' in order to take advantage of that exemption.168

    \167\ See, e.g., NCL at 54-55; NAAG at 37. See also Tr. at 254-
256, 704, and 725.
    \168\ Tr. at 82-84.
    The business community, however, suggested that the Commission 
formulate exemptions that specifically differentiate between deceptive 
and legitimate telemarketing because of the broad coverage of the 
initially proposed Rule.169 Industry suggested that the Commission 
take one or both of the following courses: (1) narrow the definition of 
``telemarketing'' to include only outbound telephone calls; 170 or 
(2) if the Commission decides to continue including inbound telephone 
calls, set forth additional exemptions that would allow the legitimate 
telemarketing industry to operate without the restraints of additional 
regulation.171

    \169\ See, e.g., NRF at 9; Time Warner at 4-7; DMA at 10-12. See 
also Tr. at 79-81, 702-703, and 710-711.
    \170\ See, e.g., MPA at 8-10; MSSC at 9-10; Olan at 19-20; ANA 
at 10; ACRA at 6-7.
    \171\ See, e.g., NRF at 20-21; ICTA at 31-35; Time Warner at 28.
---------------------------------------------------------------------------

    After careful consideration, the Commission has decided that 
narrowly-tailored exemptions are necessary to avoid unduly burdening 
legitimate businesses and sales transactions that Congress specifically 
intended not to cover under the Rule. Section 310.6 enumerates these 
exemptions. The Commission determined the advisability of each 
exemption after considering the following factors: (1) Whether the 
conduct or business in question already is regulated extensively by 
Federal or State law; (2) whether Congress intended that a certain type 
of telemarketing activity be exempt under the Rule; (3) whether, based 
on the Commission's enforcement experience, the conduct or business 
lends itself easily to deception or abuse; and (4) whether requiring 
businesses to comply with the Rule would be unduly burdensome when 
weighed against the likelihood that deceptive sellers or telemarketers 
would use an exemption to circumvent the Rule's coverage. 
[[Page 30422]] 
    The revised proposed Rule incorporates the suggestions of numerous 
commenters and exempts transactions that are subject to extensive 
requirements under other Commission rules.172 Section 310.6(a) 
exempts pay-per-call services subject to the FTC's 900 Number 
Rule.173 Additionally, the Commission has clarified the definition 
of ``investment opportunity'' in Section 310.2(j) of the revised 
proposed Rule to expressly state that the term does not include sales 
of franchises subject to the FTC's Franchise Rule.174

    \172\ See, e.g., IFA at 4; Time Warner at 44-45; CHC at 7; ISA 
at 20-27; PMAA at 34-38.
    \173\ ``Trade Regulation Rule Pursuant to the Telephone 
Disclosure and Dispute Resolution Act of 1992,'' 16 CFR Part 308.
    \174\ ``Disclosure Requirements and Prohibitions Concerning 
Franchising and Business Opportunity Ventures,'' 16 CFR Part 436.
---------------------------------------------------------------------------

    Many commenters suggested exemptions based on other FTC rules, 
statutes, and regulations, for example, the Negative Option Rule, 16 
CFR Part 425, FDCPA, 15 U.S.C. 1692, and the TILA, 15 U.S.C. 1601 et 
seq.).175 The Commission believes that changing the phrase 
``induce payment'' to ``induce purchase'' in the definition of 
``telemarketing'' clarifies that debt collection practices are not 
covered by this Rule. With regard to credit statutes such as the TILA 
and the Consumer Leasing Act [``CLA''], 15 U.S.C. 1667, the Commission 
believes that the revised proposed Rule's disclosure requirements do 
not conflict or overlap with those statutes. It is therefore 
unnecessary to specifically exempt transactions subject to the TILA and 
CLA from the provisions of this Rule. Similarly, the Commission 
believes that the disclosure provisions of the Negative Option Rule do 
not conflict or overlap with the provisions of this Rule and therefore 
there is no need to exempt those transactions.

    \175\ See, e.g., BOB at 2; ANA at 14; ABA at 3; ACA at 1; 
Advanta at 2; MBNA at 1.
---------------------------------------------------------------------------

    Other commenters asked that the Commission exempt those entities 
that are not subject to the FTC Act.176 The revised proposed Rule 
has added language to Section 310.1 that clarifies the scope of the 
Rule in accordance with those comments. Many of these commenters, 
however, also asked that agents of exempt entities or of entities 
engaging in exempt activities similarly be exempted from the Rule's 
provisions.177 The Commission rejects such an extension. 
Exemptions under the FTC Act are either based on ``status,'' or a 
specific activity.178 Exempting agents is contrary to the 
Commission's assertion of its jurisdiction under established case law. 
This Rule will cover sellers and telemarketers who do not fall within 
those status or activity-based exemptions of the FTC Act. Moreover, the 
Commission's decision is consistent with Congressional intent that the 
Telemarketing Act neither expand nor contract the Commission's 
authority.179

    \176\ See, e.g., GHAA at 3; AT&T at 6-13; AmEx at 3; ABA at 1; 
BOB at 1; ASAE at 2; SCIC at 7.
    \177\ See, e.g., ABA at 1; Advanta at 1; Chase at 2; Citicorp at 
3; NFN at 2.
    \178\ See 15 U.S.C. 44 and 45(a)(2). For examples of status 
exemptions, see FTC v. Green Tree Acceptance Corp., No. CA-4-86-469-
K, slip op. (N.D. Tx. Sep. 30, 1987); Official Airlines Guides, Inc. 
v. FTC, 630 F.2d 920 (2d Cir. 1980); FTC v. Miller, 549 F.2d 452 
(7th Cir. 1977); Breen Air Freight, Ltd. v. Air Cargo, Inc., 470 
F.2d 767 (2d Cir. 1972). For an example of an activity exemption, 
see Community Blood Bank of Kansas City, Inc. v. FTC, 405 F.2d 1011 
(8th Cir. 1969).
    \179\ See Senate Report at 14.
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    Section 310.6(b) of the revised proposed Rule exempts ``telephone 
calls in which the sale of goods or services is not completed, and 
payment or authorization of payment is not required, until after a 
face-to-face sales presentation by the seller during which the customer 
has the opportunity to examine the goods or services offered.'' In 
addition to Congress' clear intent not to cover such 
transactions,180 numerous commenters explained how face-to-face 
sales are not the type of telemarketing transactions that Congress was 
concerned about in passing the Telemarketing Act.181 The 
Commission agrees that such face-to-face contacts where consumers have 
the opportunity to examine the goods or services should be exempt under 
the Rule. This exemption also applies to telephone contacts made 
subsequent to a face-to-face sales presentation to the extent such 
contacts are for the sole purpose of consummating the sale of goods or 
services that the customer had the opportunity to examine.

    \180\ House Report at 7; Senate Report at 7-8.
    \181\ See, e.g., DSA.
    Section 310.6(c) of the revised proposed Rule exempts telephone 
calls initiated by a customer that are not the result of any 
solicitation by the seller or telemarketer. The Commission added this 
exemption to address many commenters' concerns that the definition of 
telemarketing might include an inbound call from a customer to make 
hotel, airline, car rental or similar reservations, to place carry-out 
or restaurant delivery orders, obtain information or customer technical 
support, or other incidental uses of the telephone that were not in 
response to a direct solicitation.\182\ This exemption is consistent 
with Congress' intent not to cover transactions involving incidental 
use of the telephone.\183\

    \182\ See, e.g., ACRA at 6; DSA at 5; Olan at 19-20; Viacom at 
6-7; MCI at 5-6.
    \183\ Senate Report at 8.
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    The Commission has replaced former Section 310.6(c) with revised 
Sections 310.6(d) and (e). Section 310.6(c) of the initially proposed 
Rule had exempted telephone contacts made by a person ``when there has 
been no initial sales contact directed to that particular person, by 
telephone or otherwise, from the seller or telemarketer.'' Many 
commenters expressed confusion over what was meant by ``initial sales 
contact'' or ``directed to that particular person,'' and requested that 
the Commission clarify the scope of this exemption.\184\ The Commission 
agrees that clarification is needed as to the scope of this exemption. 
Revised proposed Sections 310.6(d) and (e) now treat separately calls 
prompted by advertisements in any media, other than direct mail 
solicitations, and calls prompted by direct mail solicitations. Revised 
Section 310.6(d) exempts ``telephone calls initiated by a customer in 
response to an advertisement through any media, other than direct mail 
solicitations; provided, however, that this exemption does not apply to 
calls initiated by a customer in response to an advertisement relating 
to investment opportunities, goods or services described in Sections 
310.4(a)(2)-(3), or advertisements that guarantee or represent a high 
likelihood of success in obtaining or arranging for extensions of 
credit, if payment of a fee is required in advance of obtaining the 
extension of credit.'' The revised language of Section 310.5(d) 
addresses some commenters' concerns that calls in response to 
television commercials, infomercials, magazine and newspaper 
advertisements, and other forms of mass media advertising would be 
covered by the Rule.\185\ The Commission does not intend that telephone 
contacts in response to general media advertising be covered under the 
Rule. Rather, deceptive general media advertising will continue to be 
subject to enforcement actions under the FTC Act.

    \184\ See, e.g., ANA at 10-11; Viacom at 6-7; Olan at 27; AFSA 
at 3-4; QVC at 13-14; DMA at 37; MPA at 9; Time Warner at 26-27.
    \185\ See, e.g., INTV at 4; QVC at 2-3; NAA at 10-12; ANA at 10-
11.
---------------------------------------------------------------------------

    On the other hand, the Commission knows that some fraudulent 
sellers and telemarketers use mass media or general advertising to 
entice their victims to call, particularly in relation to the sale of 
investment opportunities, specific credit-related programs, and 
recovery rooms. Given the Commission's [[Page 30423]] experience with 
these fraudulent telemarketing schemes being marketed through 
television commercials, infomercials, magazine and newspaper 
advertisements, and other forms of mass media advertising, the 
Commission has excluded these activities from the general media 
advertising exemption.
    The revised proposed Rule no longer excludes ``prize promotions'' 
from the general media exemption because the Commission believes that 
the majority of fraudulent prize promotions do not employ mass media or 
general advertising. In addition, the revised proposed Rule has dropped 
``employment services'' as one of the exceptions to the general media 
exemption. Although the Commission and other law enforcement agencies 
have brought actions against advance fee employment services that use 
mass media advertising, many legitimate employment services use the 
same type of mass media advertising and also require advance fees. The 
Commission believes that neither the legislative history of the 
Telemarketing Act nor the rulemaking record for the Rule provide a 
sufficient basis for singling out the employment service industry for 
an exception to the general media advertising exemption. Deceptive 
employment opportunity advertising will, however, still be subject to 
enforcement actions under the FTC Act.
    Section 310.6(e) exempts telephone calls initiated by a customer in 
response to ``a direct mail solicitation that clearly and conspicuously 
discloses all material information listed in Section 310.3(a)(1) of 
this Rule for any item offered in the direct mail solicitation; 
provided, however, that this exemption does not apply to calls 
initiated by a customer in response to a direct mail solicitation 
relating to investment opportunities, goods or services described in 
Sections 310.4(a)(2)-(3), or direct mail solicitations that guarantee 
or represent a high likelihood of success in obtaining or arranging for 
extensions of credit, if payment of a fee is required in advance of 
obtaining the extension of credit.'' Some commenters suggested that the 
Commission include under the general media exemption all direct mail 
solicitations--which, in effect, would have excluded all inbound calls 
from coverage under the Rule. However, the Commission's enforcement 
experience demonstrates that deceptive telemarketers frequently use 
direct mail solicitations as an integral part of their fraudulent 
schemes. Inbound calls prompted by such solicitations frequently result 
in the caller being subjected to the deceptive practices the 
Telemarketing Act is designed to address. Therefore, the Commission has 
determined that including all direct mail solicitations within the 
general media exemption is unworkable. The Commission acknowledges, 
however, that most direct mail solicitations are not deceptive. In 
particular, the likelihood of deception is greatly diminished when 
direct mail solicitations contain all material information about the 
offered goods or services. Revised Section 310.6(e) therefore exempts 
only those direct mail solicitations that disclose, clearly and 
conspicuously, all the information specified in Section 310.3(a)(1) as 
material to a person's purchase decision. As in the general media 
exemption, revised Section 310.6(e) excludes from this exemption direct 
mail solicitations relating to investment opportunities, specific 
credit-related programs, and recovery rooms because of the Commission's 
enforcement experience in these areas.
    The Commission decided to delete the ``de minimis'' exemption for 
incidental telemarketing activity contained in former Section 310.6(a). 
Comments indicate that neither the law enforcement nor the business 
communities found such an exemption helpful or workable. Law 
enforcement agencies believed that the exemption would hamper quick law 
enforcement, while providing a loophole for fraudulent telemarketers 
who specialize in high-price scams directed at only a few victims.\186\ 
The business community found the exemption to be so restrictive that it 
would be of little significance.\187\ The Commission agrees with those 
observations and believes that revisions made elsewhere in the revised 
proposed Rule, including exemptions in Section 310.6, eliminate the 
need for this specific exemption.

    \186\ See, e.g., NYSCPB at 13; NACAA at 6; NAAG at 38-40; IA DOJ 
at 21.
    \187\ See, e.g., DMA at 36; Olan at 27; ICTA at 57; AAAA at 6.
---------------------------------------------------------------------------

    Comments about the initially proposed ``business-to-business'' 
exemption \188\ fell to opposite extremes. Several industry commenters 
asked that the exemption be expanded to include entities other than 
businesses.\189\ Other commenters asked that the Commission clarify the 
type of office supplies excluded from the exemption.\190\ Still other 
industry commenters suggested that a ``business-to-business'' exemption 
was only defensible if provided on an across-the-board basis, without 
exceptions.\191\ On the other hand, law enforcement and consumer 
agencies urged the Commission to exclude additional goods or services 
from the business-to-business exemption.\192\

    \188\ Initially proposed Rule Section 310.6(b).
    \189\ See, e.g., Viacom at 9.
    \190\ See, e.g., IBM at 28; BPIA at 4.
    \191\ See DMA at 36-37.
    \192\ See NAAG at 41; ID AG at 2; USPS at 25.
---------------------------------------------------------------------------

    Because the Commission has extensive enforcement experience 
pertaining to deceptive telemarketing directed to businesses, it does 
not believe that an across-the-board exemption for business-to-business 
contacts is appropriate. The Commission does agree, however, that 
clarification of the goods or services that are excluded from this 
exemption is necessary. Revised Section 310.6(f) states that only the 
retail sale of nondurable office or cleaning supplies are excluded from 
the exemption.\193\

    \193\ See, e.g., IBM at 28; BPIA at 4.
---------------------------------------------------------------------------

    Many commenters suggested an exemption for transactions where the 
customer is able to examine the goods or services before paying for 
them but does not involve a face-to-face sales presentation.\194\ The 
Commission does not believe such an exemption is necessary, given the 
changes elsewhere in the revised proposed Rule, as noted above.

    \194\ See, e.g., CHC at 8, 12.
---------------------------------------------------------------------------

    Many commenters suggested an exemption based on a prior business 
relationship with the customer.\195\ The Commission does not believe 
that such an exemption would be workable in the context of 
telemarketing fraud. A fraudulent telemarketer need only obtain an 
initial purchase from an unsuspecting victim to claim a ``prior 
business relationship'' exemption.

    \195\ See, e.g., ARDA at 39; ACRA at 9-10; MSSC at 27; Time 
Warner at 44; ADC at 2; DMA at 38.
---------------------------------------------------------------------------

    In addition, many commenters suggested an exemption for 
``established businesses,'' including businesses that offer basic 
customer protection policies such as a moneyback guarantee.\196\ The 
Commission agrees with the comments of other law enforcement agencies 
that such broad-based ``safe harbor'' provisions are not 
appropriate.\197\

    \196\ See, e.g., Time Warner at 23-26; DMA at 38; AmEx at 2; 
APAC at 1-2,6; Viacom at 6; Olan at 28; ACRA at 10; ARDA at 40; NRF 
at 17-18.
    \197\ See, e.g., Tr. at 705-26.
---------------------------------------------------------------------------

    Such a ``safe harbor'' or ``established business'' exemption might 
have an anticompetitive effect on new businesses entering the market. 
In addition, the experience of law enforcement agencies indicates that 
much telemarketing fraud is perpetrated by so-called ``established 
businesses.'' Furthermore, the existence of policies such as a 
moneyback guarantee is no assurance that the company is not fraudulent. 
Law enforcement agencies are well aware that fraudulent 
[[Page 30424]] telemarketers often tout their ``moneyback guarantees'' 
and refund policies as part of the sales solicitation. Unfortunately, 
such companies rarely honor those moneyback guarantees. Therefore, the 
Commission has decided not to include a broad ``safe harbor'' or 
``established business'' exemption in the revised proposed Rule. The 
Commission believes that changes made elsewhere in the revised proposed 
Rule, including exemptions set forth in Section 310.6, obviate the need 
for such an exemption or safe harbor.

Section 310.7  Actions by States and Private Persons

    The Telemarketing Act permits certain State officials and private 
persons to bring civil actions in an appropriate Federal district court 
for violations of this Rule.\198\ Section 310.7 of the initially 
proposed Rule set forth the notice such parties must provide to the 
Commission concerning those actions. The language regarding the notice 
has not changed in the revised proposed Rule. However, the revised 
proposed Rule has added Section 310.7(b), which clarifies that the Rule 
does not vest State officials or private persons with jurisdiction over 
any person or activity outside the jurisdiction of the FTC Act.

    \198\ See 15 U.S.C. 6103 and 6104.
    The Commission added this language in response to questions from a 
number of commenters regarding the scope of the Rule and the authority 
to bring actions for violations of the Rule.199 When coupled with 
the new language in section 310.1 on the scope of the Rule, the 
language in Section 310.7(b) clarifies that the Rule does not apply to 
any person outside the jurisdiction of the FTC Act, and that neither 
the Commission nor any other party authorized to bring suit for 
violations of the Rule may bring an action against such persons.

    \199\ See, e.g., AARP at 3; ABA at 1; BOB at 2.
---------------------------------------------------------------------------

    This restriction on the scope of the Rule and authority to bring 
actions under the Rule tracks Section 6(b) of the Telemarketing Act: 
``[N]o activity which is outside the jurisdiction of [the FTC] Act 
shall be affected by this Act.'' 200 The language also is 
consistent with the legislative history of the Telemarketing Act and 
reflects the intent of Congress:

    \200\ 15 U.S.C. 6105(b).

[T]he legislation * * * does not vest the FTC, the State attorneys 
general, or private parties with jurisdiction over any person over 
whom the FTC does not otherwise have authority.201

    \201\ Senate Report at 14.
---------------------------------------------------------------------------

Section 310.8  Federal Preemption

    Section 310.8 of the initially proposed Rule stated that nothing in 
the Rule shall be construed to preempt any State law that is not in 
direct conflict with any provision of the Rule. Several commenters 
asked that this Section clarify that the Rule establishes a threshold 
requirement that State laws can exceed as long as they do not conflict 
with the Rule's requirements.202 At least one commenter expressed 
concern that they would be subject to making State-required disclosures 
that are similar to the Rule's requirements but not directly in 
conflict.203

    \202\ See, e.g., AARP at 25; NYSCPB at 13-14; NAAG at 41-42; 
NACAA at 6.
    \203\ See Prudential at 4.
---------------------------------------------------------------------------

    The Commission does not believe any changes are necessary to this 
Section. The language in this Section is clear and provides sufficient 
guidance that additional State requirements and prohibitions would be 
permitted as long as they do not conflict directly with the Rule. Thus, 
State registration, certification, or licensing requirements for 
telemarketing most likely would not be preempted because they would not 
be in direct conflict with any provisions of this Rule.
Effective Date
    The NPR asked for comments on whether 30 days would provide 
sufficient time to come into compliance with the initially proposed 
Rule provisions.204 Most of the parties who commented on the 
effective date indicated that 30 days would be insufficient given the 
need ``to make system changes, establish training programs [for] 
employees involved in telephone sales * * *, develop new recordkeeping 
procedures, prepare written disclosure and acknowledgement forms, draft 
and negotiate new contracts with service bureaus, [and] develop 
internal monitoring programs.'' 205 Most of the commenters who 
believed 30 days was insufficient suggested a 6-month time frame in 
order to achieve compliance.206 NCL noted that some of the 
prohibited deceptive and fraudulent practices could be instituted 
immediately (for example, the prohibitions against misrepresentations), 
but that industry might need additional time to comply with certain 
other requirements of the initially proposed Rule.207

    \204\ 60 FR at 8328.
    \205\ NRF at 41. See also APAC at 9; NCL at 55; Olan at 29; NAA 
at 24; DMA at 40; SCIC at 71; ARDA at 41; Time Warner at 41. But see 
USPS at 26.
    \206\ See, e.g., DMA at 40; Olan at 29; NRF at 41; SCIC at 7; 
Time Warner at 41.
    \207\ NCL at 55.
---------------------------------------------------------------------------

    Because the revised proposed Rule eliminates many of the disclosure 
requirements that generated the foregoing compliance time predictions, 
the Commission proposes to set the effective date at 30 days from the 
date the final Rule is published. Thirty days should not unduly burden 
legitimate industry because, based on information provided by industry, 
legitimate sellers and telemarketers already comply with the revised 
proposed Rule. For example, legitimate industry represented that it 
already makes the affirmative disclosures required under Section 
310.3(a)(1); it does not misrepresent material information pertaining 
to the sale of goods or services prohibited under Section 310.3(a)(2); 
it does not knowingly provide substantial assistance or support to 
deceptive sellers or telemarketers prohibited under Section 310.3(b); 
and it does not engage in credit card laundering prohibited under 
Section 310.3(c). Further, telemarketers have been required to comply 
with the TCPA since 1992 and should already have in place and be 
implementing the ``do not call'' procedures required under that Act. 
Such procedures therefore would comply with Section 310.4(b)(2) of this 
Rule, as well. Finally, the Commission understands from the workshop 
that participants already maintain the records required under Section 
310.5. Because the Commission does not require that records be kept in 
any special form, legitimate industry is most likely already in 
compliance with Section 310.5 of the Rule. Based on the foregoing, the 
Commission does not believe that a further delayed effective date for 
the Rule is reasonable.
Section C. Invitation To Comment

    Before adopting this revised proposed Rule as final, consideration 
will be given to any written comments submitted to the Secretary of the 
Commission on or before June 30, 1995. Comments submitted will be 
available for public inspection in accordance with the Freedom of 
Information Act, 5 U.S.C. 552, and Commission regulations, on normal 
business days between the hours of 8:30 a.m. and 5 p.m. at the Public 
Reference Section, Room 130, Federal Trade Commission, 6th Street and 
Pennsylvania Avenue, NW., Washington, DC 20580. [[Page 30425]] 

Section D. Communications by Outside Parties to Commissioners or 
Their Advisors

    Pursuant to Commission Rule 1.26(b)(5), communications with respect 
to the merits of this proceeding from any outside party to any 
Commissioner or Commissioner advisor during the course of this 
rulemaking shall be subject to the following treatment. Written 
communications, including written communications from members of 
Congress, shall be forwarded promptly to the Secretary for placement on 
the public record. Oral communications, not including oral 
communications from members of Congress, are permitted only when such 
oral communications are transcribed verbatim or summarized at the 
discretion of the Commissioner or Commissioner advisor to whom such 
oral communications are made and are promptly placed on the public 
record, together with any written communications and summaries of any 
oral communications relating to such oral communications. Oral 
communications from members of Congress shall be transcribed or 
summarized at the discretion of the Commissioner or Commissioner 
advisor to whom such oral communications are made and promptly placed 
on the public record, together with any written communications and 
summaries of any oral communications relating to such oral 
communications.

Section E. Regulatory Flexibility Act

    During the comment period, only a few commenters 208 asserted 
that the initially proposed Rule might have a significant economic 
impact on a substantial number of small entities. However, based on the 
revised proposed Rule's modified regulatory approach, the provisions of 
the Regulatory Flexibility Act relating to an initial and final 
regulatory analysis, 5 U.S.C. 603, 604, are not applicable to this 
document because it is believed that these revised regulations, if 
promulgated, will not have a significant economic impact on a 
substantial number of small entities, 5 U.S.C. 605.

    \208\ See generally Olan; ATFA; ANA; ABA.
---------------------------------------------------------------------------

    The Telemarketing Act requires the Commission to issue regulations, 
not later than 365 days after the date of enactment, prohibiting 
deceptive telemarketing acts or practices and other abusive 
telemarketing acts or practices. The Act limits the scope of the 
regulations to entities that engage in telemarketing through one or 
more interstate telephone calls; telemarketing sales by local companies 
to local customers would most likely be intrastate calls and thus 
outside the parameters of the proposed rule. The Act also exempts 
certain catalog sales operations from the scope of the regulations. In 
addition, the revised proposed rule exempts pay-per-call services 
subject to the Commission's ``Trade Regulation Rule Pursuant to the 
Telephone Disclosure and Dispute Resolution Act of 1992,'' exempts 
telephone calls in which a payment is not required until after a face-
to-face sales presentation has occurred, telephone calls initiated by a 
customer that are not in response to any solicitation, and customer 
telephone calls that are in response to mass media advertising.
    As a result of these statutory and regulatory limitations, the 
Commission believes that many small entities will fall outside the 
scope of the regulations. In addition, any economic costs imposed on 
small entities remaining within the parameters of the rule are, in many 
instances, specifically imposed by statute. Where they are not, efforts 
have been made to make the revised proposed Rule's requirements 
flexible, in part to minimize any unforeseen burden on small entities, 
as described elsewhere in this notice.
    To ensure that no substantial economic impact is being overlooked, 
public comment is requested on the effect of the proposed regulations 
on the costs to, profitability and competitiveness of, and employment 
in small entities. Subsequent to the receipt of public comments, it 
will be decided whether the preparation of a final regulatory 
flexibility analysis is warranted. Accordingly, based on available 
information, the Commission hereby certifies under the Regulatory 
Flexibility Act, 5 U.S.C. 605(b), that the proposed regulations will 
not have a significant economic impact on a substantial number of small 
entities. This notice serves as certification to that effect for the 
purposes of the Small Business Administration.

List of Subjects in 16 CFR Part 310

    Telemarketing, Trade practices.
    Accordingly, it is proposed that chapter I of 16 CFR be amended by 
adding a new part 310 to read as follows:

PART 310--TELEMARKETING SALES RULE

Sec.
310.1 Scope of regulations in this part.
310.2 Definitions.
310.3 Deceptive telemarketing acts or practices.
310.4 Abusive telemarketing acts or practices.
310.5 Recordkeeping requirements.
310.6 Exemptions.
310.7 Actions by states and private persons.
310.8 Federal preemption.
310.9 Severability.

    Authority: 15 U.S.C. 6101-6108.
Sec. 310.1  Scope of regulations in this part.

    This part implements the Telemarketing and Consumer Fraud and Abuse 
Prevention Act, 15 U.S.C. 6101-6108. This part does not apply to any 
activity outside the jurisdiction of the Federal Trade Commission Act, 
15 U.S.C. 41, et seq.


Sec. 310.2  Definitions.

    (a) Acquirer means a business organization, financial institution, 
or an agent of a business organization or financial institution that 
has authority from an organization that operates or licenses a credit 
card system to authorize merchants to accept, transmit, or process 
payment by credit card through the credit card system for money, goods 
or services, or anything else of value.
    (b) Attorney general means the chief legal officer of a State.
    (c) Cardholder means a person to whom a credit card is issued or 
who is authorized to use a credit card on behalf of or in addition to 
the person to whom the credit card is issued.
    (d) Commission means the Federal Trade Commission.
    (e) Credit means the right granted by a creditor to a debtor to 
defer payment of debt or to incur debt and defer its payment.
    (f) Credit card means any card, plate, coupon book, or other credit 
device existing for the purpose of obtaining money, property, labor, or 
services on credit.
    (g) Credit card sales draft means any record or evidence of a 
credit card transaction.
    (h) Credit card system means any method or procedure used to 
process credit card transactions involving credit cards issued or 
licensed by the operator of that system.
    (i) Customer means any person who is or may be required to pay for 
goods or services offered through telemarketing.
    (j) Investment opportunity means anything, tangible or intangible, 
that is offered, offered for sale, sold, or traded based wholly or in 
part on representations, either expressed or implied, about past, 
present, or future income, profit, or appreciation. The term 
``investment opportunity'' does not include sales of franchises subject 
to the Commission's Rule entitled ``Disclosure Requirements and 
Prohibitions [[Page 30426]] Concerning Franchising and Business 
Opportunity Ventures,'' 16 CFR part 436.
    (k) Material means likely to affect a person's choice of, or 
conduct regarding, goods or services.
    (l) Merchant means a person who is authorized under a written 
contract with an acquirer to honor or accept credit cards, or to 
transmit or process for payment credit card payments, for the purchase 
of goods or services.
    (m) Merchant agreement means a written contract between a merchant 
and an acquirer to honor or accept credit cards, or to transmit or 
process for payment credit card payments, for the purchase of goods or 
services.
    (n) Outbound telephone call means a telephone call initiated by a 
telemarketer to induce the purchase of goods or services.
    (o) Person means any individual, group, unincorporated association, 
limited or general partnership, corporation, or other business entity.
    (p) Prize means anything offered, or purportedly offered, and 
given, or purportedly given, to a person by chance. For purposes of 
this definition, chance exists if a person is guaranteed to receive an 
item and, at the time of the offer or purported offer, the telemarketer 
does not identify the specific item that the person will receive.
    (q) Prize promotion means:
    (1) A sweepstakes or other game of chance; or
    (2) An oral or written express or implied representation that a 
person has won, has been selected to receive, or may be eligible to 
receive a prize or purported prize.
    (r) Seller means any person who, in connection with a telemarketing 
transaction, provides or offers to provide goods or services to the 
customer in exchange for consideration.
    (s) State means any State of the United States, the District of 
Columbia, Puerto Rico, the Northern Mariana Islands, and any territory 
or possession of the United States.
    (t) Telemarketer means any person who, in connection with 
telemarketing, initiates or receives telephone calls to or from a 
customer.
    (u) Telemarketing means a plan, program, or campaign which is 
conducted to induce the purchase of goods or services by use of one or 
more telephones and which involves more than one interstate telephone 
call. The term does not include the solicitation of sales through the 
mailing of a catalog which: contains a written description or 
illustration of the goods or services offered for sale; includes the 
business address of the seller; includes multiple pages of written 
material or illustrations; and has been issued not less frequently than 
once a year, when the person making the solicitation does not solicit 
customers by telephone but only receives calls initiated by customers 
in response to the catalog and during those calls takes orders only 
without further solicitation. For purposes of the previous sentence, 
the term ``further solicitation'' does not include providing the 
customer with information about, or attempting to sell, any other item 
included in the same catalog which prompted the customer's call or in a 
substantially similar catalog.


Sec. 310.3  Deceptive telemarketing acts or practices.

    (a) Prohibited deceptive telemarketing acts or practices. It is a 
deceptive telemarketing act or practice and a violation of this part 
for any seller or telemarketer to engage in the following conduct:
    (1) Before a customer pays for goods or services offered, failing 
to disclose, in a clear and conspicuous manner, the following material 
information:
    (i) The total costs to purchase, receive, or use, and the quantity 
of, any goods or services that are the subject of the sales offer;
    (ii) All material restrictions, limitations, or conditions to 
purchase, receive, or use the goods or services that are the subject of 
the sales offer;
    (iii) All material terms and conditions of the seller's refund, 
cancellation, exchange, or repurchase policies if a representation 
about any such policy is made a part of the sales offer; and
    (iv) That no purchase is necessary to win if a prize promotion is 
offered in conjunction with a sales offer of goods or services;
    (2) Misrepresenting, directly or by implication, any of the 
following material information:
    (i) The total costs to purchase, receive, or use, and the quantity 
of, any goods or services that are the subject of a sales offer;
    (ii) Any material restriction, limitation, or condition to 
purchase, receive, or use goods or services that are the subject of a 
sales offer;
    (iii) Any material aspect of the performance, efficacy, nature, or 
central characteristics of goods or services that are the subject of a 
sales offer;
    (iv) Any material aspect of the nature or terms of the seller's 
refund, cancellation, exchange, or repurchase policies;
    (v) Any material aspect of a prize promotion including, but not 
limited to, the odds of winning, the nature or value of a prize, or 
that payment is required to receive a prize;
    (vi) Any material aspect of an investment opportunity including, 
but not limited to, risk, liquidity, earnings potential, or 
profitability; or
    (vii) A seller's or telemarketer's affiliation with, or endorsement 
by, any government or third-party organization; and
    (3) Making a false or misleading statement to induce any person to 
pay for goods or services.
    (b) Assisting and facilitating. It is a deceptive telemarketing act 
or practice and a violation of this part for a person to provide 
substantial assistance or support to any seller or telemarketer when 
that person knows or consciously avoids knowing that the seller or 
telemarketer is engaged in any act or practice that violates Sec. 310.3 
(a) or (c), or Sec. 310.4 of this part, and such substantial assistance 
is related to the commission or furtherance of that act or practice.
    (c) Credit card laundering. Except as expressly permitted by the 
applicable credit card system, it is a deceptive telemarketing act or 
practice, and a violation of this part, for:
    (1) A merchant to present to or deposit into, or cause another to 
present to or deposit into, the credit card system for payment, a 
credit card sales draft generated by a telemarketing transaction that 
is not the result of a telemarketing credit card transaction between 
the cardholder and the merchant;
    (2) Any person to employ, solicit, or otherwise cause a merchant or 
an employee, representative, or agent of the merchant, to present to or 
deposit into the credit card system for payment, a credit card sales 
draft generated by a telemarketing transaction that is not the result 
of a telemarketing credit card transaction between the cardholder and 
the merchant; or
    (3) Any person to obtain access to the credit card system through 
the use of a business relationship or an affiliation with a merchant, 
when such access is not authorized by the merchant agreement or the 
applicable credit card system.


Sec. 310.4  Abusive telemarketing acts or practices.

    (a) Abusive conduct generally. It is an abusive telemarketing act 
or practice and a violation of this part for any seller or telemarketer 
to engage in the following conduct:
    (1) Threats, intimidation, or the use of profane or obscene 
language;
    (2) Requesting or receiving payment of any fee or consideration for 
goods or services represented to remove derogatory information from, or 
[[Page 30427]] improve, a person's credit history, credit record, or 
credit rating until:
    (i) The time frame in which the seller has represented all of the 
goods or services will be provided to that person has expired; and
    (ii) The seller has provided the person with documentation in the 
form of a consumer report from a consumer reporting agency 
demonstrating that the promised results have been achieved, such report 
having been issued more than six months after the results were 
achieved. Nothing in this part should be construed to affect the 
requirement in the Fair Credit Reporting Act, 15 U.S.C. 1681, that a 
consumer report may only be obtained for a specified permissible 
purpose;
    (3) Requesting or receiving payment of any fee or consideration 
from a person, for goods or services represented to recover or 
otherwise assist in the return of money or any other item of value paid 
for by, or promised to, that person in a previous telemarketing 
transaction, until seven (7) business days after such money or other 
item is delivered to that person. This provision shall not apply to 
goods or services provided to a person by a licensed attorney; or
    (4) Requesting or receiving payment of any fee or consideration in 
advance of obtaining a loan or other extension of credit when the 
seller or telemarketer has guaranteed or represented a high likelihood 
of success in obtaining or arranging a loan or other extension of 
credit for a person.
    (b) Pattern of calls. (1) It is an abusive telemarketing act or 
practice and a violation of this part for a telemarketer to engage in, 
or for a seller to cause a telemarketer to engage in, the following 
conduct:
     (i) Causing any telephone to ring, or engaging any person in 
telephone conversation, repeatedly or continuously with intent to 
annoy, abuse, or harass any person at the called number; or
     (ii) Initiating an outbound telephone call to a person when that 
person previously has stated that he or she does not wish to receive an 
outbound telephone call made by or on behalf of the seller whose goods 
or services are being offered.
    (2) A seller or telemarketer will not be liable for violating 
Sec. 310.4(b)(1)(ii) if:
     (i) It has established and implemented written procedures to 
comply with Sec. 310.4(b)(1)(ii);
     (ii) It has trained its personnel in the procedures established 
pursuant to Sec. 310.4(b)(2)(i);
     (iii) The seller, or the telemarketer acting on behalf of the 
seller, has maintained and recorded lists of persons who may not be 
contacted, in compliance with Sec. 310.4(b)(1)(ii); and
     (iv) Any subsequent call is the result of error.
    (c) Calling time restrictions. Without the prior consent of a 
person, it is an abusive telemarketing act or practice and a violation 
of this part for a telemarketer to engage in outbound telephone calls 
to a person's residence at any time other than between 8:00 a.m. and 
9:00 p.m. local time at the called person's location.
    (d) Required oral disclosures. It is an abusive telemarketing act 
or practice and a violation of this part for a telemarketer in an 
outbound telephone call to fail to disclose promptly and in a clear and 
conspicuous manner to the person receiving the call, the following 
information:
    (1) The identity of the seller;
    (2) That the purpose of the call is to sell goods or services;
    (3) The nature of the goods or services; and
    (4) That no purchase is necessary to win if a prize promotion is 
offered in conjunction with a sales offer of goods or services. This 
disclosure must be made before the prize is described to the person 
called. If requested by that person, the telemarketer must disclose the 
no-purchase entry method for the prize promotion.


Sec. 310.5  Recordkeeping requirements.

    (a) Any seller or telemarketer shall keep, in any form, for a 
period of 24 months from the date the record is produced, the following 
records relating to its telemarketing activities:
    (1) All substantially different advertising, brochures, 
telemarketing scripts, and promotional materials;
    (2) The name and last known address of each prize recipient and the 
prize awarded for prizes that have a value of $25.00 or more;
    (3) The name and last known address of each customer, the goods or 
services purchased, the date such goods or services were shipped or 
provided, and the amount paid by the customer for the goods or 
services; and
    (4) The name, any fictitious name used, the last known home address 
and telephone number, and the job title(s) for all current and former 
employees directly involved in telephone sales.
    (b) Failure to keep all records required by Sec. 310.5(a) shall be 
a violation of this part.
    (c) The seller and the telemarketer calling on behalf of the seller 
may, by written agreement, allocate responsibility between themselves 
for the recordkeeping required by this section. When a seller and 
telemarketer have entered into such an agreement, the terms of that 
agreement shall govern, and the seller or telemarketer, as the case may 
be, need not keep records that duplicate those of the other. If the 
agreement is unclear as to who must maintain any required record(s), 
the seller shall be responsible for keeping such records.
    (d) Absent a written agreement described in section 310.5(c) 
between the seller and the telemarketer, the seller shall be 
responsible for complying with Sec. 310.5(a) (1), (2) and (3); the 
telemarketer shall be responsible for complying with Sec. 310.5(a)(4). 
The seller and telemarketer may keep any required records in the 
manner, format, or place as they keep such records in the ordinary 
course of business.
    (e) In the event of any dissolution or termination of the seller's 
or telemarketer's business, the principal of that seller or 
telemarketer shall maintain all records as required under this section. 
In the event of any sale, assignment, succession, or other change in 
ownership of the seller's or telemarketer's business, the successor 
business shall maintain all records required under this section.


Sec. 310.6  Exemptions.

    The following telemarketing acts or practices are exempt under this 
part:
    (a) Pay-per-call services subject to the Commission's ``Trade 
Regulation Rule Pursuant to the Telephone Disclosure and Dispute 
Resolution Act of 1992,'' 16 CFR part 308.
    (b) Telephone calls in which the sale of goods or services is not 
completed, and payment or authorization of payment is not required, 
until after a face-to-face sales presentation by the seller during 
which the customer has the opportunity to examine the goods or services 
offered.
    (c) Telephone calls initiated by a customer that are not the result 
of any solicitation by a seller or telemarketer.
    (d) Telephone calls initiated by a customer in response to an 
advertisement through any media, other than direct mail solicitations; 
provided, however, that this exemption does not apply to calls 
initiated by a customer in response to an advertisement relating to 
investment opportunities, goods or services described in 
Sec. 310.4(a)(2) or (3), or advertisements that guarantee or represent 
a high likelihood of success in obtaining or arranging for extensions 
of credit, if payment of a fee is required in advance of obtaining the 
extension of credit.
    (e) Telephone calls initiated by a customer in response to a direct 
mail [[Page 30428]] solicitation that clearly and conspicuously 
discloses all material information listed in Sec. 310.3(a)(1) of this 
part for any item offered in the direct mail solicitation; provided, 
however, that this exemption does not apply to calls initiated by a 
customer in response to a direct mail solicitation relating to 
investment opportunities, goods or services described in 
Sec. 310.4(a)(2) or (3), or direct mail solicitations that guarantee or 
represent a high likelihood of success in obtaining or arranging for 
extensions of credit, if payment of a fee is required in advance of 
obtaining the extension of credit.
    (f) Telephone calls between a telemarketer and any business, except 
calls involving the retail sale of nondurable office or cleaning 
supplies.


Sec. 310.7  Actions by States and private persons.

    (a) Any attorney general or other officer of a State authorized by 
the State to bring an action under the Telemarketing and Consumer Fraud 
and Abuse Prevention Act, and any private person who brings an action 
under that Act, shall serve written notice of its action on the 
Commission, if feasible, prior to its initiating an action under this 
part. The notice shall be sent to the Office of the Director, Bureau of 
Consumer Protection, Federal Trade Commission, Washington, D.C. 20580, 
and shall include a copy of the State's or private person's complaint 
and any other pleadings to be filed with the court. If prior notice is 
not feasible, the State or private person shall serve the Commission 
with the required notice immediately upon instituting its action.
    (b) This part does not vest the attorney general of any State or 
any private person with jurisdiction over any person or activity 
outside the jurisdiction of the Federal Trade Commission Act.


Sec. 310.8  Federal preemption.

    Nothing in this part shall be construed to preempt any State law 
that is not in direct conflict with any provision of this part.


Sec. 310.9  Severability.

    The provisions of this part are separate and severable from one 
another. If any provision is stayed or determined to be invalid, it is 
the Commission's intention that the remaining provisions shall continue 
in effect.

     By direction of the Commission.
 Donald S. Clark,
Secretary.
[FR Doc. 95-13814 Filed 6-7-95; 8:45 am]
BILLING CODE 6750-01-P