[Federal Register Volume 60, Number 163 (Wednesday, August 23, 1995)]
[Rules and Regulations]
[Pages 43842-43877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20655]




[[Page 43841]]

_______________________________________________________________________

Part II





Federal Trade Commission





_______________________________________________________________________



16 CFR Part 310



Prohibition of Deceptive and Abusive Telemarketing Acts; Final Rule

  Federal Register / Vol. 60, No. 163 / Wednesday, August 23, 1995 / 
Rules and Regulations   

[[Page 43842]]


FEDERAL TRADE COMMISSION

16 CFR Part 310


Telemarketing Sales Rule

AGENCY: Federal Trade Commission.

ACTION: Statement of basis and purpose and final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Trade Commission (``Commission'' or ``FTC'') 
issues its Statement of Basis and Purpose and Final Rule pursuant to 
the telemarketing and Consumer Fraud and Abuse Prevention Act 
(``Telemarketing Act'' or the ``Act''). Section 3 of the Act directs 
the FTC to prescribe regulations, within 365 days of enactment of the 
Act, prohibiting deceptive and abusive telemarketing acts or practices.

EFFECTIVE DATE: The Rule will become effective December 31, 1995.

ADDRESSES: Requests for copies of the Rule and the Statement of Basis 
and Purpose should be sent to Public Reference Branch, Room 130, 
Federal Trade Commission, 6th Street and Pennsylvania Avenue, NW., 
Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Division of Marketing Practices: 
Judith M. Nixon (202) 326-3173, David M. Torok (202) 326-3140, or 
Carole I. Danielson (202) 326-3115, Federal Trade Commission, 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION: The Rule, in connection with any 
telemarketing transaction: (1) Requires clear and conspicuous 
disclosures of specified material information, orally or in writing, 
before a customer pays for goods or services offered; (2) prohibits 
misrepresenting, directly or by implication, specified material 
information relating to the goods or services that are the subject of a 
sales offer, as well as any other material aspects of a telemarketing 
transaction; (3) requires express verifiable authorization before 
submitting for payment a check, draft, or other form of negotiable 
paper drawn on a person's account; (4) prohibits false or misleading 
statements to induce payment for goods or services; (5) prohibits any 
person from assisting and facilitating certain deceptive or abusive 
telemarketing acts or practices; (6) prohibits credit card laundering; 
(7) prohibits specified abusive acts or practices; (8) imposes calling 
time restrictions; (9) requires specified information to be disclosed, 
truthfully, promptly, and in a clear and conspicuous manner, in an 
outbound telephone call; (10) requires that specified records be kept; 
and (11) specifies certain acts or practices that are exempt from the 
Rule.
Statement of Basis and Purpose

I. Introduction

    On August 16, 1994, the President signed into law the Telemarketing 
Act,1 which directs the Commission to prescribe regulations, 
within 365 days of enactment of the Act, prohibiting deceptive and 
abusive telemarketing acts or practices. The first step in meeting the 
Congressional directive was to publish a Notice of Proposed Rulemaking 
(``NPR'') in the Federal Register.2 The provisions of the 
initially proposed Rule published in the NPR were based on the 
legislative history of the Telemarketing Act,3 on the Commission's 
enforcement experience, and on information informally obtained from law 
enforcement and the telemarketing industry. The NPR gave interested 
persons 45 days to comment on the proposal. The comment period on the 
NPR closed on March 31, 1995. In response to the NPR, the Commission 
received over 350 comments from industry, law enforcement, consumer 
representatives, individual consumers, and businesses.4

    \1\ 15 U.S.C. 6101-08.
    \2\ 60 FR 8313-8333 (February 14, 1995).
    \3\ H.R. Rep. No. 20, 103rd Cong., 1st Sess.; S. Rep. No. 80, 
103rd Cong., 1st Sess. (hereinafter referred to as ``House Report'' 
and ``Senate Report,'' respectively).
    \4\ A list of the commenters to both the NPR and the Revised 
Notice of Proposed Rulemaking (``RNPRM''), including the acronyms 
used to identify each commenter in this Statement, is attached as an 
Appendix.
---------------------------------------------------------------------------

    From April 18 through 20, 1995, Commission staff conducted a public 
workshop conference in Chicago, Illinois, to discuss the issues raised 
in the NPR and the comments received in response to the NPR. Twenty 
associations or individual businesses were selected to engage in a 
roundtable discussion at the conference.5 These participants were 
selected based upon (1) their interest in the rulemaking based on the 
likely effect the Rule ultimately will have on them or their members, 
and (2) their ability to represent others with similar interests. 
Participants discussed key aspects of the initially proposed Rule, 
addressed each other's comments and questions, and responded to 
questions from Commission staff. The conference was open to the public, 
and more than 150 observers attended. Time was reserved for oral 
comments from members of the public each day, and 37 persons spoke 
during the course of the three-day conference. The entire proceeding 
was transcribed, and the transcript was placed on the public 
record.6

    \5\ 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.
    \6\ 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].'' Unless 
otherwise indicated, all comment references in this Statement are to 
the comments received in response to the RNPRM.
---------------------------------------------------------------------------

    On May 3, 1995, in an open meeting, Commission staff briefed all 
the Commissioners about the rulemaking process, the issues raised in 
the written comments and the public workshop conference, and outlined 
possible approaches to address the issues commenters raised. The 
briefing was transcribed, and the transcript was placed on the public 
record.
    On June 8, 1995, the Commission published in the Federal Register a 
Revised Notice of Proposed Rulemaking (``RNPRM'') 7 for additional 
public comment. The revised proposed Rule published in the RNPRM 
reflected continued consideration of the Act's legislative history, the 
written comments received in response to the NPR, and information 
learned at the workshop conference. The public comment period on the 
RNPRM closed on June 30, 1995. The Commission received over 350 
comments to the RNPRM from interested parties, including industry, law 
enforcement, consumer representatives, individual consumers, and 
businesses.

    \7\ 60 FR 30406-30428 (June 8, 1995).
---------------------------------------------------------------------------

    Individual consumers who commented favored restricting 
telemarketing; some even urged the Commission to prohibit telemarketing 
completely. Industry and business comments were generally positive 
about the revised proposed Rule. Law enforcement and consumer groups, 
however, expressed concern that many of the provisions in the initially 
proposed Rule, which, they asserted, provided consumers with much 
needed protection, had been eliminated from the revised proposed Rule.
    The entire public record to date, including the comments, the 
public workshop conference transcript, and the Commission open meeting 
transcript is available on CD-ROM. In addition, the public record up 
to, but not including the RNPRM and the comments received in response 
to the RNPRM, was placed on the Internet.8

    \8\ The FTC gopher server address is CONSUMER.FTC.GOV 2416. For 
World Wide Web access, the URL is GOPHER://CONSUMER.FTC.GOV:2416. 

[[Page 43843]]

---------------------------------------------------------------------------

II. Discussion of the Rule

A. Section 310.1: Scope of the Regulations
    Section 310.1 of the Final Rule states that this part implements 
the Telemarketing Act.
    The Commission received a number of comments on the initially 
proposed Rule asking that the Commission expressly exempt those 
entities that are not subject to the Federal Trade Commission Act 
(``FTC Act''), 15 U.S.C. 41 et seq.9 In response to those 
comments, the revised proposed Rule added language to this Section that 
was intended to clarify that the Rule does not apply to any activity 
outside the jurisdiction of the FTC Act. In that regard, the Commission 
quoted the Telemarketing Act as follows:

    \9\ See, e.g., initial comments: GHAA at 3; AT&T at 6-13; AmEx 
at 3; ABA at 1; BOB at 1; ASAE at 2; SCIC at 7.
---------------------------------------------------------------------------

    [N]o activity which is outside the jurisdiction of (the FTC) Act 
shall be affected by this Act.10

    \10\ 15 U.S.C. 6105(a).
---------------------------------------------------------------------------

    After reviewing the record in this rulemaking, the Commission has 
decided to delete the additional language from the Final Rule. The 
Telemarketing Act makes clear that the Rule does not apply to any 
activity excluded from the Commission's jurisdiction; thus, restating 
this in the Rule is unnecessary. By deleting this language, the 
Commission does not intend to expand or contract its jurisdiction or 
the scope of the Rule's coverage. The Commission's jurisdictional 
limitations are set forth in section 5(a)(2) of the FTC Act; 11 
accordingly, the Rule does not apply to:

    \11\ 15 U.S.C. 45(a)(2).

    banks, savings and loan institutions described in section 
18(f)(3), 12 Federal credit unions described in section 
18(f)(4), 13 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 amended, except as provided in section 
---------------------------------------------------------------------------
406(b) of said Act.14

    \12\ 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. 
    \13\ 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).''
    \14\ 15 U.S.C. 45(a)(2).
---------------------------------------------------------------------------

    In addition, the Rule does not apply to any entity that is not 
``organized to carry on business for its own profit or that of its 
members.'' 15 Finally, the Rule does not apply to the business of 
insurance to the extent that such business is regulated by State 
law.16

    \15\ See 15 U.S.C. 44.
    \16\ See Section 2 of the McCarran-Ferguson Act, 15 U.S.C. 
1012(b).
---------------------------------------------------------------------------

    Other commenters 17 requested that the Final Rule expressly 
exclude from coverage those investment entities which were expressly 
excluded under the Telemarketing Act.18 Again, the Telemarketing 
Act clearly excludes such entities and the Rule need not reiterate the 
statutory exclusion.

    \17\ See, e.g., CUNA at 3-4.
    \18\ As noted in the RNPRM, 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.
---------------------------------------------------------------------------

    The Commission also received comments expressing differing views on 
whether parties acting on behalf of organizations exempt under section 
5 of the FTC Act should be expressly exempt from the Rule. Some 
commenters urged the Commission to exclude agents of exempt 
organizations from Rule coverage.19 The Commission does not see a 
need to provide broadly for the exemption of agents in the Rule. The 
FTC Act itself establishes exemptions from its coverage, and the 
Telemarketing Act provides that authority under the Rule may be no 
broader than under the FTC Act. Thus, for example, banks and airlines 
would not be subject to the Final Rule, because they are exempt under 
section 5 of the FTC Act.20 Similarly, section 4 of the FTC Act 
exempts corporations that are not acting for their profit or that of 
their members.21 However, a nonbank company that contracts with a 
bank to provide services on behalf of the bank, and a non-airline 
company that contracts with an airline to provide services on behalf of 
the airline, are not exempt from the FTC Act.22 Similarly, a 
company that is acting for profit would be subject to the FTC Act even 
when providing services to a nonprofit corporation. The Commission is 
not aware of any reason why the Final Rule should create a special 
exemption for such companies where the FTC Act does not do so. 
Accordingly, the Final Rule does not include special provisions 
regarding exemptions of parties acting on behalf of exempt 
organizations; where such a company would be subject to the FTC Act, it 
would be subject to the Final Rule as well.

    \19\ See, e.g., Chase at 1; AT&T at 5-6; BOA at 1; IBAA at 1; 
Consortium at 2; ATFA at 3. See, e.g., initial comments: ABA at 1; 
Advanta at 1; Chase at 2; Citicorp at 3; NFN at 2.
    \20\ 15 U.S.C. 45(a)(2); FTC v. Miller, 549 F.2d 452 (7th Cir. 
1977).
    \21\ 15 U.S.C. 44; Community Blood Bank v. FTC, 405 F.2d 1011 
(8th Cir. 1969).
    \22\ See, e.g., Official Airlines Guides, Inc. v. FTC, 630 F.2d 
920 (2d Cir. 1980); FTC v. Miller, 549 F.2d 452 (7th Cir. 1977).
---------------------------------------------------------------------------

B. Section 310.2: Definitions
    The revised proposed Rule defined the following terms: 
``acquirer,'' ``attorney general,'' ``cardholder,'' ``Commission,'' 
``credit,'' ``credit card,'' ``credit card sales draft,'' ``credit card 
system,'' ``customer,'' ``investment opportunity,'' ``material,'' 
``merchant,'' ``merchant agreement,'' ``outbound telephone call,'' 
``person,'' ``prize,'' ``prize promotion,'' ``seller,'' ``state,'' 
``telemarketer,'' and ``telemarketing.'' Only the terms ``investment 
opportunity,'' ``material,'' ``seller,'' and ``telemarketing'' elicited 
much comment. Additionally, some commenters called for a definition of 
the term ``clear and conspicuous,'' as that term is used in Sections 
310.3(a)(1) and 310.4(d) of the revised proposed Rule.
    In the Final Rule, the Commission has modified the definitions of 
``investment opportunity'' and ``seller.'' All other definitions have 
been adopted in the Final Rule without change from the revised proposed 
Rule. The Commission also has determined that the term 
``telemarketing'' needs no further modification.
    The Commission considered, but rejects, comments calling for a 
further definition of the phrase ``clear and conspicuous.'' 23 The 
Commission believes it is unnecessary to define the term ``clear and 
conspicuous'' in the Rule because the concept is well-developed in 
Commission case law and policy statements.24 Moreover, the 
Commission believes that mandating rigid ``clear and conspicuous'' 
criteria would be inconsistent with the goal of allowing businesses 
maximum flexibility as long as customers receive 

[[Page 43844]]
the material information they need to make purchasing decisions.

    \23\ AARP at 12; CFA at 5-6; NCL at 12-13; USPS at 8.
    \24\ See, e.g., Thompson Medical Co., 104 F.T.C. 648, 797-98 
(1984); The Kroger Co., 98 F.T.C. 639, 760 (1981); Statement of 
Enforcement Policy, ``Clear and Conspicuous Disclosures in 
Television Advertising,'' Trade Regulation Reporter (CCH) para. 
7569.09 (Oct. 21, 1970); Statement of Enforcement Policy, 
``Requirements Concerning Clear and Conspicuous Disclosures in 
Foreign Language Advertising and Sales Materials,'' 16 CFR 14.9.
---------------------------------------------------------------------------

1. Section 310.2(u): Definition of ``Telemarketing''
    The definition of ``telemarketing'' sets the parameters of the 
Final Rule. The definition in the Final Rule reflects the statutory 
definition set forth by Congress in section 7(4) of the Telemarketing 
Act.25

    \25\ 15 U.S.C. 6106(4).
---------------------------------------------------------------------------

    Some commenters requested that the Commission exempt calls made by 
consumers in response to written advertisements and promotional 
materials sent by financial institutions or their agents that comply 
with the disclosure requirements in the Truth in Lending Act 
(``TILA''), 15 U.S.C. 1601 et seq., and its implementing Regulation Z 
(``Reg. Z''), 12 CFR part 226.26 The Commission has determined 
that such a broad exemption is inappropriate. The TILA and Reg. Z 
disclosures for credit and charge card solicitations, 15 U.S.C. 1631-
1632; 12 CFR 226.5-226.5a, relate to specific costs and terms of 
credit, but do not contain many of the other protections that would be 
available to consumers under Secs. 310.3 and 310.4 of this Rule. The 
Commission acknowledges, however, that certain credit disclosures 
required under sections 1631-1632 of the TILA and Secs. 226.5-226.5a of 
Reg. Z are sufficient for compliance with some of the Final Rule's 
affirmative disclosures set forth in Sec. 310.3(a)(1). Therefore, the 
Final Rule makes clear that compliance with the TILA and Reg. Z will 
suffice for purposes of compliance with Sec. 310.3(a)(1)(i) of the 
Rule.

    \26\ See, e.g., Chase at 2.
---------------------------------------------------------------------------

    The Commission intends that the phrase ``goods or services'' 
contained in the definition of ``telemarketing'' cover any tangible and 
intangible goods or services including, but not limited to, leases, 
licenses, or memberships. Prizes and awards are also included as 
``goods or services'' under the definition of ``telemarketing.'' This 
is consistent with the legislative history of the Telemarketing Act 
27 and reflects the Commission's enforcement experience in this 
area.

    \27\ See House Report at 11; Senate Report at 8.
---------------------------------------------------------------------------

    The Telemarketing Act and the Final Rule exempt from the definition 
of telemarketing all solicitations of sales through the mailing of a 
catalog,28 when the person making the solicitation does not call 
customers but only receives calls from customers in response to the 
catalog and only takes orders during those calls, without further 
solicitation. The Commission has determined that the term ``without 
further solicitation'' requires interpretation. Applied literally, the 
term could bar conduct that would not be deceptive or abusive, 
including asking catalog customers who have placed orders whether they 
wish to buy another item. There is no reason to suppose that Congress 
intended such a result. The Final Rule permits that, when catalog 
sellers receive calls from customers, the person taking the order may 
provide further information to the customer about, or may try to sell, 
any other item included in the same catalog which prompted the 
customer's call, or in a substantially similar catalog, without losing 
the exemption from the definition of ``telemarketing.'' The 
Commission's experience in the area of catalog sales suggests that this 
clarification will burden neither legitimate catalog sellers nor expose 
their customers to a significant risk of the type of deception or abuse 
that the Final Rule is intended to address.

    \28\ The Telemarketing Act and the Final Rule require catalogs 
to include multiple pages of written descriptions or illustrations 
of the goods or services being offered for sale, to include a 
business address of the seller, and to be issued not less frequently 
than once a year.
---------------------------------------------------------------------------

2. Section 310.2(j): Definition of ``Investment Opportunity''
    Section 310.2(j) of the Final Rule defines ``investment 
opportunity'' as 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 RNPRM clarified that the 
definition of the term ``investment opportunity'' did not include sales 
of franchises subject to the Commission's Franchise Rule, 16 CFR part 
436. To clarify further that the Rule does not cover such franchise 
sales, the Commission has deleted that language from the Final Rule's 
definition of ``investment opportunity'' and has created an express 
exemption for such transactions in Sec. 310.6(b).
3. Sections 310.2(r) and (t): Definitions of ``Seller'' and 
``Telemarketer''
    In response to a suggestion from a commenter,29 the Commission 
has modified the definition of ``seller'' to clarify that the term 
includes not only persons who, in connection with a telemarketing 
transaction, provide or offer to provide goods and services to the 
customer in exchange for consideration, but also persons who, in 
connection with a telemarketing transaction, arrange for others to 
provide goods or services to the customer. The Commission made this 
change in order to clarify that the Rule's coverage cannot be avoided 
by structuring a sale so that someone other than the seller actually 
provides the goods or services directly to the customer.

    \29\ NASAA at 1.
---------------------------------------------------------------------------

    Another commenter requested clarification of the definition of 
``seller'' with respect to its application to diversified companies or 
divisions within one parent organization.30 The Commission intends 
that distinct corporate divisions may be considered 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 corporate 
organization and the division that is selling the goods or services 
that are the subject of the offer, or between that division and the 
other divisions of the corporation; or (2) whether the nature or type 
of goods or services offered by the division are substantially 
different from those offered by other divisions of the corporation or 
the corporate organization as a whole.

    \30\ Rollins at 1-2.
---------------------------------------------------------------------------

    Section 310.2(t) of the Final Rule defines ``telemarketer'' as 
``any person who, in connection with telemarketing, initiates or 
receives telephone calls to or from a customer.'' The Commission 
intends that the term ``telemarketer'' apply to persons making a 
telephone call to, or receiving a telephone call from, a customer in 
connection with the purchase of goods or services.31 It does not 
include persons making or receiving customer service calls or similar 
tangential telephone contacts, unless a sales offer is made or accepted 
during such calls.

    \31\ As previously stated in discussing the definition of 
``telemarketing,'' the Commission intends that a ``prize,'' as that 
term is defined in Sec. 310.2(p), is a good or service for purposes 
of this Rule.
---------------------------------------------------------------------------

    One commenter asserted that sellers and telemarketers should be 
held jointly liable under the Rule for the actions of the other.32 
NYSCPB stated that, absent legislative history indicating that joint 
and several liability is contrary to the intent of Congress, the 
Commission should apply joint and several liability.33 NYSCPB 
pointed out that in many instances a telemarketer engaging in fraud may 
abscond before law enforcers can move against it. NYSCPB expressed 
concern that, in such cases, State law enforcers might not be able to 
move against others involved in the 

[[Page 43845]]
deceptive telemarketing scheme who remain within their reach.

    \32\ NYSCPB at 3-4.
    \33\ Id.
---------------------------------------------------------------------------

    The Commission declines to read joint and several liability for 
sellers and telemarketers into the Telemarketing Act. The assisting and 
facilitating provisions in Sec. 310.3(b) of the Rule more appropriately 
provide a basis for an action by State enforcers in the situation 
described by NYSCPB.
4. Sections 310.2 (a), (c), (e), (f), (g), (h), (l), and (m): Credit-
Related Definitions
    The revised proposed Rule defined various credit-related terms that 
come into play primarily in Sec. 310.3(c), which addresses credit card 
laundering. These terms are: ``Acquirer,'' ``cardholder,'' ``credit,'' 
``credit card,'' ``credit card sales draft,'' ``credit card system,'' 
``merchant,'' and ``merchant agreement.'' The Commission has adopted 
these definitions without change in the Final Rule. No further 
discussion is necessary in this Statement regarding the definitions of 
``acquirer,'' ``cardholder,'' ``merchant,'' and ``merchant agreement.''
    Section 310.2(e) defines ``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 delineates the scope of 
Sec. 310.3(c), which prohibits credit card laundering. Several 
commenters urged the Commission to extend the scope of Sec. 310.3(c) to 
include other payment devices such as debit cards because they believe 
such devices can be laundered as easily as credit card 
transactions.34 Based on the language of the Telemarketing Act 
35 and its legislative history,36 however, the Commission 
believes that Congress 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 definition of ``credit'' 
tracks the statutory definition of ``credit'' under the TILA.37

    \34\ E.g., Citicorp at 2; VISA at 2-4.
    \35\ 15 U.S.C. 6102(a)(2).
    \36\ See generally House Report at 2; Senate Report at 2, 10.
    \37\ 15 U.S.C. 1603(e).
---------------------------------------------------------------------------

    Section 310.3(f) of the Final Rule defines ``credit card'' as ``any 
card, plate, coupon book, or other credit device existing for the 
purpose of obtaining money, property, labor, or services on credit.'' 
This definition is identical to the statutory definition of ``credit 
card'' contained in the TILA.38 Again, the Commission has defined 
``credit card'' as it is used throughout the consumer credit statutes 
for consistency and to clarify that Sec. 310.3(c) does not include 
other payment devices.

    \38\ 15 U.S.C. 1603(k).
---------------------------------------------------------------------------

    Section 310.2(g) defines the term ``credit card sales draft'' as 
``any record or evidence of a credit card transaction.'' This 
definition is designed to be flexible enough to anticipate future 
technological changes in how credit card transactions are processed and 
handled and, therefore, does not refer to specific forms of records. 
This definition is intended to embody the broadest possible range of 
recordkeeping formats that will come within the scope of the Rule.
    Section 310.2(h) of the Final Rule defines ``credit card system'' 
as ``any method or procedure used to process credit card transactions 
involving credit cards issued or licensed by the operator of that 
system.'' This definition does not include any in-house ``system'' that 
a seller or telemarketer may put in place. Rather, the Commission 
intends that this definition include only a credit card system to 
process credit card transactions involving credit cards issued or 
licensed by the credit card system operator.
5. Section 310.2(k): Definition of ``Material''
    The Final Rule states that the term ``material'' means ``likely to 
affect a person's choice of, or conduct regarding, goods or services.'' 
In the RNPRM, the Commission responded to commenters' requests for 
clarification of the term ``material'' by stating that it intended that 
term to comport with the Commission's Deception Statement and 
established Commission precedent.39 Cliffdale Assocs., 103 F.T.C. 
110 (1984); Thompson Medical Co., 104 F.T.C. 648 (1984), aff'd, 791 
F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987); and the 
Commission's Deception Statement attached as an appendix to Cliffdale 
Associates. Nonetheless, several commenters on the revised proposed 
Rule requested additional clarification.40 The Commission has 
considered these requests, but believes further clarification is 
unnecessary given the comprehensive guidance in the cited case law and 
policy statement.

    \39\ 60 FR at 30410.
    \40\ See, e.g., NRF at 5-8; IBM at 11; CC at 1.
---------------------------------------------------------------------------

6. Sections 310.2 (p) and (q): Definitions of ``Prize'' and ``Prize 
Promotion''
    The Final Rule, at Sec. 310.2(p), adopts the revised proposed 
Rule's definition of ``prize'' as follows: ``Anything offered, or 
purportedly offered, and given, or purportedly given, to a person by 
chance.'' Further tracking the revised proposed Rule, the Final Rule 
also makes clear 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.'' This ensures that a typical deceptive prize scheme will be 
captured in the definition of ``prize.'' In those schemes, consumers 
receive a solicitation typically listing four or five items, 
guaranteeing that they will receive one of them. Consumers, however, 
are not told which specific item they will receive. 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.'' That interpretation is 
eliminated by the definition as adopted.
    Section 310.2(q) of the Final Rule defines ``prize promotion'' as 
either ``(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.'' This definition makes clear that the representations 
about winning may be either express or implied. In this way, the Final 
Rule includes in the definition of ``prize promotion'' those deceptive 
telemarketing solicitations that are artfully crafted to avoid express 
representations while delivering an implied message that a consumer has 
won a prize.
7. Sections 310.2 (b), (d), (i), (n), (o), and (s): Other Definitions
    The Commission received no comments in response to the RNPRM on the 
definitions of ``Attorney General,'' ``Commission,'' ``customer,'' 
``outbound telephone call,'' ``person,'' or ``State.'' Therefore, these 
definitions are adopted unchanged.
C. Section 310.3: Deceptive Telemarketing Acts or Practices
1. Section 310.3(a): Prohibited Deceptive Telemarketing Acts or 
Practices
    Section 310.3(a) of the Final Rule requires affirmative 
disclosures, prohibits misrepresenting material information, requires 
express verifiable authorization before submitting for payment a check, 
draft, or other form of negotiable paper drawn on a person's account, 
and prohibits false or misleading statements to induce payment for 
goods or services. In the Final Rule, the Commission has clarified the 
applicability of the 

[[Page 43846]]
disclosure of ``total cost and quantity'' in transactions involving 
credit products. In addition, the Commission has modified the provision 
requiring disclosure of refund policies and has included additional 
disclosures that are required in connection with prize promotions. The 
Commission also has clarified that all required disclosures must be 
made before a customer pays for the goods or services that are the 
subject of the sales offer. Finally, the Commission has added 
requirements for express verifiable authorization for payments.
a. Section 310.3(a)(1): Affirmative Disclosures
    Section 310.3(a)(1) requires affirmative disclosure of certain 
categories of material information before a customer pays for goods or 
services. The Final 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 timing of the disclosures prompted considerable comment. Two 
commenters expressed the view that the revised proposed Rule was 
ambiguous regarding when payment occurs in credit card transactions: 
Does ``payment'' occur when the customer provides a seller or 
telemarketer with his or her credit card information, or when the 
customer's credit card account is charged for the goods or services? 
41 NCL, for example, expressed concern that telemarketers might 
interpret this provision to permit delaying the disclosures until after 
the consumer has divulged his or her credit card or bank information 
and the funds have been withdrawn or transferred to a merchant credit 
card account.42 The Commission intends that the disclosures be 
made before the consumer sends funds to a seller or telemarketer or 
divulges to a telemarketer or seller credit card or bank account 
information. Thus, a telemarketer or seller who fails to provide the 
disclosures until the consumer's payment information is in hand 
violates the Rule.

    \41\ ANA at 4; NCL at 12.
    \42\ NCL at 12.
    AARP recommended that the Commission require that the disclosures 
be made at the time of sale to prevent deceptive telemarketers from 
providing the disclosures in a postcard sent to the customer weeks 
before making the sales call.43 The Commission intends, by 
requiring ``clear and conspicuous'' disclosures, that any outbound 
telephone call made after written disclosures have been sent to 
consumers must be made sufficiently close in time to enable the 
customer to associate the telephone call with the written document.

    \43\ AARP at 12. Similarly, CFA suggested that the Rule require 
the disclosures be made before a consumer makes a purchasing 
decision, rather than before payment is made, in order to ensure 
that consumers have all necessary material information before 
deciding whether to buy a product or service. CFA at 6-8. The 
Commission agrees that consumers should have material information 
about the product or service before making their purchasing 
decision. However, the Commission believes that ``before a customer 
pays'' permits sufficient time for the consumer to consider all of 
the material information before making a final decision whether to 
purchase and provide payment for the goods or services.
---------------------------------------------------------------------------

    NAAG expressed a concern that permitting disclosures to be made 
``before a customer pays'' will allow important disclosure information 
to be delayed until ``after the con artist can so excite and entice the 
consumer that, when made, the disclosures become meaningless.'' 44 
For example, NAAG stated that under the revised proposed Rule, a seller 
or telemarketer could delay making the required disclosures to 
consumers until the time that a courier arrives at the customer's door, 
ready to pick up payment for the goods or services. The Commission 
agrees that such tactics would evade the intent of the Rule that 
disclosures be given so as to be meaningful to a customer's purchase 
decision. The Commission also recognizes that deceptive telemarketers 
use couriers to a large extent and would most likely provide the 
required disclosures in the manner described by NAAG. Accordingly, the 
Final Rule makes clear, in a footnote to Sec. 310.3(a)(1), that ``when 
a seller or telemarketer uses, or directs a customer to use, a courier 
to transport payment, the seller or telemarketer must make the 
disclosures required by Sec. 310.3(a)(1) before sending a courier to 
pick up payment or authorization for payment, or directing a customer 
to have a courier pick up payment or authorization for payment.'' All 
required disclosures, therefore, must be made before a courier pick-up 
of payment or authorization for payment from a customer.45

    \44\ NAAG at 10.
    \45\ Many law enforcement and consumer representatives urged the 
Commission to reinstate, in the Final Rule, the absolute prohibition 
on courier pick-ups of customer payments included in the initially 
proposed Rule. See, e.g., NAAG at 20; USPS at 5-6; VT AG at 2; IA 
DOJ at 11-12; NY DCA at 1; GA OCA at 2; NAPA DA at 1; SD DAG at 2; 
MA AG at 4; AARP at 17-21. As stated in the RNPRM, however, the 
Commission believes that there is nothing inherently deceptive or 
abusive about the use of couriers. In fact, a substantial number of 
legitimate businesses use them. See, e.g., initial comments: Monex 
at 13-14; DMA at 25; PMAA at 84. 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 therefore can be reached through other 
provisions of this Rule. Thus, an absolute prohibition of courier 
use is outweighed by the undue burden it would impose on legitimate 
industry.
---------------------------------------------------------------------------

    Section 310.3(a)(1)(i) requires disclosure of ``the total costs * * 
* and the quantity of, any goods or services that are the subject of 
the sales offer.'' In response to numerous comments from 
industry,46 the Final Rule, in a footnote to Sec. 310.3(a)(1)(i), 
clarifies that, with regard to offers of credit products subject to the 
TILA and Reg. Z, compliance with the credit disclosure requirements and 
the timing of those disclosures mandated by the TILA and Reg. Z 47 
will constitute compliance with the total cost and quantity disclosures 
required under Sec. 310.3(a)(1)(i) of the Rule.

    \46\ Chase at 2; MBAA at 1; CBA at 2; Citicorp at 3; CUNA at 4; 
VISA at 4; NB at 1.
    \47\ 15 U.S.C. 1631-1632; 12 CFR 226.5-226.5a.
---------------------------------------------------------------------------

    Several commenters also pointed out that total cost and quantity is 
not ascertainable in those telemarketing sales transactions involving 
negative option 48 or continuity plans 49 where the customer 
has the option to preview or purchase a series of products over 
time.50 Under such plans, separate payments are made for each item 
in the series. In addition, the customer controls how many products he 
or she accepts and typically can decide to terminate the series at any 
time, or after a minimum number of items are purchased. Thus, in both 
continuity and negative option plans, neither the seller nor the 
customer necessarily knows the quantity of products the customer will 
ultimately purchase, or the total cost for those products.

    \48\ Under a negative option plan, the customer agrees to 
purchase a specific number of items in a specified time period. The 
customer receives periodic announcements of the selections; each 
announcement describes the selection, which will be sent 
automatically and billed to the customer unless the customer tells 
the company not to send it. See also the Commission's Rule governing 
``Use of Negative Option Plans by Sellers in Commerce,'' 16 CFR part 
425.
    \49\ ``Continuity plans'' offer subscriptions to collections of 
goods. Customers are offered an introductory selection and agree to 
receive selections on a regular schedule until they cancel their 
subscription. Unlike negative option plans, customers do not agree 
to buy a specified number of additional items in a specified time 
period, but may cancel their subscription at any time. Continuity 
plans resemble negative option plans in that customers are sent 
announcements of selections and those selections are shipped 
automatically to the customer unless the customer advises the 
company not to send it. Unlike negative option plans, however, 
customers are not billed for the selection when it is shipped, but 
only if they do not return the selection within the time specified 
for the free examination period.
    \50\ CHC at 2-4; ANA at 4; Time Warner at 3; DMA at 2. 

[[Page 43847]]

---------------------------------------------------------------------------

    The Commission recognizes that a seller or telemarketer may not be 
able to provide total cost and quantity information under such 
circumstances. Accordingly, in the case of negative option or 
continuity plans, the disclosures required under Sec. 310.3(a)(1)(i) 
are satisfied if the seller or telemarketer discloses, before a 
customer pays for any of the goods or services offered, the total costs 
and quantity of goods or services that are part of the initial offer of 
the plan, the total quantity of additional goods or services, if any, 
that the customer must purchase over the duration of the plan, and the 
cost, or range of costs, to purchase each individual additional good or 
service.
    Section 310.3(a)(1)(ii) requires sellers and telemarketers to 
disclose ``all material restrictions, limitations, or conditions to 
purchase, receive, or use the goods or services that are the subject of 
the sales offer.'' A number of industry commenters expressed concern 
that this requirement was ambiguous and asked the Commission to provide 
clarification.51 For example, SCIC states that, absent a clear 
definition of ``material,'' prudent business practice would require the 
disclosure of all terms and conditions, which would not be practical in 
connection with the telemarketing of service contracts. The Commission 
does not intend that sellers and telemarketers disclose all terms and 
conditions, but only those that are material. The Commission believes 
that the Final Rule's definition of ``material'' provides sufficient 
guidance regarding those factors which must be evaluated in determining 
which restrictions, limitations, or conditions must be disclosed.

    \51\ See, e.g., BSA at 4-6; ACRA at 5; SCIC at 2.
    Section 310.3(a)(1)(iii) requires disclosure of a seller's refund, 
cancellation, exchange, or repurchase policies under certain 
circumstances. The Final Rule tracks the revised proposed Rule by 
requiring disclosure, before the customer pays, of all material terms 
and conditions of such policies only if the seller or telemarketer 
makes a representation relating to such policies. Section 
310.3(a)(1)(iii) also requires a customer to be informed if there is a 
policy of not making refunds, cancellations, exchanges, or repurchases.
    Many law enforcement and consumer groups urged the Commission to 
broaden this provision to require a disclosure of the seller's refund, 
cancellation, exchange, or repurchase policies in all telemarketing 
transactions.52 These commenters were concerned that this 
provision might create an incentive for sellers and telemarketers to 
remain silent about their refund policies in order to avoid triggering 
the disclosure requirement. Law enforcement and consumer groups 
asserted that information regarding these policies is material to the 
consumer's purchasing decision, particularly because consumers 
generally assume that an unconditional refund is available from sellers 
if they are dissatisfied.53

    \52\ CFA at 8; USPS at 6; NJ DCA at 2-3; San Diego at 1; NACAA 
at 3; NCL at 13.
    \53\ For example, NJ DCA pointed out that the New Jersey 
Consumer Fraud Act requires retailers to post return policies in 
such a fashion that the consumer will be aware of such policies 
before they tender their money. N.J. Stat. Ann. 56:82.14 et seq. NJ 
DCA at 3.
---------------------------------------------------------------------------

    Historically, the Commission has not required sellers or 
advertisers to disclose material limitations or conditions applicable 
to a satisfaction guarantee or similar policy unless a solicitation 
mentions such a satisfaction guarantee or policy. The Commission's 
longstanding policy on this issue is set forth in the ``Guides for the 
Advertising of Warranties and Guarantees,'' which states:

    An advertisement that mentions a ``Satisfaction Guarantee'' or a 
similar representation should disclose, with such clarity and 
prominence as will be noticed and understood by prospective 
purchasers, any material limitations or conditions that apply to the 
``Satisfaction Guarantee'' or similar representation.54

    \54\ 16 CFR 239.3(b).

    Therefore, the Commission has retained in the Final Rule the 
requirement that all material terms and conditions of such policies be 
disclosed only if the seller or telemarketer makes a representation 
relating to a refund, cancellation, exchange, or repurchase 
policy.55 Industry pointed out that many companies have a variety 
of refund, cancellation, exchange and repurchase policies, only some of 
which are referred to in advertising. The Commission does not intend 
that the seller or telemarketer disclose all of a seller's possible 
policies, but only the policies that relate to the specific goods or 
services that are the subject of the sales offer.

    \55\ A seller or telemarketer ``makes a representation about a 
refund, cancellation, exchange or repurchase policy'' if the seller 
or telemarketer introduces this subject or discusses it in response 
to a customer's inquiry about such policies. If asked, the seller or 
telemarketer must disclose the material terms or conditions of its 
policy.
---------------------------------------------------------------------------

    AARP suggested that, at a minimum, the Rule should require an 
affirmative disclosure if no refunds, exchanges, or cancellations are 
available.56 AARP pointed out that this information is 
particularly important in the context of telemarketing sales because of 
the lack of direct contact between the seller and the consumer and 
because the consumer has no opportunity to examine the goods or 
services offered at the time of sale.57 The Commission agrees that 
consumers may be misled if a seller fails, in a telemarketing 
transaction, to disclose that the sale is final. Therefore, the 
Commission has modified Sec. 310.3(a)(1)(iii) of the Final Rule to 
require that the customer be informed if there is a policy of not 
making refunds, cancellations, exchanges, or repurchases.

    \56\ AARP at 12-13.
    \57\ See also NM AG at 4.
---------------------------------------------------------------------------

    Finally, Sec. 310.3(a)(1) (iv) and (v) require a seller or 
telemarketer to disclose certain information in connection with prize 
promotions. Under the revised proposed Rule, sellers who offered a 
prize promotion were required to disclose only that no purchase was 
necessary to win. Law enforcement and consumer groups strongly urged 
the Commission to require disclosure of additional items of information 
to consumers.58 They noted that deceptive prize promotions give 
rise to a large number of complaints, that they generate a very large 
amount of consumer injury, and that many State laws already require 
affirmative disclosure of more information than the revised proposed 
Rule required, including the odds of winning, the no-purchase method of 
entering, and the value of prizes. These commenters also noted that 
such State laws have provided law enforcement with a valuable tool in 
reaching deceptive prize promotions. In addition, several of these 
commenters noted that the disclosure ``no purchase is necessary'' is 
meaningless without requiring that the seller or telemarketer disclose 
the method for entering without a purchase.59 Finally, USPS noted 
that the required disclosure should include, in addition to ``no 
purchase is necessary,'' that ``no payment is necessary'' to enter a 
prize promotion or to win a prize. According to USPS, such a disclosure 
will cover those scams where the seller or telemarketer will not ask 
the customer to purchase goods or services in connection with the prize 
promotion, but instead will ask for some type of 

[[Page 43848]]
payment in order to enter or win a prize.60

    \58\ See, e.g., NJ DCA at 3; NACAA at 3; NCL at 13; USPS at 7; 
NAAG at 14-15; IA DOJ at 14-15.
    \59\ See, e.g., USPS at 7; NAAG at 15.
    \60\ USPS at 2.
    The Commission's law enforcement experience is replete with 
examples of sellers and telemarketers using deceptive prize promotions 
to ``hook'' unsuspecting victims. Upon consideration of these comments, 
the Commission is persuaded that additional disclosures are needed to 
ensure that consumers are not misled by the promise of a prize or 
award. The Commission agrees that disclosure of the no-purchase/no-
payment method of entry would serve to emphasize the message that no 
purchase or payment is necessary in order to participate in a prize 
promotion or to win a prize. If that disclosure were absent, the fact 
that no purchase or payment is necessary could more easily become 
``lost'' in a sales pitch or promotional piece. The Commission is 
mindful, however, of the burden of making extensive disclosures and has 
attempted to provide industry with flexibility in making this 
disclosure to consumers. Therefore, for all telemarketing of prize 
promotions, the Final Rule requires, in addition to a statement that no 
purchase or payment is necessary to win, that sellers and telemarketers 
also disclose the no-purchase or no-payment method of entering the 
prize promotion by either providing full instructions on how to 
participate or by providing an address or local or toll-free telephone 
number that a customer may contact to obtain details.
    The Commission is also persuaded that consumers should be made 
aware of the odds of being able to receive a specific prize. A truthful 
statement of the odds of receiving a prize helps to dispel the illusion 
that the consumer has been ``specially selected'' or is ``guaranteed'' 
to receive a particular prize. A statement of the odds also provides 
some indication of the value of each prize, since it is likely that the 
most valuable prizes would be awarded to the fewest people and the 
least valuable prizes would go to the most people. The Commission 
recognizes that in some prize promotions, sellers and telemarketers may 
not be able to calculate the odds in advance. Therefore, the Final Rule 
requires that the seller or telemarketer disclose the odds of being 
able to receive a prize, and if the odds are not calculable in advance, 
they must disclose the factors used in calculating the odds, such as a 
truthful statement that the odds depend on the number of entries 
received.
    Finally, the Commission's enforcement history includes numerous 
examples of prizes whose value has been limited by the additional costs 
or conditions that were necessary to receive or redeem the prize. For 
example, these ``prizes'' included vacation certificates that required 
consumers to spend substantial amounts of money on airfare or other 
expenses, or that had extensive restrictions on use. Therefore, in 
Sec. 310.4(a)(1)(v), the Final Rule requires that the seller or 
telemarketer disclose all material costs or conditions to receive or 
redeem a prize.61

    \61\ Although legitimate awards, prizes, and prize promotions do 
not require a person to make a payment or purchase to enter a prize 
promotion or to win, there are instances when a person may be 
required to pay certain fees to receive or redeem a prize or award 
that they have already won.
---------------------------------------------------------------------------

    Several commenters urged the Commission to require affirmative 
disclosures in connection with investment opportunities.62 The 
Commission believes that the affirmative disclosures required under 
Sec. 310.3(a)(1) are sufficient to cover the information relating to 
the sale of investment opportunities, which if undisclosed would be 
deceptive. These include the total costs to purchase, receive, or use 
the goods or services, and the material restrictions, limitations, or 
conditions to purchase, receive, or use the goods or services. Although 
some commenters urged the Commission to include specific affirmative 
disclosures relating to investment characteristics such as risk, 
profitability, liquidity, and earnings potential, the Commission 
declines to do so. Based on the Commission's enforcement experience, it 
believes the deception involving disclosure of investment information 
relating to risk, profitability, liquidity, or earnings potential can 
be addressed under Sec. 310.3(a)(2)(vi) of the Final Rule. Therefore, 
the Commission has determined that additional affirmative disclosures 
for investment opportunities are unnecessary.

    \62\ See, e.g., CFA at 9; MA AG at 4; NJ DCA at 3.
---------------------------------------------------------------------------

b. Section 310.3(a)(2): Prohibited Misrepresentations
    Section 310.3(a)(2) prohibits misrepresentations of several 
categories of material information. The information deemed material 
under Sec. 310.3(a)(2) is based on established case law and the 
Commission's policy statement on deception.63 Several commenters 
urged the Commission to reinstate the list of specific prohibited 
practices that was contained in Sec. 310.3(a)(2) of the initially 
proposed Rule.64 Each of these prohibited misrepresentations was 
based on allegations in complaints filed in recent years by the 
Commission under section 13(b) of the FTC Act.65 These commenters 
asserted that such a list provided the type of ``bright line'' guidance 
to industry, law enforcement, and consumers that Congress had directed 
the FTC to provide in the Rule. They also believed that the revised 
proposed Rule did not address several of the specific 
misrepresentations included in the initially proposed Rule and deleted 
in the revised proposed Rule, such as misrepresenting the non-profit or 
charitable status of a seller or telemarketer, or the purpose for which 
the seller or telemarketer will use a person's checking, savings, 
share, or similar account number, credit card account number, social 
security number, or related information.

    \63\ The Commission's Deception Statement, first set out in a 
letter to the Honorable John D. Dingell, Chairman, Subcommittee on 
Oversight and Investigations, Committee on Energy and Commerce, is 
attached as an appendix to Cliffdale Associates, 103 F.T.C. 110 
(1984).
    \64\ See, e.g., NACAA at 3-4; NJ DCA at 4; USPS at 2; GA OCA at 
2; MA AG at 3; SC DCA at 2-3.
    \65\ 15 U.S.C. 53(b).
    The Commission has determined that it is unnecessary to enumerate 
the specific prohibited misrepresentations set forth in the initially 
proposed Rule. The enumerated misrepresentations in the initially 
proposed Rule are subsumed in the general prohibitions against 
misrepresentations set forth in Sec. 310.3(a)(2) of the Final Rule. No 
inference should be drawn that these omissions from the Final Rule in 
any way alter the Commission's view that the misrepresentations set 
forth in Sec. 310.3(a)(2) of the initially proposed Rule would violate 
the FTC Act as well as the Final Rule. The Commission believes that 
this more concise regulatory approach effectuates Congress's 
legislative intent. The Commission also believes that broad 
prohibitions will give law enforcement agencies the necessary 
flexibility to adapt to the changes that the deceptive telemarketing 
industry will undergo as a result of increased regulation.
    Although some commenters requested that additional prohibited 
misrepresentations be included under Sec. 310.3(a)(2),66 few 
commenters raised concerns about or requested changes in the language 
of Sec. 310.3(a)(2) as it appeared in the RNPRM. As a result, 
Secs. 310.3(a)(2)(i)-(iv), (vi), and (vii) are adopted as set forth in 
the RNPRM. Sections 310.3(a)(2)(i)-(ii) prohibit misrepresenting 
certain information required to be disclosed under 

[[Page 43849]]
Sec. Sec. 310.3(a)(1)(i) and (ii): total costs, quantity, and material 
restrictions, limitations, or conditions. Section 310.3(a)(2)(iii) 
specifies that a misrepresentation of ``any material aspect of the 
performance, efficacy, nature, or central characteristics of goods or 
services that are the subject of the sales offer'' violates the Rule. 
Commission case law and policy are clear that such information is 
likely to affect a person's choice of, or conduct regarding, the 
purchase of goods or services. Similarly, representations about a 
seller's refund, cancellation, exchange, or repurchase policies are 
likely to affect a person's purchase decision. Section 310.3(a)(2)(iv), 
therefore, prohibits misrepresenting information regarding the material 
aspects of these policies.

    \66\ See, e.g., USPS at 1-3; GA OCA at 2; AARP at 13-14; NACAA 
at 4; MA AG at 4; CFA at 9; NJ DCA at 3.
---------------------------------------------------------------------------

    Section 310.3(a)(2)(v) of the Final Rule prohibits misrepresenting 
``any material aspect of a prize promotion, including but not limited 
to, the odds of being able to receive a prize, the nature or value of a 
prize, or that a purchase or payment is required to win a prize or 
participate in a prize promotion.'' This provision is adopted in 
substantially the same form as it appeared in the revised proposed 
Rule. The provision enumerates specific examples of material aspects of 
a prize promotion that are frequently misrepresented by deceptive 
telemarketers. The Commission has targeted misrepresentation of these 
aspects of prize promotions in a number of complaints filed against 
deceptive telemarketers under section 13(b) of the FTC Act.67 The 
Commission believes that a separate Rule provision is needed 
specifically prohibiting misrepresentations regarding prize promotions, 
given the great number of deceptive prize promotions and the distinct 
characteristics associated with such promotions.68 The legislative 
history clearly shows that Congress specifically intended that the Rule 
cover prizes or awards.69 The Commission intends that the 
telemarketing of prize promotions is not only subject to the 
prohibitions in Sec. 310.3(a)(2)(v), but also to the other prohibitions 
against misrepresentations set forth in Sec. 310.3(a)(2).

    \67\ 15 U.S.C. 53(b).
    \68\ Almost 32% of the 141 telemarketing cases brought by the 
Commission since 1991 related to deceptive prize promotions.
    \69\ See Senate Report at 2, 8.
---------------------------------------------------------------------------

    Although supportive of treating prize promotions separately in this 
Section, several commenters urged the Commission to expand the list of 
specific aspects relating to prize promotions that sellers or 
telemarketers may not misrepresent, especially that a person has been 
specially selected to receive a prize or that a premium is a 
prize.70 The Commission believes that the current list of specific 
aspects adequately covers those concerns. As discussed in connection 
with the affirmative disclosures for prize promotions, supra, a 
truthful statement of the odds of receiving a prize should help dispel 
the illusion that the consumer has been ``specially selected'' or is 
``guaranteed'' to receive a particular prize. Furthermore, a principal 
distinction between a ``premium'' and a ``prize'' is that while 
premiums are given only in connection with the purchase of goods or 
services, no such purchase is required to receive a prize. Therefore, 
the prohibition against misrepresenting that purchase or payment is 
required to receive a prize should also cover misrepresenting that a 
premium is a prize. Finally, the Commission's use of the language 
``including but not limited to'' is intended to indicate that the list 
of material aspects of a prize promotion is illustrative, but should 
not be considered exhaustive. Misrepresentations of other material 
aspects of a prize promotion not listed here are also prohibited.

    \70\ See, e.g., AARP at 13; NACAA at 4; GA OCA at 2; NJ DCA at 
3.
---------------------------------------------------------------------------

    One minor change in wording has been adopted in 
Sec. 310.3(a)(2)(v), namely, the phrase ``the odds of winning'' has 
been changed to ``the odds of being able to receive a prize.'' This 
wording is intended to be broader and more general, and is based upon 
similar usage employed by the Commission in provisions of the Pay-Per-
Call Rule, 16 CFR Part 308, that govern solicitations for 900-number 
services involving sweepstakes or games of chance.71 Another minor 
change is the addition of the language ``or payment.'' This addition is 
consistent with similar language added to Sec. 310.3(a)(1)(v).

    \71\ 16 CFR 308.3(c).
    Similarly, Sec. 310.3(a)(2)(vi) prohibits misrepresenting material 
aspects of an investment opportunity. This Section remains unchanged 
from the RNPRM. The legislative history of the Telemarketing Act 
reflects Congress' recognition that deceptive investment opportunities 
account for a considerable percentage of deceptive 
telemarketing.72 In fact, 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 Final Rule 
includes Sec. 310.3(a)(2)(vi), prohibiting misrepresentation of 
specified material aspects of investment opportunities, including risk, 
liquidity, earnings potential, or profitability. This provision is 
included to obviate any possible construction that might exclude 
investment opportunities from the scope of Secs. 310.3(a)(2)(i)-(iii)--
the general provisions of the Rule that center on purchase, receipt or 
use, or upon ``performance, efficacy, nature, or central 
characteristics'' of a limitless range of goods and services. The 
Commission believes that a separate provision, Sec. 310.3(a)(2)(vi), is 
necessary to cover distinct attributes that are material to an 
investment decision, such as risk, liquidity, earnings potential, or 
profitability. The Commission intends that the telemarketing of 
investment opportunities is not only subject to the prohibitions in 
Sec. 310.3(a)(2)(vi), but also to the prohibitions contained in other 
provisions set forth in Sec. 310.3(a)(2).

    \72\ See Senate Report at 8.
---------------------------------------------------------------------------

    Several commenters urged the Commission to expand the list of 
prohibited misrepresentations relating to specific aspects of 
investment opportunities to include markup over acquisition costs, past 
performance, marketability, and value.73 The Commission's use of 
the language ``including but not limited to'' is intended to indicate 
that the list of prohibited material aspects of an investment 
opportunity that must not be misrepresented is illustrative, not 
exhaustive. Misrepresentations of other material aspects of an 
investment opportunity not listed are also prohibited.

    \73\ See, e.g., CFA at 9; MA AG at 4; NJ DCA at 3.
---------------------------------------------------------------------------

    Finally, the Commission maintains Sec. 310.3(a)(2)(vii) as it was 
proposed in the revised proposed Rule. This section 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. 
Deceptive telemarketers often 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 

[[Page 43850]]
misrepresentations, again, could be construed as outside the apparent 
scope of Secs. 310.3(a)(2)(i)-(iii). However, the prohibition contained 
in Sec. 310.3(a)(2)(vii) is in addition to, not in lieu of, the 
prohibitions contained in the other provisions under Sec. 310.3(a)(2).
    Several commenters asked the Commission to include specific 
prohibitions against misrepresenting the non-profit or charitable 
status of a seller or telemarketer.74 The Commission intends that 
many of these misrepresentations will be covered by the prohibition in 
Sec. 310.3(a)(2)(vii) against misrepresenting affiliation or 
endorsements.

    \74\ See, e.g., NACAA at 4; MA AG at 4.
---------------------------------------------------------------------------

    Several commenters asked the Commission to include specific 
prohibitions against misrepresenting that a seller can improve a 
consumer's credit rating, or can recover money lost by a consumer to a 
``dishonest'' telemarketer.75 The Commission believes that these 
misrepresentations are subsumed under the prohibition in 
Sec. 310.3(a)(2)(iii) against misrepresenting any material aspect of 
the performance, efficacy, nature, or central characteristics of the 
goods or services.

    \75\ See, e.g., NACAA at 4; MA AG at 4.
    In the initially proposed Rule there was a prohibition, omitted 
from the revised proposed Rule, against misrepresenting the purpose for 
which the seller or telemarketer will use a person's checking, savings, 
share, or similar account number, credit card account number, social 
security number, or related information. Several commenters on the 
revised proposed Rule urged the Commission to reinstate that 
prohibition, noting that it did not appear to be subsumed under the 
other prohibitions set out in Sec. 310.3(a)(2).76 The Commission, 
however, believes that such misrepresentations are covered under 
Sec. 310.3(a)(4), which prohibits a seller or telemarketer from making 
a false or misleading statement to induce a person to pay for goods or 
services.

    \76\ See, e.g., USPS at 2; AARP at 14.
---------------------------------------------------------------------------

c. Section 310.3(a)(3): Verifiable Authorization
    Section 310.3(a)(3) addresses the use of demand drafts, the 
practice of obtaining funds from a person's bank account without that 
person's signature on a negotiable instrument. Section 310.3(a)(4) of 
the initially proposed Rule required written authorization before a 
seller or telemarketer could take any funds from a consumer's checking, 
savings, or similar account. This provision was dropped from the 
revised proposed Rule because information provided in comments to the 
initially proposed Rule and in oral workshop conference presentations 
tended to refute the proposition that demand drafts are characteristic 
solely of deceptive telemarketers.77

    \77\ See generally initial comments: NAPA; Autoscribe; Olan.
---------------------------------------------------------------------------

    In response to the NPR, the Commission received a number of 
comments from members of the automated payment industry--those 
companies that prepare demand drafts and submit such drafts to 
financial institutions for payment from consumers' bank accounts. These 
commenters noted that over 70 million Americans do not have credit 
cards.78 Demand drafts can provide a means for those consumers to 
enjoy the same benefits of expeditious telephone transactions that use 
of a credit card provides.79 Commenters noted that Fortune 500 
companies, airlines, car rental companies, insurance companies, and 
other businesses characterized by quick turn-around transactions now 
use demand drafts because they recognize that not everyone has a credit 
card.80 The automated payment industry also pointed out that 
requiring express written authorization for a demand draft is 
inconsistent with authorization requirements pertaining to an analogous 
payment method, electronic funds transfer.81 As commenters noted, 
the Electronic Funds Transfer Act (title IX of the Consumer Credit 
Protection Act) (``EFTA''), 15 U.S.C. 1601 et seq., and its 
implementing Regulation E (``Reg. E''), 12 CFR part 205, permit 
authorization of electronic funds transfers by telephone, thereby 
permitting oral authorization.82 Commenters asserted that imposing 
more rigid authorization standards on the legitimate automated payment 
industry, an industry in its formative stages, could unduly hinder its 
development, restrain legitimate competition, and deprive consumers of 
benefits afforded by this payment method.83

    \78\ See initial comments: TCPS at 1; NBR at 1-2. See generally 
NAPA 2-4; Tr. at 64.
    \79\ NBR stated that in 1994, eighty-five percent of all 
consumer transactions were made by cash or check compared to fifteen 
percent by credit and debit cards. NBR initial comment at 2. TCPS 
similarly noted that nine of the current twenty service bureaus 
process approximately 38,000 demand drafts weekly, totalling over 
five million dollars for over 700 business clients throughout the 
country. TCPS initial comment at 1. Accelerated Payment Systems 
stated that it processes half a billion dollars a year through 
demand drafts. Tr. at 547.
    \80\ See initial comments: TCPS at 1-2; NAPA at 2; Olan at 9. 
Examples of businesses that use demand drafts include two of the 
baby Bells, GEICO, Citicorp, Telecheck, Equifax, Bank of America, 
Discovery Card, Dunn and Bradstreet, and First of America Bank. See 
Tr. at 547, 550-51.
    \81\ See initial comments: ATA at 6; Olan at 10; DMA at 21-22.
    \82\ 12 CFR 205(g).
    \83\ See Tr. at 544-49 (Accelerated Payment Systems), 557-58 
(TCPS), 578-80 (Check-Debit). See also initial comments: NAPA at 7-
9; Olan at 10.
---------------------------------------------------------------------------

    In dropping the written authorization from the revised proposed 
Rule, the Commission noted in the RNPRM that the prohibition on any 
false or misleading statements to induce a person to pay for goods or 
services would address problems in this area.84 In their comments 
on the revised proposed Rule, however, law enforcement and consumer 
groups strongly urged the Commission to reinstate restrictions on the 
use of demand drafts.85

    \84\ 60 FR at 30413. That prohibition is found in 
Sec. 310.3(a)(4) of the Final Rule and was found in Sec. 310.3(a)(3) 
of the revised proposed Rule.
    \85\ See, e.g., NACAA at 4; IA DOJ at 10; AARP at 15-16; FRB-SF 
at 8; VBA at 1; NCL at 9; NJ DCA at 3; San Diego at 2.
---------------------------------------------------------------------------

    Law enforcement and consumer groups pointed out that demand drafts 
do not provide consumers with the same level of protection as credit 
cards, nor is there widespread awareness among consumers about the 
dangers of this payment method.86 For example, in many instances 
deceptive telemarketers induce consumers to disclose certain bank 
account information, after which they withdraw funds from the 
consumers' bank accounts without the consumers authorizing such 
withdrawals or realizing that such withdrawals are occurring. In fact, 
the USPS pointed out that, as it became more difficult for deceptive 
telemarketers to access the credit card system, demand drafts have 
surfaced as the most frequent form of payment in deceptive 
telemarketing over the past two to three years.87 In addition, the 
Federal Reserve Bank of San Francisco (``FRB-SF'') strongly opposed 
deleting the prohibition, questioning whether a general ``do not 
mislead'' standard would prevent abuses.88 FRB-SF noted that laws 
prohibiting misleading statements are already on the books, but have 
been of limited effectiveness. It also noted that any protections 
consumers might have under the current Uniform Commercial Code 
provisions 89 are illusory. FRB-SF stated that, in reality, banks 
have a pronounced disincentive to accept claims by a consumer that he 
or she did not authorize a particular draft because the banks must bear 
the loss of the amount of any draft that was unauthorized. 

[[Page 43851]]
FRB-SF described a variety of ways that banks can and do avoid 
authorizing a refund of a draft claimed by a consumer to be 
unauthorized. For example, banks may allege that consumers were 
negligent in giving out their bank information, or allege that 
consumers who have given such information have given apparent authority 
to issue any number of drafts in any amount.

    \86\ AARP at 15; NJ DCA at 3-4.
    \87\ USPS at 3.
    \88\ See generally FRB-SF.
    \89\ See UCC 1-201(39), 3-103(a)(6), 3-104(a), 3-401(a), 3-
401(b), 3-402(a), 4-401 (1990 version).
---------------------------------------------------------------------------

    Based on the extensive use of demand drafts by legitimate 
companies, the Commission is persuaded that demand drafts, in and of 
themselves, are not necessarily harmful, and, in fact may produce real 
benefits for consumers. The Commission also believes that requiring 
prior written authorization could be tantamount to eliminating this 
emerging payment alternative. Moreover, the Commission believes that it 
would be inconsistent to impose upon demand drafts a more stringent 
authorization mechanism than that imposed on electronic funds transfers 
under the EFTA and Reg. E. The Commission, however, is also persuaded 
by the comments on the revised proposed Rule that consumers need 
additional protections from abuse of this increasingly popular payment 
method. Therefore, the Final Rule includes certain restrictions on the 
use of demand drafts.
    Section 310.3(a)(3) balances the benefits to consumers that may 
flow from the use of demand drafts against the costs arising from the 
known abuses of this payment method by deceptive telemarketers. Section 
310.3(a)(3) requires ``express verifiable authorization'' before any 
seller or telemarketer obtains or submits ``for payment a check, draft, 
or other form of negotiable paper drawn on a person's checking, 
savings, share, or similar account.'' To prevent deceptive 
telemarketers from abusing this mode of authorization, the Commission 
has included in the Final Rule specific requirements to establish what 
constitutes ``verifiable authorization'' under the Rule.
    An authorization will be deemed verifiable if any of the following 
means are employed: (1) Express written authorization by the customer; 
(2) express oral authorization which is tape recorded 90 and made 
available to a customer's bank upon request, and which clearly 
evidences both the customer's authorization of payment for the goods or 
services that are the subject of the sales offer and the customer's 
receipt of six specific items of information during the tape recording; 
91 or (3) written confirmation of the transaction sent to the 
customer, prior to submitting the draft for payment, containing the 
same six items of information required under the tape recording option. 
The written confirmation method also requires a seller or telemarketer 
to have in place, and to disclose to the customer in the confirmation, 
the procedures by which the customer can obtain a refund from the 
seller or telemarketer in the event the written confirmation is 
inaccurate. The Commission recognizes that the latter method of 
verifiable authorization may be susceptible to manipulation by 
deceptive sellers and telemarketers. However, any misrepresentation of 
the nature or terms of the refund policy will be actionable under 
Sec. 310.3(a)(2)(iv), prohibiting misrepresentation of a seller's 
refund policy. The Final Rule also incorporates FRB-SF's suggestion 
that the taped verifiable authorization be made available to the 
customer's bank upon request.92 The Commission will monitor the 
effectiveness of this provision in preventing the deceptive use of 
demand drafts.

    \90\ FRB-SF supported a requirement for tape recording 
customers' oral authorizations as an alternative to prior written 
authorization. See FRB-SF at 8-9.
    \91\ The six items of information are: ``(A) Date of the 
draft(s); (B) the amount of the draft(s); (C) the payor's name; (D) 
the number of draft payments (if more than one); (E) a telephone 
number for customer inquiry that is answered during normal business 
hours; and (G) the date of the customer's oral authorization.''
    \92\ FRB-SF at 8-9.
d. Section 310.3(a)(4): False or Misleading Statements To Induce 
Payment
    Section 310.3(a)(4) generally prohibits ``[m]aking a false or 
misleading statement to induce any person to pay for goods or 
services.'' The few comments on this Section questioned whether a 
general prohibition is an adequate substitute for a provision requiring 
express authorization for demand drafts: Unauthorized access often 
involves no inducement or purchase; the money is simply taken.93 
The Commission believes the Final Rule's express verifiable 
authorization requirement, Sec. 310.3(a)(3), sufficiently addresses 
this concern.

    \93\ See, e.g., AARP at 15.
---------------------------------------------------------------------------

    Section 310.3(a)(4) also prohibits sellers and telemarketers from 
gaining access to consumers' money through false and misleading 
statements, regardless of the type of payment system used. This 
provides law enforcement with flexibility to address new ways that 
sellers and telemarketers engaged in fraud might attempt to take 
consumers' money.
2. Section 310.3(b): Assisting and Facilitating
    Section 310.3(b) of the revised proposed Rule received substantial 
attention from commenters. Law enforcement objected to the inclusion of 
a requirement that the requisite substantial assistance or support be 
``related to the commission or furtherance'' of a core rule 
violation.94 NAAG viewed this as an unnecessary additional element 
of proof that would burden law enforcement, and feared that it could 
result in assisters and facilitators evading liability on the ground 
that their assistance was not ``related to'' an unlawful act, even 
where required showings of knowledge and substantial assistance could 
be made.95 The Commission has determined that the ``related to'' 
requirement may be susceptible to the misapplication NAAG foresees, and 
has therefore deleted this requirement from the Final Rule. The 
Commission notes that knowledge of, and substantial assistance to, 
another's wrongdoing are a sufficient basis for liability in 
tort,96 and were so in cases brought under the Securities and 
Exchange Act of 1934 97 until the recent Supreme Court decision in 
Central Bank of Denver v. Interstate 

[[Page 43852]]
Bank of Denver.98 The Commission further believes that the 
ordinary understanding of the qualifying word ``substantial'' 
encompasses the notion that the requisite assistance must consist of 
more than mere casual or incidental dealing with a seller or 
telemarketer that is unrelated to a violation of the Rule.

    \94\ NAAG at 23; NACAA at 5.
    \95\ NAAG at 23.
    \96\ Section 876(b) of the Restatement of Torts provides: ``For 
harm resulting to a third person from the tortious conduct of 
another, one is subject to liability if he knows that the other's 
conduct constitutes a breach of duty and gives substantial 
assistance or encouragement to the other so as to conduct himself. * 
* *'' Restatement (Second) of Torts Sec. 876(b) (1977).
    \97\ See, e.g., Schatz v. Rosenburg, 943 F.2d 485, 495 (4th Cir. 
1991), cert. denied, 503 U.S. 936 (1992); National Union Fire Ins. 
Co. v. Turtur, 892 F.2d 199, 206-07 (2d Cir. 1989); DCD Programs, 
Ltd. v. Leighton, 833 F.2d 183, 188 (9th Cir. 1987); Moore v. Fenex, 
809 F.2d 297, 303 (6th Cir. 1987), cert. denied, 483 U.S. 1006 
(1987); Rudolph v. Arthur Andersen & Co., 800 F.2d 1040, 1045 (11th 
Cir. 1986), cert. denied, 480 U.S. 946 (1987); Metge v. Baehler, 762 
F.2d 621, 624-25 (8th Cir. 1985), cert. denied, 474 U.S. 1057 
(1986); Woods v. Barnett Bank of Fort Lauderdale, 765 F.2d 1004, 
1009 (11th Cir. 1985); Cleary v. Perfectune, Inc., 700 F.2d 774, 777 
(1st Cir. 1983); Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir. 
1983); Harmsen v. Smith, 693 F.2d 932, 943 (9th Cir. 1982), cert. 
denied, 464 U.S. 822 (1983); Stokes v. Lokken, 644 F.2d 779, 782-83 
(8th Cir. 1981); IIT v. Cornfeld, 619 F.2d 909, 922 (2d Cir. 1980); 
Monsen v. Consolidated Dressed Beef Co., 579 F.2d 793, 799 (3d Cir. 
1978), cert. denied, 439 U.S. 930 (1978); Woodward v. Metro Bank of 
Dallas, 522 F.2d 84, 94 (5th Cir. 1975).
    Many of these cases base their analysis upon the test laid down 
in SEC v. Coffey, 493 F.2d 1304, 1316 (6th Cir. 1974), cert. denied, 
420 U.S. 908 (1975):
    A person may be held as an aider and abettor only if some other 
party has committed a securities law violation, if the accused party 
had general awareness that his role was part of an overall activity 
that was improper, and if the accused aider-abettor knowingly and 
substantially assisted the violation.
    \98\ 114 S. Ct. 36, ______ U.S. ______ (1994). The Supreme Court 
held that there is no private cause of action for aiding and 
abetting under Rule 10(b) because the Securities and Exchange Act of 
1934 does not expressly create such a cause of action. The Court's 
decision did not address the soundness of the rationale for the 
elements of aiding and abetting as developed in the cases. The 
Telemarketing Act, on the other hand, expressly authorizes 
``assisting and facilitating'' as a violation of the Rule.
---------------------------------------------------------------------------

    Law enforcement and consumer groups also generally opposed the 
``knows or consciously avoids knowing'' standard in this Section, 
arguing that it imposed a higher burden of proof on law enforcement 
than the ``knows or should know'' standard in the initially proposed 
Rule, and requires proof of the wrongdoer's mental state.99 These 
commenters recommended that the Commission return to the ``knows or 
should know'' standard. At the other end of the spectrum, industry 
comments continued to raise concerns that the proposed knowledge 
standard was too vague or harsh.100

    \99\ See, e.g., NJ DCA at 4; NACAA at 5; AARP at 16; NCL at 11; 
USPS at 12.
    \100\ See, e.g., NAA at 2; MSSC at 4; HII at 2.
    As noted above, both in the law of tort and in a substantial body 
of pre-Central Bank of Denver aider and abettor case law developed 
under the Securities and Exchange Act of 1934, knowledge is a 
prerequisite for liability.101 The Commission recognizes that 
proving actual knowledge could be a formidable hurdle in some 
cases.102 The ``knows or should know'' standard is certainly the 
appropriate standard to use in framing allegations of third-party 
liability for unfair or deceptive acts or practices, in violation of 
section 5 of the FTC Act,103 or in violation of State ``Little 
FTC'' Acts. However, in a situation where a person's liability to pay 
redress or civil penalties 104 for a violation of this Rule 
depends upon the wrongdoing of another person, the ``conscious 
avoidance'' standard is correct.105

    \101\ The level of knowledge required for aider and abettor 
liability under the Securities and Exchange Act of 1934 varied from 
circuit to circuit. For example, the standard enunciated in SEC v. 
Coffey (general awareness of impropriety, plus knowing and 
substantial assistance) applied in the Sixth Circuit, whereas actual 
knowledge or reckless disregard was required in the Ninth Circuit. 
Levine v. Daimanthuset, Inc., 950 F.2d 1478, 1483 (9th Cir. 1991). 
The Second Circuit held that ``something closer to an actual intent 
to aid in a fraud'' must be demonstrated. Edwards & Hanly v. Wells 
Fargo Sec. Clearance Corp., 602 F.2d 478, 485 (2d Cir. 1979), cert. 
denied, 444 U.S. 1045 (1980). See W. H. Kuehnle, Secondary Liability 
Under the Federal Securities Laws--Aiding and Abetting, Conspiracy, 
Controlling Person, and Agency: Common-Law Principles and the 
Statutory Scheme, 14 J. Corp. L. 313, 322 (1988); Note, Liability 
for Aiding and Abetting Violations of Rule 10b-5: The Recklessness 
Standard in Civil Damage Actions, 62 Tex. L. Rev. 1087 (1984).
    \102\ The Commission noted in the RNPRM that case law under 
Section 13(b) of the FTC Act has developed a knowledge standard in 
the context of an analogous type of liability: individual liability 
to pay restitution to consumers for injury resulting from law 
violations of a corporation controlled by the individual. The 
Commission has sought, and the courts have ordered, payment of 
consumer redress from individual defendants for injury resulting 
from law violations of corporations controlled by such individuals 
only where the Commission could show either that these individuals 
had actual knowledge of the unlawful practices of the corporation, 
were recklessly indifferent to such practices, or had an awareness 
of a high probability of fraud coupled with an intentional avoidance 
of the truth. FTC v. American Standard Credit Systems, Inc., No. 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) para. 65,725 at 69,707 (N.D. Cal. 1983).
    \103\ See, e.g., Citicorp Credit Services, Inc., FTC Dkt. No. C-
3413 (Consent Order, Feb. 4, 1993).
    \104\ It is noteworthy that Section 5(m)(1)(A) of the FTC Act, 
15 U.S.C. 45(m)(1)(A), specifies that imposition of civil penalties 
for an act prohibited by a rule requires a showing of ``actual 
knowledge or knowledge fairly implied on the basis of objective 
circumstances that such act is unfair or deceptive and is prohibited 
by such rule.''
    \105\ Proof of conscious avoidance is widely accepted in 
criminal cases as fulfilling the requirement for proof of knowledge. 
See, e.g., United States v. Beech-Nut Nutrition Corp., 871 F.2d 
1181, 1195-1196 (2d Cir.), cert. denied, 493 U.S. 933 (1989); United 
States v. Diaz, 864 F.2d 544, 549 (7th Cir.), cert. denied, 490 U.S. 
1070 (1989); United States v. Manriquez Arbizo, 833 F.2d 244, 248 
(10th Cir. 1987); United States v. Rothrock, 806 F.2d 318, 323 (1st 
Cir. 1986); United States v. Jewell, 532 F.2d 697, 700 (9th Cir.), 
cert. denied, 426 U.S. 951 (1976).
---------------------------------------------------------------------------

    The ``conscious avoidance'' standard is intended to capture the 
situation where actual knowledge cannot be proven, but there are facts 
and evidence that support an inference of deliberate ignorance 106 
on the part of a person that the seller or telemarketer is engaged in 
an act or practice that violates Secs. 310.3(a) or (c), or Sec. 310.4 
of this Rule.

    \106\ U.S. v. Williams, No. 90-3389, 1995 U.S. App. LEXIS 23546 
(7th Cir. Aug. 26, 1994).
---------------------------------------------------------------------------

    Some commenters recommended that the Commission reinstate the 
examples of ``assisting and facilitating'' that had been in 
Sec. 310.3(b)(2) of the initially proposed Rule.107 The Commission 
has declined to list in the Rule examples of substantial assistance, 
but still considers the acts or practices enumerated in former 
Sec. 310.3(b)(2) of the initially proposed Rule to be illustrative of 
those that can constitute substantial assistance to Rule violators when 
coupled with knowledge or conscious avoidance of knowledge of a 
violation of Secs. 310.3 (a) or (c) or Sec. 310.4. These 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.

    \107\ See, e.g., AARP at 17.
---------------------------------------------------------------------------

3. Section 310.3(c): Credit Card Laundering
    Section 310.3(c) of the Final Rule prohibits credit card 
laundering, the practice of depositing into the credit card system a 
sales draft that is not the result of a credit card transaction between 
the cardholder and a merchant.108 The Commission received very few 
comments that offered changes or that were critical of this section. 
Those comments that did address this section suggested that it be 
expanded to include other payment devices, such as debit cards, because 
such devices can be laundered as easily as credit card 
transactions.109 The Commission has rejected such an expansion for 
the reasons stated supra in the discussion regarding the definition of 
``credit.''

    \108\ As defined in Sec. 310.2(l), a merchant is the person who 
is under a contractual agreement 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.
    \109\ E.g., Citicorp at 2; Mastercard at 2-4.
    The Act expressly cited credit card laundering as a type of 
assisting and facilitating that the Rule could prohibit.110 Credit 
card laundering is a pernicious practice because it enables deceptive 
telemarketers access to the credit card system that they would 
otherwise be unable to obtain. In order to obtain payment by credit 
card, a seller (``merchant'' as is defined in Sec. 310.2(l)) must first 
have established an account with a financial institution (``acquirer'' 
as is defined in Sec. 310.2(a)) that is authorized to accept credit 
card payments. A seller must have a written contract (``merchant 
agreement'' as defined in Sec. 310.2(m)) with the financial institution 
to be able to access the credit card system and obtain payment from a 
consumer's credit card account. When the seller accepts a credit card 
for 

[[Page 43853]]
payment, the seller generates what is known as a credit card sales 
draft (as defined in Sec. 310.2(g)). The seller then deposits the 
credit card sales draft into the seller's account with the financial 
institution and obtains the cash amount of the deposited drafts. The 
financial institution sends the credit card sales draft through the 
particular credit card system, e.g., Visa, which will post the charge 
to the consumer's credit card account.

    \110\ 15 U.S.C. 6102(a)(2).
---------------------------------------------------------------------------

    Most deceptive telemarketers are unable to establish a merchant 
account with an acquirer. Therefore, to be able to accept payment by 
credit card, they must gain access to the credit card system through 
another's merchant account. Obtaining access to the credit card system 
through another merchant's account without the authorization of the 
financial institution is credit card laundering. Credit card laundering 
facilitates deceptive telemarketing acts or practices by providing 
telemarketers engaged in fraud with ready access to cash through the 
credit card system. Credit card laundering also costs legitimate credit 
card companies over $300 million per year as a result of telemarketing 
fraud involving payment by credit card.111

    \111\ Senate Report at 2.
---------------------------------------------------------------------------

    The underlying purpose of Sec. 310.3(c) is to delineate clearly, in 
accordance with legitimate industry standards, those persons who are 
deemed to have proper access to the credit card system. The Commission 
believes that the distinction between persons who are ``launderers'' 
and persons who legitimately use credit card systems rests on whether 
the credit card system permits such persons access to its system. In 
their comments to the initially proposed Rule, Visa and MasterCard 
recommended that access be permitted under the Rule if it is expressly 
permitted by the applicable credit card system.112 Therefore, the 
Commission proposed in the revised proposed Rule language to the 
preamble of Sec. 310.3(c), that ``except where expressly permitted by 
the applicable credit card system ...'' and added similar language to 
the end of Sec. 310.3(c)(3). In the absence of comments on this section 
in the RNPRM, the Final Rule adopts Sec. 310.3(c) without change.

    \112\ See initial comments: MasterCard at 10-11.
---------------------------------------------------------------------------

    Section 310.3(c) of the Final Rule is divided into three parts. 
Section 310.3(c)(1) deals with merchants who engage in credit card 
laundering. Under this Section, it is a deceptive telemarketing act or 
practice, and a violation of the Rule, for a merchant to present to, or 
deposit into, the credit card system for payment, a credit card sales 
draft generated by a telemarketing transaction that is not the result 
of a telemarketing credit card transaction between the cardholder and 
that merchant. It is also a deceptive act or practice for a merchant to 
cause another person to present to, or deposit into, the credit card 
system for payment such a credit card sales draft.
    Section 310.3(c)(2) of the Final Rule deals with telemarketers, 
brokers, or others who employ merchants to engage in credit card 
laundering. This Section states that it is a deceptive telemarketing 
act or practice, and a violation of the Rule, for ``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.''
    Finally, Sec. 310.3(c)(3) prohibits credit card laundering by means 
of joint ventures or other business relationships with a merchant. 
Specifically, this section prohibits any person from obtaining ``access 
to the credit card system through the use of a business relationship or 
an affiliation with a merchant, when such access is not authorized by 
the merchant agreement or the applicable credit card system.''
D. Section 310.4: Abusive Telemarketing Acts or Practices
1. Section 310.4(a): Abusive Conduct Generally
    Section 310.4(a) of the Final Rule prohibits any seller or 
telemarketer from engaging in four enumerated abusive acts or 
practices. Each of these practices will be discussed in turn.113

    \113\ Section 310.4(a) remains unchanged from the RNPRM.
---------------------------------------------------------------------------

a. Section 310.4(a)(1): Threats, Intimidation, or the Use of Profane or 
Obscene Language
    Section 310.4(a)(1) of the Final Rule prohibits any seller or 
telemarketer from engaging in threats, intimidation, or the use of 
profane or obscene language. The legislative history of the 
Telemarketing Act indicates that the Commission should consider 
prohibiting such 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.'' 
114 The FDCPA includes a number of prohibitions on various types 
of threats,115 and a specific prohibition on the use of profane or 
obscene language.116 The Commission believes such prohibitions are 
equally appropriate in this Rule.

    \114\ See, e.g., House Report at 8.
    \115\ See FDCPA section 806(1), 15 U.S.C. 1692d(1) (``the use or 
threat of use of violence or other criminal means to harm the 
physical person, reputation, or property of any person''); Section 
807(5), 15 U.S.C. 1692e(5) (``the threat to take any action that 
cannot legally be taken or that is not intended to be taken''); and 
section 808(6), 15 U.S.C. 1692f(6) (``taking or threatening to take 
any nonjudicial action to effect dispossession or disablement of 
property'' in certain situations).
    \116\ Section 806(2) of the FDCPA, 15 U.S.C. 1692d(2).
---------------------------------------------------------------------------

    This Section covers all types of threats, including threats of 
bodily injury and financial ruin, and threats to ruin credit. It also 
prohibits intimidation, including 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.
b. Section 310.4(a)(2): Credit Repair Services
    Section 310.4(a)(2) of the Final Rule is intended to limit the 
telemarketing of deceptive credit repair services. Typically, these 
services promise consumers that, for a fee paid in advance, they will 
improve the consumer's credit record by removing negative information 
from that record. Once the fee is paid, however, the seller fails to 
deliver the promised services or achieve the promised results, and the 
consumer's credit record does not improve.
    This section of the Final Rule states that, in selling any goods or 
services represented to remove derogatory information from, or improve, 
a person's credit history, credit record, or credit rating, a seller or 
telemarketer is prohibited from requesting or receiving payment of any 
fee or consideration until two events occur. First, the time frame 
within which the seller has represented that all of the goods or 
services will be provided to the purchaser must have expired.117 
Second, the promised results must have been achieved. In order to 
ensure the achievement of the promised results, the Final Rule requires 
the seller to provide 

[[Page 43854]]
the purchaser with a consumer report from a consumer reporting agency 
that was issued more than six months after the results were 
achieved.118

    \117\ A seller or telemarketer can make such representations 
about the time for delivery of the credit repair goods or services 
either orally or in writing, including in the contract for the 
services. If any discrepancy exists between various representations 
by a credit repair seller, the longest time frame represented will 
determine when payment may be requested or received.
    \118\ The Fair Credit Reporting Act (``FCRA''), 15 U.S.C. 1681, 
specifies certain permissible purposes for which a consumer report 
may be furnished. The Final Rule states that nothing in this Rule 
should be construed to affect those requirements set forth in the 
FCRA.
---------------------------------------------------------------------------

    A number of commenters stated that this section should not apply to 
the offering of secured credit cards.119 According to these 
commenters, secured credit cards often are marketed as credit products 
that can improve a consumer's credit history, if properly used. The 
abusive practice against which Sec. 310.4(a)(2) is directed is the 
deceptive marketing and sale of bogus credit repair services; it is not 
directed at the nondeceptive telemarketing of secured credit 
cards.120 In addition, the Commission does not intend that this 
Section apply to legitimate credit monitoring services.

    \119\ See, e.g., Mastercard at 6-7; BOA at 1-2.
    \120\ However, all other parts of this Rule, including all 
required disclosures and prohibitions against misrepresentations, 
apply to the telemarketing of secured credit cards.
---------------------------------------------------------------------------

c. Section 310.4(a)(3): Recovery Room Services
    The next abusive practice prohibited by the Final Rule involves 
recovery room scams. In these operations, a deceptive telemarketer 
calls a consumer who has lost money, or who has failed to win a 
promised prize, in a previous scam. The recovery room telemarketer 
falsely promises to recover the lost money, or obtain the promised 
prize, in exchange for a fee paid in advance. After the fee is paid, 
the promised services are never provided. In fact, the consumer may 
never hear from the telemarketer again.
    The Final Rule, at Sec. 310.4(a)(3), prohibits any seller or 
telemarketer from ``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 business days after such money 
or other item is delivered to that person.'' This prohibition does not 
apply, however, to goods or services provided by a licensed attorney. 
As stated in the RNPRM, the Commission does not wish to hinder 
legitimate activities by licensed attorneys to recover funds lost by 
consumers through deceptive telemarketing, and thus does not believe 
this prohibition should be applied to their services.
    The Commission also intends that this Section not cover debt 
collection practices, since debt collection is not ``conducted to 
induce the purchase of goods or services,''--a prerequisite for Rule 
coverage as dictated by the definition of ``telemarketing'' in 
Sec. 310.2(u). Furthermore, this section is 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.
d. Section 310.4(a)(4): Advance Fee Loans
    Section 310.4(a)(4) of the Final Rule prohibits any seller or 
telemarketer from 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.121 This section is intended to 
prevent ``advance fee loan'' scams, in which a telemarketer promises to 
obtain a loan for a consumer, regardless of that consumer's credit 
history or credit record, in exchange for a fee, paid in advance. As 
with recovery room scams, after the consumer pays the fee, the promised 
services typically are not provided.

    \121\ By using the terms ``loans or other extensions of 
credit,'' the Final Rule makes clear that this section does not 
apply to other types of credit services, such as monitoring or 
counseling services.
---------------------------------------------------------------------------

    Two commenters stated that non-bank telemarketers may make 
``prescreened,'' unconditional offers of home equity credit lines or 
other forms of mortgage credit and urged that the Rule should not 
prohibit non-bank telemarketers from collecting, in connection with 
legitimate ``prescreened'' offers of credit, an application fee, credit 
report fee, and/or appraisal fee before the loan actually 
closes.122 Section 310.4(a)(4) is not directed at firm offers of 
credit by a creditor who properly uses a prescreened list in accordance 
with the FTC staff commentary on the FCRA.123 Making an authentic 
firm offer of credit to every consumer on a prescreened list is not 
equivalent to the specious type of transaction involved in advance fee 
loan scams where a seller or telemarketer offers to obtain or arrange a 
loan or other extension of credit for a person.

    \122\ BOA at 2; P&C-1 at 2-3.
    \123\ Statement of General Policy or Interpretation; Commentary 
on the Fair Credit Reporting Act, 55 FR 18804, 18815 (May 4, 1990).
---------------------------------------------------------------------------

2. Section 310.4(b): Pattern of Calls
    The Telemarketing Act directs the Commission 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.'' 
124 Section 310.4(b) of the Final Rule sets forth two prohibitions 
on sellers and telemarketers which are intended to effectuate this 
requirement of the Act.

    \124\ 15 U.S.C. 6102(a)(3)(A).
---------------------------------------------------------------------------

    First, Sec. 310.4(b)(1)(i) prohibits 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. Such a prohibition is included in the FDCPA,125 and 
the legislative history of the Telemarketing Act states that the 
Commission should consider the FDCPA in establishing prohibited abusive 
acts or practices.126

    \125\ 15 U.S.C. 1692d(5).
    \126\ See, e.g., House Report at 8.
---------------------------------------------------------------------------

    Several comments on the RNPRM suggested that this Section should be 
keyed to a reasonable consumer's belief of what is annoying, abusing, 
or harassing, rather than the caller's intent.127 The Commission 
has taken this prohibition virtually verbatim from the FDCPA, and finds 
no reason to alter this language. The staff commentary to the FDCPA 
states that ``continuously'' means ``making a series of telephone 
calls, one right after the other,'' and that ``repeatedly'' means 
``calling with excessive frequency under the circumstances.'' 128 
The Commission believes that if a telemarketer calls a consumer 
continuously or repeatedly, as those terms have been defined, it is 
presumed that the caller's intent was to annoy, abuse, or harass the 
person being called. The few courts that have ruled on this provision 
of the FDCPA have been silent on the intent requirement, ultimately 
deciding the case simply on the repeated nature of the calls.129

    \127\ See SD DAG at 2; AARP at 22-23.
    \128\ Statements of General Policy or Interpretation; Staff 
Commentary on the Fair Debt Collection Practices Act, 53 FR 50097, 
50105 (Dec. 13, 1988).
    \129\ See, e.g., Bingham v. Collection Bureau, Inc., 505 F. 
Supp. 864 (D.N.D. 1981); Venes v. Professional Service Bureau, 353 
N.W.2d 671 (Minn. Ct. App. 1984).
---------------------------------------------------------------------------

    The second prohibition in the Final Rule intended to limit 
unsolicited telephone calls is the ``do not call'' requirement set 
forth in Sec. 310.4(b)(1)(ii). This section prohibits any telemarketer 
from initiating, or any seller to cause a telemarketer to initiate, an 
outbound telephone call to a person when that person previously has 
stated that he or 

[[Page 43855]]
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 Telephone Consumer Protection Act (``TCPA'') 130 and the 
regulations of the Federal Communications Commission (``FCC'') 
implementing that Act 131 include a similar ``do not call'' 
prohibition. A number of commenters asked the Commission to clarify 
that compliance with the TCPA's ``do not call'' procedures will 
constitute compliance with this section of the Telemarketing Sales Rule 
as well.132 The Commission cannot make such a blanket 
pronouncement due to the differences in enforcement of the TCPA and 
this Rule,133 and the slight variations in the safe harbor 
provisions, discussed infra. On the other hand, in order to lessen 
compliance burdens, the Commission wishes to clarify that in order to 
comply with both the TCPA and this Rule, sellers and telemarketers need 
compile only one list of consumers who request not to be called by that 
seller or telemarketer.134

    \130\ 47 U.S.C. 227.
    \131\ 47 CFR 64.1200(e).
    \132\ See, e.g., Citicorp at 2; DMA at 4-5; NRF at 8; Mastercard 
at 7; Chase at 2-3.
    \133\ The Telemarketing Sales Rule will be enforced by the 
Commission, the States, and any person who suffers more than $50,000 
in actual damages caused by violations of this Rule. See 15 U.S.C. 
6102(c), 6103, 6104. On the other hand, the TCPA ``do not call'' 
provisions may be enforced only in State court by a private person 
who receives more than one telephone call within any 12-month period 
by or on behalf of the same entity in violation of the FCC's 
regulation. See 47 U.S.C. 227(c)(5).
    \134\ In the RNPRM discussion of the effective date of the Rule, 
the Commission stated that the ``do not call procedures'' adopted by 
telemarketers under the TCPA would comply with this section of the 
revised proposed Rule as well. 60 FR at 30424. The ``procedures'' 
mentioned in that section of the RNPRM consist of the compiling of 
the list of consumers who request not to be called by the seller or 
telemarketer.
    One commenter asked the Commission to modify this Section of the 
Final Rule to focus the ``do not call'' prohibition on a particular 
good or service, rather than on a seller.135 For example, this 
commenter stated that if it calls a consumer to sell termite control, 
and the consumer asks it not to call any more, the Final Rule should 
permit that same seller to call the consumer in the future to offer a 
deck treatment. The Commission disagrees. Once a consumer states that 
he or she does not wish to receive any additional calls from a 
particular seller, that seller may not call the consumer to sell any 
other product or service whatsoever. On the other hand, in the 
discussion of the definition of ``seller,'' 136 the Commission has 
made clear that it will consider distinct corporate divisions to be 
separate sellers. Thus, if a consumer tells one division of a company 
not to call again, a distinct corporate division of that company may 
make another telemarketing call to that consumer.

    \135\ Rollins at 2.
    \136\ See supra text accompanying Sec. 310.2(r) and (t) 
(discussing definitions of ``seller'' and ``telemarketer'').
---------------------------------------------------------------------------

    Another commenter asked the Commission to clarify what consumers 
must tell a seller to indicate they do not want additional calls, 
whether that request must be in writing, and how quickly the seller 
must act upon the caller's request.137 Any form of request that 
the consumer does not wish to receive calls from a seller will 
suffice.138 An oral statement as simple as ``Do not call again'' 
is effective notice. Finally, although the Rule is silent on the time 
frame within which the seller must act upon the consumer's request, 
such actions must be taken in a reasonably expeditious manner.

    \137\ Milligan at 1.
    \138\ This includes a statement by consumers that they are 
revoking their prior consent to receive calls by that seller. See GA 
OCA at 3.
---------------------------------------------------------------------------

    Section 310.4(b)(2) of the Final Rule provides a limited safe 
harbor against liability for violating the ``do not call'' prohibitions 
included in Sec. 310.4(b)(1)(ii). The safe harbor states that a seller 
or telemarketer will not be liable for such violations 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 error.
    One commenter maintained that this Section should mandate that a 
seller or telemarketer meet the requirements of the safe harbor in a 
reasonable manner in order to successfully assert the defense.139 
Another stated that a seller or telemarketer who makes repeated calls 
as the result of ``error,'' despite its adoption of the requisite 
procedures outlined in this Section, should be on notice of its error 
and should not be allowed to repeatedly violate the ``do not call'' 
provision.140 The Commission agrees that a rule of reasonableness 
should prevail in determining application of the safe harbor provision. 
If a company is complying in a reasonable manner with the requirements 
of the safe harbor, any true error should be excused. On the other 
hand, numerous purportedly ``erroneous'' calls to consumers who 
previously had asked not to be called may be a sign that the seller's 
adopted procedures are ineffective, and that the safe harbor should no 
longer be available.

    \139\ NYSCPB at 4-5.
    \140\ AARP at 23. See also Gardner at 1.
3. Section 310.4(c): Calling Time Restrictions
    In the Final Rule, the Commission adopts the RNPRM's prohibition, 
in Sec. 310.4(c), against any telemarketer engaging in outbound 
telephone calls to a person's residence, without the prior consent of 
the person, at any time other than between 8 a.m. and 9 p.m. local time 
at the called person's location. This provision is included 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.'' 141

    \141\ 15 U.S.C. 6102(a)(3)(B).
---------------------------------------------------------------------------

    This provision of the Rule struck a responsive chord with 
individual consumers. A number of individuals maintained that 
telemarketers be prohibited from calling them at all.142 Others 
suggested multiple different time restrictions, for many different 
reasons.143 On the other hand, the FCC has established calling 
time hours of 8 a.m. to 9 p.m. in its regulations implementing the 
TCPA.144 By altering those permitted calling hours, the Commission 
would introduce a conflict in the federal regulations governing 
telemarketers. The record contains no compelling evidence to support a 
change that would produce such a result. Thus, this section of the 
Final Rule will be adopted as proposed.

    \142\ See, e.g., Broadbent at 1; Tiegs at 1; Dander at 1; Beaver 
at 1; Lombard at 1; Shore at 1.
    \143\ See, e.g., GA OCA at 3 (to protect older victims who are 
home alone during the day, restrict calls to businesses between 8:00 
a.m. to 5 p.m., and calls to residences between 5 p.m. and 9 p.m.); 
Dick at 1 (from 11 a.m. to 5 p.m. daily, with no calls on holidays 
and weekends); Rice at 1 (9 a.m. to 7 p.m., in respect for families 
with children); Stritchko at 1 (8 a.m. to 6 p.m., so a person can 
relax in the evening); Durkee at 1 (11 a.m. to 8 p.m., to respect 
those working nights or second shift); Kempf at 1 (10 a.m. to 2 
p.m.); Joseph at 1; Tucker at 1; Magnuson at 1; Reymann at 1 (8 a.m. 
or 9 a.m. to 5 p.m.).
    \144\ See 47 CFR 64.1200(e)(1).
---------------------------------------------------------------------------

4. Section 310.4(d): Required Oral Disclosures
    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 

[[Page 43856]]
other such disclosures as the Commission deems appropriate.145

    \145\ 15 U.S.C. 6102(a)(3)(C).
---------------------------------------------------------------------------

    The Final Rule requires all telemarketers, in outbound telephone 
calls, to disclose promptly and in a clear and conspicuous manner to 
the person receiving the call the following four items of 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 or payment is necessary to win if a prize 
promotion is offered.
    The Final Rule adheres to the statutory requirement that the 
disclosures be prompt and clear. Industry representatives generally 
supported this requirement.146 On the other hand, many law 
enforcement and consumer representative commenters maintained that the 
Commission should return to the language in the initially proposed 
Rule, requiring such disclosures to occur ``at the beginning'' of the 
telephone call.147 One commenter noted that it is important that 
calls begin with a statement of the call's purpose to provide ``an 
important protection against the usual strategy of prize promoters, 
which is to seduce consumers with visions of cars and cash before ever 
revealing that the caller's main purpose is to sell something.'' 
148 Another stated that the Commission's failure to define the 
term ``promptly'' will ``invite shady promoters to shoot for the grey 
area, and to provoke litigation over its meaning.'' 149

    \146\ See RNPRM at 30418.
    \147\ See, e.g., NAAG at 13-14; NY DCA at 1; GA OCA at 1; AARP 
at 23-25; NAPA DA at 1.
    \148\ VT AG at 2-3.
    \149\ USPS at 6.
    The Final Rule adopts the statutory language, requiring the 
disclosures to be ``prompt.'' Intending to permit some flexibility in 
the seller's telemarketing presentation, the Commission has opted not 
to include in the Rule a definition of the term ``prompt.'' 150 
However, to respond to some of the concerns raised by commenters, the 
Commission intends that the Final Rule not permit the disclosure of the 
identity of the seller and the promotional purpose of the call at the 
end of the sales pitch.151 At a minimum, the Commission agrees 
with commenters that ``prompt'' disclosures should be made prior to the 
time any substantive information about a prize, product, or service is 
conveyed to the consumer.152

    \150\ The Commission believes that the usual meaning of the term 
should apply. ``Prompt'' is defined as ``done, performed, delivered, 
etc., at once or without delay.'' Webster's Encyclopedic Unabridged 
Dictionary of the English Language at 1151 (Portland House 1989).
    \151\ See MD AG at 2.
    \152\ IA DOJ at 4.
---------------------------------------------------------------------------

    The comments also raised a number of questions about when the 
required oral disclosures must be made in ``multiple purpose calls''--
calls involving the sale of goods or services and some other activity, 
such as conducting a prize promotion or market research, or determining 
customer satisfaction. Law enforcement commenters noted the importance 
of requiring the mandated disclosures early in the call, to avoid 
consumer confusion about the call's purpose.153 In addition, the 
legislative history of the Telemarketing Act noted the problem of 
deceptive telemarketers contacting potential victims under the guise of 
conducting a poll, survey, or other type of market research.154 To 
address these problems, the Commission believes that in any multiple 
purpose call where the seller or telemarketer plans, in at least some 
of those calls, to sell goods or services, the disclosures required by 
this section of the Rule must be made ``promptly,'' during the first 
part of the call, before the non-sales portion of the call takes place. 
Only in this manner will the Rule assure that a sales call is not being 
made under the guise of a survey research call, or a call for some 
other purpose.

    \153\ See, e.g., NAAG at 13-14; VT AG at 2-3; AARP at 23-25.
    \154\ See Senate Report at 9-10.
---------------------------------------------------------------------------

    To clarify this point, the following two examples, taken from the 
comments, are offered. On the one hand, a seller may call a customer to 
determine if that customer is satisfied with a previous purchase of 
goods or services. The seller plans, during the course of that call, to 
move into a sales presentation if the seller determines that the 
customer is satisfied. If the seller determines that the customer is 
not satisfied, however, the seller plans to terminate the call.155 
In this example, since the seller plans to make a sales presentation in 
at least some of its calls, the seller is required to disclose promptly 
the information required by this part of the Rule during the initial 
portion of the call, before the seller makes lengthy inquiries about 
customer satisfaction.

    \155\ See Rollins at 2.
    On the other hand, a seller may make calls to welcome new customers 
and to inquire whether everything about recently-purchased goods or 
services is satisfactory. The seller does not plan, during any of these 
calls, to sell anything to those customers. However, during such calls 
the customer may ask about other purchase opportunities, to which the 
seller will respond by presenting those opportunities.156 Since 
the seller initially has no plans to sell goods or services during 
these calls, no prompt disclosures are required.

    \156\ See Citicorp at 2.
---------------------------------------------------------------------------

    As for the content of the required oral disclosures, the only 
significant comments concerned the ``no purchase necessary'' 
disclosure, in Sec. 310.4(d)(4), required for calls offering a prize 
promotion. As stated in the RNPRM, 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. The USPS 
expressed concern in its comment that this disclosure may not cover 
scams where the marketer will not ask the consumer to purchase a prize, 
but instead will ask for payment of shipping charges, taxes, or other 
fees in order to enter or win a prize.157 The Commission believes 
this is a valid concern, and therefore is amending this portion of the 
Final Rule to require the disclosure that ``no purchase or payment is 
necessary to win'' a prize. This disclosure is designed to counteract 
the false impression created by deceptive prize promotion telemarketers 
that a consumer must purchase some item, or make some other type of 
payment, in order to win the ``fabulous'' prize offered.158 This 
disclosure carries the message to consumers that a true, legitimate 
prize promotion does not require any purchase or payment to participate 
or to win.159

    \157\ See USPS at 2.
    \158\ One commenter asked if an announcement, during a 
telemarketing call, that the consumer ``has been entered free'' into 
a sweepstakes would satisfy the disclosure requirement that no 
purchase or payment is necessary to win a prize. See ITI at 2-3. The 
Commission does not believe this disclosure would suffice, since the 
mere entry into a promotion may be different from actually having a 
chance of winning a prize.
    \159\ See 18 U.S.C. 1301.
---------------------------------------------------------------------------

    The revised proposed Rule required this disclosure to be made 
before the prize is described to the person called. A number of 
industry commenters requested some timing flexibility here, suggesting 
that this disclosure be required ``before or in immediate conjunction 
with'' the description of the prize.160 The Commission agrees that 
such a change will ensure that this key disclosure is linked directly 
to the prize described. This modification is designed to prohibit 
deceptive telemarketers from separating the disclosure from the 
description of the prize, thereby 

[[Page 43857]]
negating or diluting its salutary effect.161 In addition, in order 
to make the ``no purchase or payment'' disclosure meaningful, the Final 
Rule also requires telemarketers to disclose the no-purchase/no payment 
entry method for the prize promotion, if requested by the person 
called.

    \160\ See, e.g., DMA at 5-6; ITI at 3; PCH at 2-3.
    \161\ The statement in the Final Rule that this disclosure must 
be made before or in conjunction with the description of the prize 
does not alter the requirement that this disclosure must also be 
made ``promptly.''
---------------------------------------------------------------------------

    Many law enforcement and consumer representative commenters 
suggested that additional oral disclosures be required in every 
outbound telephone call involving a prize promotion.162 The USPS 
comment included the most concise statement on this issue, noting that 
``the fraud and deception caused by prize promotions are so great that 
any extra expense associated with making [such] oral disclosures * * * 
is a necessary cost of creating much-needed balance between 
telemarketers (who have all the information) and consumers (who will 
know only what the telemarketer tells them).'' 163 While the 
Commission is aware of the extensive amount of telemarketing fraud that 
occurs with deceptive prize promotions, it also is mindful that 
required oral disclosures increase both the length and the cost of 
telemarketing calls. Moreover, as stated in the RNPRM, the Commission 
is doubtful of the consumer benefit to be derived from repeated 
disclosures of the same information. Under Secs. 310.3(a)(1) (iv) and 
(v) of the Final Rule, all sellers and telemarketers must disclose, 
before a customer pays for goods and services, the odds of receiving a 
prize (or the factors used in calculating the odds, if the odds cannot 
be calculated in advance), that no purchase or payment is necessary to 
receive a prize or to participate in a prize promotion, and the no 
purchase/no payment method of entry with either instructions on how to 
enter or an address or local or toll-free telephone number the 
customers may contact for information. In addition, all sellers and 
telemarketers must disclose the material costs or conditions to receive 
or redeem a prize. The Commission believes that mandating the repeated 
oral disclosure of this information in every outbound telephone call 
involving a prize promotion is unnecessary.

    \162\ NAAG at 15 (``at a minimum, the Rule must require 
meaningful oral disclosures of the method of free entry, the odds of 
winning the prizes described, and the restrictions and conditions 
associated with the use of the prize''); VT AG at 3 (all of the 
above plus verifiable retail sales price should be disclosed); MD AG 
at 1 (require disclosure of the odds of winning, the nature and 
value of prizes, and the conditions on receiving the prizes); MA AG 
at 5 (value and odds); USPS at 7 (sales price and odds); AARP at 26-
27 (free method of entry and prize value); IA DOJ at 14 (prize 
value); NAPA DA at 2 (prize value).
    \163\ USPS at 7.
E. Section 310.5: Recordkeeping
    Section 310.5 requires sellers or telemarketers to keep certain 
records relating to telemarketing activities for 24 months from the 
date the record is produced.164 Failure to keep the records is a 
violation of the Rule.

    \164\ The Telemarketing Act authorizes the Commission to include 
recordkeeping requirements in the Rule. 15 U.S.C. 6102(a)(3).
---------------------------------------------------------------------------

    A record retention requirement is necessary to enable law 
enforcement agencies to ascertain whether sellers and telemarketers are 
complying with the requirements of the Final Rule, to identify persons 
who are involved in any challenged practices, and to identify customers 
who may have been injured. A 24-month record retention period is 
necessary to provide adequate time for the Commission and State law 
enforcement agencies to complete investigations of noncompliance. 
Consumers who complain to a law enforcement agency about alleged 
deceptive or abusive telemarketing practices often fail to do so 
immediately. Thus, there may be substantial ``lag time'' between the 
occurrence of violations and the time law enforcement learns of the 
alleged violations. A two-year record retention period allows law 
enforcement agencies time to gather information needed to pursue law 
enforcement actions and identify victims.
    The Commission is mindful, however, of the burden on legitimate 
business in maintaining these records. For example, commenters from the 
office supplies industry suggested that recordkeeping compliance costs 
would increase costs to dealers and, ultimately, consumers because of 
increased paperwork, computer usage and storage, and filing 
space.165 The Final Rule, therefore, strikes a balance between 
minimizing the recordkeeping burden on industry and retaining the 
records necessary to pursue law enforcement actions and identify 
customers who have been injured. The Final Rule requires retaining 
records that most businesses already maintain during the ordinary 
course of business.

    \165\ See, e.g., Decora, Hall, Knobe, Mansfield, Way.
---------------------------------------------------------------------------

    Section 310.5(a) sets out the records that must be maintained. 
Section 310.5(b) specifies that the records may be kept ``in any 
form.'' Sellers and telemarketers may maintain the records in any 
manner, format, or place as they keep such records in the ordinary 
course of business, including in electronic storage. Several law 
enforcement and consumer groups expressed concern that permitting 
electronic storage would increase the ease with which deceptive 
telemarketers could quickly destroy data.166 Electronic storage 
and other non-paper recordkeeping pose the danger that deceptive 
telemarketers or sellers may quickly erase or otherwise destroy 
potential evidence. However, the Commission believes this risk is 
outweighed by the cost to legitimate businesses of maintaining hard 
copies of documents for two years. Electronic storage and other storage 
formats (other than paper) are increasingly used in both the public and 
private sectors to conserve space, paper, and personnel resources.

    \166\ See, e.g., NAAG at 25; NACAA at 7; AARP at 27.
---------------------------------------------------------------------------

    Moreover, if a deceptive telemarketer or seller were to destroy 
records, law enforcement agencies still would be able to charge them 
with violating Sec. 310.5(b), which makes the failure to maintain all 
the required records a violation of the Rule.
    Under Sec. 310.5(a)(1), sellers and telemarketers must retain only 
substantially different advertising, brochures, telemarketing scripts, 
and promotional materials. Sellers and telemarketers need only retain a 
specimen copy of each advertising or promotional piece or script that 
is substantially different from other advertisements or scripts. They 
need not keep copies of documents that are virtually identical but for 
immaterial variations. If no scripts or other advertising or 
promotional materials are used in connection with the telemarketing 
activity, then no such materials would need to be retained. NAAG opined 
that telemarketers and sellers should not have sole discretion to 
determine what constitutes ``substantially different,'' in view of the 
fact that what is ``substantially different'' in the consumer 
protection context can be problematic, and that changing a few words in 
a telemarketing script can have a tremendous impact.167

    \167\ NAAG at 25-26.
---------------------------------------------------------------------------

    The Commission agrees that reasonable people may differ as to 
whether a particular document is ``substantially different'' from 
another document. However, the Commission also recognizes that, in the 
legitimate telemarketing industry, scripts can change frequently, often 
with only minor alterations, and advertisements or promotional 
materials may differ only in minor respects from other versions. 

[[Page 43858]]
Retention of each and every script, advertisement, or other promotional 
piece would likely enhance efforts of law enforcers to build cases 
against deceptive telemarketers; but the Commission is unwilling to 
burden legitimate business with a requirement to maintain such a huge 
volume of records, much of which may be worthless or redundant from a 
law enforcement standpoint.
    In the revised proposed Rule, Sec. 310.5(a)(2) required sellers and 
telemarketers to maintain records of the name and last known address of 
each prize recipient and the prize awarded where the prizes have a 
value of $25 or more. Several commenters stated that requiring records 
of prize recipients only with regard to prizes having a value of more 
than $25 will not provide the type of documentation needed by law 
enforcement.168 These commenters pointed out that many of the 
abuses found in prize promotions involve items valued under $25, but 
represented to be valued much higher. Further, by its very nature, a 
deceptive prize promotion involves prizes sent to consumers that are 
virtually worthless. In order to address this valid concern, but not 
increase the burden on legitimate prize promoters, the Commission has 
revised Sec. 310.5(a)(2) to require that records be maintained for all 
prizes represented, directly or by implication, to have a value of $25 
or more. Sellers and telemarketers do not have to maintain records on 
prize recipients and prizes awarded for prizes that are represented to 
have a value of less than $25. The Commission believes that this change 
in wording should not increase the recordkeeping burden on legitimate 
business because such telemarketers and sellers would be expected to 
accurately represent prize values. Although in the Commission's 
experience, there is often at least an implied representation of value 
in deceptive prize promotions, there may be times when a prize 
promotion is silent as to value. Therefore, in those instances where no 
direct or implied representations have been made as to a prize's value, 
a seller or telemarketer must keep records for prizes that cost the 
seller or telemarketer more than $25 to purchase.

    \168\ AARP at 27-28; IA DOJ at 5.
---------------------------------------------------------------------------

    Section 310.5(a)(3) requires that records be kept of customer 
transactions, including the name and last known address of the 
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. Only records relating to actual sales need 
be maintained; sellers and telemarketers are not required to keep 
records of all customer contacts, if those customers do not make a 
purchase.
    Several commenters from the magazine sales industry noted that 
neither the seller nor telemarketer in the magazine sales industry has 
knowledge of, or control over, the dates of shipment, nor would they 
have records of such as required by Sec. 310.5(a)(3); 169 records 
reflecting the date(s) of shipment would be kept by the contracted 
``fulfillment house.'' These commenters noted, however, that sellers 
and telemarketers would have the date the order was placed with the 
fulfillment house or the date that the service was to commence. In 
connection with magazine sales, either of these dates will be 
sufficient for purposes of compliance with Sec. 310.5(a)(3).

    \169\ See, e.g., MPA at 3; MSSC at 3; DMT&H at 1; HEARSTCO at 2.
---------------------------------------------------------------------------

    Section 310.5(a)(4) requires sellers and telemarketers to keep 
certain records on current and former employees who are directly 
involved in telephone sales: name, any fictitious name used, the last 
known home address and telephone number, and job title. Any records 
relating to current and former employees are required only for those 
persons who are or became employees on or after the effective date of 
the Final Rule.
    IA DOJ recommended that, if callers use fictitious ``desk'' names, 
sellers and telemarketers should not allow more than one person to use 
the same alias and should maintain current information on the name and 
address of any employee who has used an alias. If such requirements 
were included, IA DOJ opined, law enforcement would be able to request 
and obtain the information from a seller or telemarketer expeditiously. 
IA DOJ stated that these requirements are necessary to identify and 
locate individuals responsible for deceptive telemarketing 
sales.170

    \170\ IA DOJ at 6.
---------------------------------------------------------------------------

    The Commission agrees with the concerns raised by IA DOJ and has 
revised Sec. 310.5(a)(4) to require that, if fictitious names are used 
by employees, the name must be traceable to a specific employee. This 
revision should eliminate the confusion that would result if more than 
one employee were using the same desk name.
    The Commission believes, however, that it would be overly 
burdensome and inappropriate to require businesses to continue updating 
records on persons who no longer work for them. Businesses must 
maintain up-to-date information on current employees, and last-known 
information on former employees, but the Final Rule does not place an 
affirmative duty on the seller or telemarketer to update information on 
former employees.
    Section 310.5(a)(5) requires sellers and telemarketers to retain 
copies of any verifiable authorizations required under Sec. 310.3(a)(3) 
of the Rule.171 Sellers and telemarketers should retain records of 
the verifiable authorization for each transaction. These records may be 
in any form, manner, or format consistent with the methods of 
authorization permitted under Sec. 310.3(a)(3).

    \171\ Section 310.3(a)(3) requires express verifiable 
authorization before submitting a demand draft for payment.
---------------------------------------------------------------------------

    NASAA suggested that the Final Rule expressly provide law 
enforcement with access to records upon reasonable notice for the 
purpose of reviewing and copying.172 The Commission has decided 
not to include a provision requiring that the records be provided upon 
reasonable notice. The Commission does not believe that such a 
provision would appreciably enhance tools currently at the disposal of 
law enforcement authorities to obtain such information, if it is 
required to be maintained. Moreover, the Commission's own law 
enforcement experience indicates that such a provision could be 
construed to hamper its ability to obtain such information quickly, 
especially through ex parte temporary restraining orders against 
deceptive telemarketers.

    \172\ NASAA at 2.
---------------------------------------------------------------------------

    Section 310.5(b) states that ``[f]ailure to keep all records 
required by Sec. 310.5(a) shall be a violation of this Rule.'' Sections 
310.5 (c) and (d) minimize the burden of maintaining duplicate records.
    Under Sec. 310.5(c), the seller and telemarketer need not keep 
duplicative records if they allocate between themselves, by written 
agreement, responsibility for complying with the recordkeeping 
requirements. Absent a written agreement between the parties, or if the 
written agreement is unclear as to who must maintain the required 
records, the seller is responsible for complying with 
Secs. 310.5(a)(1)-(3) and (5), and the telemarketer is responsible for 
complying with Sec. 310.5(a)(4) (the Section dealing with records about 
current and former employees). Several commenters on the initially 
proposed Rule supported Sec. 310.5(c),173 noting that it strikes a 
reasonable balance between maintaining necessary documentation and 
avoiding overly burdensome 

[[Page 43859]]
requirements, as well as noting that it is consistent with the 
contractual nature of the relationship between sellers and 
telemarketers.174

    \173\ This provision was included in Sec. 310.5(b) of the 
initially proposed Rule.
    \174\ See, e.g., initial comments: NRF at 41; ARDA at 37-38.
---------------------------------------------------------------------------

    On the other hand, NAAG feared that a seller could use contractual 
provisions to shift its recordkeeping responsibility to another ``fly-
by-night,'' and most likely ``judgment proof,'' telemarketer. NAAG 
stated that the Rule's failure to provide joint and several 
responsibility for recordkeeping exacerbated the danger of deceptive 
telemarketers quickly destroying data.175 NAAG asked that the 
Final Rule require that records be kept by an entity which will not 
benefit by their loss. The Commission has considered this suggestion, 
but since both sellers and telemarketers are liable for violations of 
the provisions of the Rule, it is unclear where such a 
``disinterested'' recordkeeping entity might be found. Moreover, the 
Commission believes the risk that NAAG identified is outweighed by the 
cost to legitimate sellers and telemarketers of maintaining duplicate 
copies of documents for two years.

    \175\ NAAG at 25.
---------------------------------------------------------------------------

    Finally, Sec. 310.5(d) sets out the parties responsible for 
maintaining records at the end of, or after a change in ownership of, 
the seller's or telemarketer's business. In the event of dissolution or 
termination of such business, the principal of the seller or 
telemarketer is required to maintain these records. On the other hand, 
in the event of any sale, assignment, or other change in ownership of 
the seller's or telemarketer's business, the successor business is 
required to maintain the records.176

    \176\ One commenter suggested requiring that any agreement 
between the parties established under Sec. 310.5(c) would also 
govern who is to maintain the records in the event of a dissolution. 
BSA at 7. The Commission believes that the division of 
responsibilities set forth in the Final Rule appears to be the most 
appropriate with regard to the types of records to be maintained.
---------------------------------------------------------------------------

F. Section 310.6  Exemptions
    Section 310.6 of the Rule exempts certain types of activities from 
the Rule's coverage. This section prompted considerable RNPRM comments, 
as it did in the initially proposed Rule. In their comments to the 
RNPRM, law enforcement and consumer groups once again cautioned against 
any exemptions because of the potential danger that deceptive 
telemarketers will seize upon any perceived loophole to avoid coverage 
under the Rule.177 These groups argued that exemptions only lead 
to confusion as to who is covered under the Rule and will cause law 
enforcement agencies to expend considerable resources to determine 
whether a telemarketer is subject to the Rule. They further maintained 
that, since only catalog sales are exempted from the Act, Congress 
intended for all telemarketers to be covered by the Rule and did not 
intend the Commission to include a broad list of specific 
exemptions.178 The business community once again suggested that 
the Commission set out exemptions that will allow legitimate 
telemarketers to operate without the restraints of additional 
regulation.179

    \177\ See, e.g., NCL at 16; NACAA at 8; NAAG at 23-25.
    \178\ See, e.g., NCL at 16.
    \179\ See, e.g., ACRA at 6-7; IBM at 19-23; FFF; BPIA at 10-12.
    The Commission has concluded that it is vested by the Telemarketing 
Act with discretion both in determining what constitutes 
``telemarketing'' under the Act and in defining deceptive and abusive 
practices. In exercising that discretion, the Commission has decided 
that narrowly-tailored exemptions are necessary to prevent an undue 
burden on legitimate businesses and sales transactions. Section 310.6 
enumerates these exemptions. The Commission determined the advisability 
of each exemption after examining the Act and considering the following 
factors: (1) Whether Congress intended that a certain type of sales 
activity be exempt under the Rule; (2) whether the conduct or business 
in question already is regulated extensively by Federal or State law; 
(3) whether, based on the Commission's enforcement experience, the 
conduct or business lends itself easily to the forms of deception or 
abuse that the Act is intended to address; and (4) whether requiring 
businesses to comply with the Rule would be unduly burdensome when 
weighed against the likelihood that sellers or telemarketers engaged in 
fraud would use an exemption to circumvent Rule coverage.
    One commenter suggested an exemption for providers of funeral goods 
and services who are subject to the Commission's Funeral Rule, 16 CFR 
part 453.180 The Commission believes that most telephone sales by 
funeral providers covered by the Funeral Rule will not be completed 
until after a face-to-face sales presentation. Such transactions would 
be exempt under Sec. 310.6(c), discussed below. It is therefore 
unnecessary to specifically exempt those transactions from the 
provisions of this Rule.

    \180\ See generally MFDA.
---------------------------------------------------------------------------

    Other commenters requested that the Commission reconsider its 
decision not to exempt prior business relationships or established 
businesses.181 The Commission is not persuaded that exemptions 
defined in such a manner would be workable, nor does the Commission 
believe they are necessary, given the changes elsewhere in the Rule 
that focus it more narrowly. Indeed, one of the commenters on the 
initially proposed Rule that strongly advocated a ``safe harbor'' 
provision for established businesses has indicated that such an 
exemption is unnecessary because the revised proposed Rule was more 
narrowly and appropriately focused.182

    \181\ IBM at 19-23; ACRA at 6-7.
    \182\ Time Warner at 2-3.
---------------------------------------------------------------------------

    Section 310.6(a) exempts pay-per-call services subject to the 
Commission's 900-number Rule, 16 CFR part 308, since that Rule's 
extensive requirements and prohibitions governing these transactions 
already provide customers with substantial protections regarding the 
deceptive or abusive practices that are the subject of the 
Telemarketing Sales Rule.
    Section 310.6(b) exempts the sales of franchises subject to the 
Commission's Franchise Rule, 16 CFR part 436. As discussed supra, the 
revised proposed Rule had defined the term ``investment opportunity'' 
in Sec. 310.2(j) to exclude franchise sales. In order to make it clear 
that such transactions are not covered by the Telemarketing Sales Rule, 
the Commission has decided to add a separate exemption in Sec. 310.6(b) 
for sales of franchises covered by the Franchise Rule, rather than to 
rely upon the definition of ``investment opportunity'' to accomplish 
this result. The Commission's Franchise Rule contains requirements and 
prohibitions that apply to the sale of franchises and business 
opportunities and that already provide customers with substantial 
protections. 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.183 The Commission believes it 
is more appropriate to consider within the framework of that review 
process whether any further action is needed to address the sale of 
franchises, including those employing telemarketing. Following this 
approach, the Commission ensures that any new requirement or 
prohibition applicable to franchises will be codified in one 
regulation--the Franchise Rule--rather than spread out over two 
separate Rules.

    \183\ 60 FR 17656 (April 7, 1995).
    One commenter (DSA) maintained that business ventures that are not 

[[Page 43860]]
    covered by the Franchise Rule should be exempted from the definition of 
investment opportunities as well.184 The Commission disagrees. 
When a business venture is not covered by the Franchise Rule, then 
consumers do not receive the protection afforded by that Rule's pre-
sale disclosure requirements. Therefore, it is appropriate that 
telephone sales of such ventures should be covered by this Rule, so 
that consumers may receive the benefit of its protections.185

    \184\ DSA at 2.
    \185\ DSA at 3-4. DSA was prompted to raise this suggestion by 
its concern that the recruitment of persons to engage in the direct 
sale of goods or services might be considered a ``business 
opportunity'' which may be covered by this Rule. However, this 
concern is unfounded given the exemption of face-to-face sales from 
coverage of this Rule, included in Sec. 310.6(c).
---------------------------------------------------------------------------

    Section 310.6(c) exempts ``telephone calls in which the sale of 
goods or services is not completed, and payment or authorization for 
payment is not required, until after a face-to-face sales presentation 
by the seller.'' This exemption reflects the Commission's enforcement 
experience that the occurrence of a face-to-face meeting limits the 
incidence of telemarketing deception and abuse. The paradigm of 
telemarketing fraud involves an interstate telephone call in which the 
customer has no other direct contact with the caller. The Commission 
has deleted the language in the revised proposed Rule which would have 
required the consumer to have an opportunity to examine the goods or 
services offered. Many commenters pointed out that consumers would not 
be able to examine an intangible service, nor would they be able to 
examine each item that was described in a catalog used by the seller in 
a sales presentation.186 Furthermore, DSA pointed out that the 
requirement that a consumer be given the opportunity to examine the 
good or service was contrary to most State telemarketing laws and might 
preempt a large body of existing State law.187

    \186\ DSA at 5-7; ACA at 2; DMT&H at 1; HEARSTCO at 2-3; MSSC at 
4.
    \187\ DSA at 5-7.
---------------------------------------------------------------------------

    This exemption also covers those sales that begin with a face-to-
face sales presentation and are later completed in a telephone call. 
The emphasis in this exemption is on the face-to-face contact between 
the buyer and seller, which distinguishes these transactions from those 
of telemarketing that are completed without face-to-face contact 
between buyer and seller.
    Section 310.6(d) exempts calls initiated by a customer that are not 
the result of any solicitation by a seller or telemarketer. Such calls 
are not deemed to be part of a telemarketing ``plan, program, or 
campaign * * * to induce the purchase of goods or services'' under the 
Act.188 This exemption covers incidental uses of the telephone 
that are not in response to a direct solicitation, e.g., calls from a 
customer to make hotel, airline, car rental, or similar reservations, 
to place carry-out or restaurant delivery orders, or to obtain 
information or customer technical support.

    \188\ See Senate Report at 8.
---------------------------------------------------------------------------

    Section 310.6(e) exempts calls initiated by a customer in response 
to general media advertisements, other than direct mail solicitations, 
unless the calls are in response to an advertisement relating to 
investment opportunities, credit repair, recovery rooms, or advance fee 
loans. This exemption applies to calls in response to television 
commercials, infomercials, home shopping programs, magazine and 
newspaper advertisements, and other forms of mass media advertising and 
solicitations. This exemption also covers calls from a customer in 
response to a business listing in the Yellow Pages or similar general 
directory listing. The Commission does not intend that telephone 
contacts in response to general media advertising be covered under the 
Rule. In the Commission's experience, calls responding to general media 
advertising do not typically involve the forms of deception and abuse 
the Act seeks to stem. Deceptive general media advertising will 
continue to be subject to enforcement actions under the FTC Act.
    On the other hand, the Commission knows that some deceptive sellers 
or 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 experience with the marketing of these deceptive 
telemarketing schemes 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.
    USPS recommended that the Commission designate prize promotions as 
one of the types of telemarketing that will not be entitled to claim a 
general media advertising exemption.189 USPS pointed out that 
deceptive telemarketers have proven to be very adaptable and that the 
general media advertising exemption may be a major loophole for those 
with a ``gift for developing `new and improved' frauds.'' USPS 
cautioned that deceptive telemarketers may take advantage of the 
exemption by fashioning false and deceptive print and broadcast media 
ads instead of using direct mail. The Commission agrees that deceptive 
telemarketers are adept at circumventing regulations. However, it is 
impossible to predict accurately the manner in which their 
resourcefulness will manifest itself. The Commission's law enforcement 
experience relating to deceptive telemarketing has not identified a 
problem with general media advertising of prize promotions, unlike the 
problems that have arisen with the enumerated telemarketing businesses 
that have been excluded from the exemption. In fact, it would likely be 
much more difficult to persuade consumers that they have been 
``specially selected'' to receive a prize if the solicitation relating 
to the prize were to be publicized on the television, in a magazine, or 
through other mass media. Therefore, the Commission has decided to 
retain the exemption for mass media advertising of prize promotions. 
The Commission will reconsider that position if general advertising of 
prize promotions becomes a problem after the Final Rule has been in 
effect.

    \189\ USPS at 10.
---------------------------------------------------------------------------

    Section 310.6(f) of the Final Rule exempts calls from a customer in 
response to a direct mail solicitation that clearly, conspicuously, and 
truthfully discloses all material information listed in 
Sec. 310.3(a)(1) of this part for any item offered in the direct mail 
solicitation. In the Commission's experience, such solicitations are 
not uniformly related to the forms of deception and abuse the Act seeks 
to stem, nor are they uniformly unrelated to such misconduct. Rather, 
in certain discrete areas of telemarketing, such solicitations often 
provide the opening for subsequent deception and abuse. The Commission 
has drawn upon its enforcement experience, identified those problem 
areas, and excluded them from this exemption. The exemption does not 
apply to calls initiated by a customer in response to a direct mail 
solicitation relating to any of several categories of goods or 
services: investment opportunities, credit repair, recovery rooms, 
advance fee loans, or prize promotions.
    Many commenters from law enforcement and consumer groups strongly 
recommended that the Commission also exclude direct mail solicitations 
involving prize promotions from this exemption.190 They pointed 
out that direct mail solicitations of prize promotions are a major 
source of 

[[Page 43861]]
consumer complaints and consumer injury, and should remain within the 
Rule's coverage. The Commission is persuaded that abuse in direct mail 
prize promotions has been such a major source of consumer injury that 
an exemption no matter how carefully crafted, might provide loopholes 
which deceptive promoters might exploit to evade the Rule. Therefore, 
the Commission has added prize promotions to the list of telemarketing 
areas that are excluded from the direct mail solicitation exemption.

    \190\ Mass AG at 5-6; IA DOJ at 7; USPS at 10-11.
---------------------------------------------------------------------------

    In excluding prize promotions from the direct mail solicitation 
exemption, the Commission has been mindful of the burdens this action 
might place on legitimate prize promoters. However, the Commission 
believes that the changes elsewhere in the Rule have reduced 
substantially the burden on legitimate industry by providing maximum 
flexibility to business as long as customers receive the necessary 
information and protections. Furthermore, the Commission believes that 
any increased burden will be minimal. Based on information provided 
during the comment periods and the public workshop, the legitimate 
prize promotion industry already complies substantially with most of 
the Rule's provisions. For example, legitimate prize promoters do not 
misrepresent the prize promotion or the goods and services offered; 
they do not debit customer's accounts without express verifiable 
authorization; and they maintain the required records.
    Several commenters also pointed out that the wording of the 
exemption in the revised proposed Rule would allow direct mail 
solicitors to claim an exemption even if a direct mail solicitation 
were totally deceptive, since the exemption was predicated solely on 
making the disclosures required under Sec. 310.3(a)(1).191 The 
exemption did not require that the disclosures be truthful, only that 
disclosures be made. It was not the Commission's intent to allow an 
exemption predicated upon untruthful Sec. 310.3(a)(1) disclosures. 
Therefore, Sec. 310.6(f) of the Final Rule specifies that the 
disclosures be made truthfully, in addition to being made clearly and 
conspicuously.

    \191\ IA DOJ at 7; Mass AG at 5-6; USPS at 10-11.
---------------------------------------------------------------------------

    IBM noted that the Rule's exemptions for general media advertising 
in Sec. 310.6(e) and direct mail solicitations in Sec. 310.6(f) are 
broader and do not contain the prohibitions against further 
solicitation during calls from consumers that the Telemarketing Act 
places on catalog sales.192 The commenter stated that ``this 
produces the potentially perverse result of regulating most intensely 
the marketing medium that provides the greatest indicia of legitimacy 
and the most information for the consumer.'' This is an illusory 
problem since catalogs, being ``direct mail solicitations,'' are exempt 
from the Rule, through Sec. 310.6(f), if they clearly, conspicuously, 
and truthfully disclose all material information required in 
Sec. 310.3(a)(1).

    \192\ IBM at 15-17. The Telemarketing Act exempts solicitation 
of sales through the mailing of a catalog as long as the seller or 
telemarketer ``does not solicit customers by phone but only receives 
calls initiated by customers in response to the catalog and during 
those calls takes orders only without further solicitation.'' 
Sec. 6106(4).
---------------------------------------------------------------------------

    Section 310.6(g) exempts ``telephone calls between a telemarketer 
and any business, except calls involving the retail sale of nondurable 
office or cleaning supplies.'' Several industry commenters suggested 
that a ``business-to-business'' exemption was defensible only if 
provided on an across-the-board basis, without exceptions.193 
Industry also asked that any exemption be expanded to include entities 
other than businesses, e.g., government agencies and educational 
institutions.194 Numerous office and cleaning supplies businesses 
also expressed strong dissatisfaction with being covered by the Rule, 
arguing that the burden of complying with the Rule will fall on 
legitimate sellers and telemarketers, while the deceptive operators 
will simply ignore the requirements.195

    \193\ See, e.g., DMA at 6-7; AAP at 3; BPIA at 4-7.
    \194\ E.g., AAP at 3.
    \195\ See, e.g., Allard, Allied, B&D, BESCO, Cook, Cornerstone, 
Daisy, Decora, Guernsey, Jud, MBR, Midesha, Pelican, Sablatura, 
Total, Way.
---------------------------------------------------------------------------

    Enforcement and consumer agencies, on the other hand, cautioned 
against providing any business-to-business exemption because of the 
potential loophole such an exemption would provide.196 They 
predicted the revival of ``advertising specialty'' scams that victimize 
small businesses with promises of fabulous prizes in exchange for the 
purchase of promotional items engraved with the business's name. These 
commenters also predicted the rise of other scams targeting small 
businesses. Law enforcement agencies suggested that, if a business-to-
business exemption were to be included in the Final Rule, the 
Commission should expand the list of goods or services that would be 
excluded from the exemption. They suggested that advertising and 
promotional specialties and the sale of listings in classified 
directories and other publications be excluded from the 
exemption.197 Similarly, commenters from the office supplies 
industry argued that they should not be singled out for inclusion under 
the Rule because other industries selling to businesses also have a 
history of abuses, e.g., specialty or business promotional products, 
investment opportunities, and premium and prize promotions.198

    \196\ See, e.g., USPS at 11-12; IA DOJ at 8.
    \197\ See, e.g., USPS at 11-12; IA DOJ at 8.
    \198\ BPIA at 4-7.
    The Commission believes that Congress did not intend that every 
business use of the telephone be covered by this Rule. Nevertheless, 
the Commission's extensive enforcement experience pertaining to 
deceptive telemarketing directed to businesses, particularly office and 
cleaning supply scams, amply demonstrate that an across-the-board 
exemption for business-to-business contacts is inappropriate. The 
Commission recognizes that there may have been past problems with 
telemarketing sales of products other than office or cleaning supplies 
to businesses. However, the Commission's enforcement experience against 
deceptive telemarketers indicates that office and cleaning supplies 
have been by far the most significant business-to-business problem 
area; such telemarketing falls within the Commission's definition of 
deceptive telemarketing acts or practices. Therefore, the Commission 
has decided not to expand the list of business-to-business 
telemarketing activities excluded from the exemption. The Commission 
will reconsider that position if additional business-to-business 
telemarketing activities become problems after the Final Rule has been 
in effect.
    BPIA suggested that, if the Commission does not believe a total 
exemption for business-to-business contacts is appropriate, there may 
be other modifications to the language of the Rule that would provide 
relief to the legitimate office supplies dealers who would otherwise be 
subject to the Rule's provisions.199 The Commission believes that 
each of the suggested modifications would provide substantial loopholes 
for deceptive telemarketers. For example, one suggestion was that, in 
the context of office and cleaning supplies, ``telemarketer'' be 
defined as only those operations that sell their products exclusively 
through telemarketing. This definition would open the door to deceptive 
telemarketers who would need to set up only a de minimis number of non-
telemarketing sales, e.g., by sales representative or by catalog, in 

[[Page 43862]]
order to claim the exemption. The same problem would arise from BPIA's 
alternative suggestion that the Rule exempt telemarketing of office 
supplies where the initial sale was made by a sales representative in 
person, in writing, electronically, or as a result of receipt of a 
catalog. Again, this exemption would open the door to deceptive 
telemarketers who would need to set up only an initial sale through a 
deceptive catalog or other means in order to claim the exemption. 
BPIA's third alternative was to define ``telemarketer'' as a person 
employed or under contract with an office or cleaning supply dealer 
that sells or distributes fewer than 100 different products. This 
alternative presents evidentiary obstacles to law enforcement. Law 
enforcement agencies would have to expend scarce resources to prove 
that the number of products sold is less than the threshold of 100 and 
argue over whether each brand or size or color of toner or paper or 
other product constitutes a separate product. The Commission therefore 
rejects these suggestions as unworkable.

    \199\ BPIA at 10-12.
---------------------------------------------------------------------------

    On the other hand, telephone calls to sell nondurable office and 
cleaning supplies are the only business-to-business contacts that are 
not exempt from this Rule. The Commission believes that the conduct 
prohibitions and affirmative disclosures mandated by the Final Rule are 
crucial to protect businesses--particularly small businesses and 
nonprofit organizations--from the harsh practices of some unscrupulous 
sellers of those products. Nevertheless, it recognizes that the Rule 
may result in a disparate impact on the legitimate sellers of office 
and cleaning supplies as opposed to other businesses exempted from the 
Rule. Therefore, the Commission wishes to balance the benefits derived 
from compliance with the Rule's prohibitions and disclosure 
requirements against the burdens imposed upon the office and cleaning 
supply industry--minimizing such burdens where possible.200

    \200\ BPIA estimates that, based on Dunn and Bradstreet data for 
1995, there are over 6,000 office supply dealers in the United 
States, and the vast majority of these firms have annual revenues of 
less than $2 million. BPIA at 8.
---------------------------------------------------------------------------

    After considering all areas of the Rule for possible minimization 
of compliance burdens to the legitimate office and cleaning supply 
industry, the Commission has decided to exempt sellers or telemarketers 
engaged in the sale of nondurable office and cleaning supplies from the 
recordkeeping requirements in Sec. 310.5 of the Rule. The Commission 
realizes that exempting sellers and telemarketers of office and 
cleaning supplies from the recordkeeping requirements may make law 
enforcement's job more difficult in some situations. However, the 
Commission has determined that the costs imposed on legitimate industry 
from the recordkeeping requirements under Sec. 310.5 of the Rule 
outweigh the benefits compliance with that Section would afford. Based 
on its own law enforcement actions against deceptive sellers and 
telemarketers, the Commission does not believe that such an exemption 
will significantly obstruct law enforcement's efforts to stop unlawful 
activities by sellers and telemarketers of nondurable office and 
cleaning supplies.
G. 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.201 Section 310.7(a) sets forth the 
notice that such parties must provide to the Commission regarding those 
actions. Such parties must serve written notice of their action on the 
Commission, if feasible, prior to initiating an action under this Rule. 
The notice must include a copy of the complaint and any other pleadings 
to be filed with the court. If prior notice is not feasible, the State 
official or private person must serve the Commission with the required 
notice immediately upon instituting its action.

    \201\ See 15 U.S.C. 6103 and 6104.
    One commenter suggested that the street address and telephone 
number be added to the mailing address given in the Rule in order to 
clarify that overnight express delivery or facsimile would also be 
appropriate for providing written notice of State action to the 
Commission.202 The Commission believes that such an agreement on 
service can be arranged informally between the Commission and the 
States. Such an informal agreement also provides the flexibility needed 
as addresses and telephone numbers may change in the future.

    \202\ See generally DMA.
---------------------------------------------------------------------------

    Section 310.7(b) of the revised proposed Rule stated that the Rule 
``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 FTC Act.'' 203 This provision prompted considerable comment 
from State law enforcement agencies, who noted that the States are able 
to sue third parties (including many parties who are exempt from FTC 
jurisdiction) in State court for assisting and facilitating 
telemarketing fraud.204 The States had anticipated that, in filing 
federal suits under the Act, State pendent claims could and would be 
joined to the federal causes of action. The States expressed concern 
that the language in Sec. 310.7(b) could be construed to strip States 
of the right to bring pendent claims against entities that are exempt 
from FTC jurisdiction.205

    \203\ The Act states: ``(N)o activity which is outside the 
jurisdiction of (the FTC) Act shall be affected by this Act.'' 15 
U.S.C. 6105(a). In addition, the legislative history includes the 
statement that: ``(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.'' 
Senate Report at 14.
    \204\ See, e.g., NAAG at 21; VT AG at 2; NACAA at 8.
    \205\ Id.
---------------------------------------------------------------------------

    The Commission does not believe that the language of Sec. 310.7(b) 
in the revised proposed Rule would have compelled the construction that 
prompted NAAG's concern; but to clarify that the Commission intends to 
provide no support to such a construction, it has decided to delete 
Sec. 310.7(b).
    Congress clearly intended that the Act and the Rule serve to 
enhance, and not detract from, State law enforcement efforts to address 
telemarketing fraud. As NAAG pointed out,206 section 6103(f) of 
the Act contains language which makes it clear that the limitation in 
section 6105(b) of the Act does not restrict a State's authority to 
pursue any claim or action under its own laws in State court. 
Therefore, the Final Rule adds a new Sec. 310.7(b), with language 
tracking Sec. 6103(f)(1) of the Telemarketing Act to clarify, in the 
Rule, that notwithstanding jurisdictional limitations of the FTC Act, 
an authorized State official is not inhibited from proceeding in State 
court on the basis of an alleged violation of any civil or criminal 
statute of such State.

    \206\ NAAG at 8.
---------------------------------------------------------------------------

III. Preemption

    Section 310.8 of the revised proposed Rule stated that ``(n)othing 
in (the Rule) shall be construed to preempt any State law that is not 
in direct conflict with any provision of (the Rule).'' This was 
intended to provide that State statutes, rules, or regulations 
concerning telemarketing that contain prohibitions or requirements that 
are not imposed by this Rule would remain in effect, to the extent that 
these statutes do not conflict with this Rule. This provision was 
intended to make clear that State laws can exceed the threshold-level 
requirements established by the Rule as 

[[Page 43863]]
long as they do not directly conflict with the Rule's requirements.
    This provision prompted considerable comment from industry and from 
law enforcement and consumer groups.207 Industry generally 
recommended that the Rule adopt a preemption standard based on 
``inconsistency,'' which has been used by the FTC in its Mail or 
Telephone Order Rule, 16 CFR part 435. They argued that such a standard 
would preempt State and local laws and regulations that are 
inconsistent with the federal rules to the extent that consumers are 
not provided with equal or greater protections, and would preempt those 
provisions of State law which provide the same requirements as the 
federal rules, but which demand that the requirements be undertaken in 
a fashion different from the federal law.

    \207\ See, e.g., Spiegel at 1; DMA at 9-11; Olan at 4-6; ATA at 
2; NASAA at 2; NJ DCA at 5; MD AG at 1-2; VT AG at 3; GA OCA at 3-4; 
MA AG at 6-7; NCL at 4; IA DOJ at 8; NAAG at 6-12.
---------------------------------------------------------------------------

    Law enforcement asked that the Commission clarify that the Rule 
does not preempt State law and recommended that a presumption against 
preemption be included in the text of the Rule.208 They noted that 
the Act did not authorize the FTC to preempt State laws and that, by 
including a preemption section, States with stronger regulations than 
the Rule could find themselves facing preemptive challenges since the 
stricter State regulations could be seen to conflict with federal law. 
GA OCA suggested that, if the FTC intends to include a preemption 
section, the Rule should use the traditional standard of preemption 
used in other FTC rules, i.e., that State law is preempted only to the 
extent that it provides less consumer protection than does the 
Rule.209 NASAA recommended that only State regulations requiring 
conduct that would directly conflict with the federal rule should be 
exempted.210

    \208\ Several commenters requested clarification that county, 
municipal or other local laws would not be preempted by the Rule. 
See generally Napa; Hillsborough; NACAA; NYC; San Diego.
    \209\ GA OCA at 3-4.
    \210\ NASAA at 2.
---------------------------------------------------------------------------

    NAAG commented most extensively on this issue, urging deletion of 
any preemption provision from the Rule.211 NAAG stated that the 
language of the revised proposed Rule deviated sufficiently from the 
language of the statute that it could be used by defendants to argue 
that the FTC, by adoption of its Rule, has preempted enforcement of 
some State laws which are stronger than the FTC Rule. NAAG further 
stated that although it ``disagree[s] that the Rule has this preemptive 
effect, or in fact can have this effect when Congress clearly spoke (in 
section 4(f)(1) of the Act, 15 U.S.C. 6103(f)(1)) in favor of no 
preemption, history tells us that such arguments will be made and, as 
such will make enforcement of our more consumer-friendly State laws 
more time-consuming and difficult.'' NAAG further predicted that 
deceptive telemarketers defending against a State enforcement action 
may point to the Commission's deletion of certain provisions included 
in the initial version of the Rule published with the NPR as evidence 
that in rejecting those provisions, the Commission effectively 
preempted similar provisions in State law.

    \211\ NAAG at 6-12. NAAG's position was supported by AARP, CFA, 
NACAA, IA DOJ, and USPS.
    The Commission does not intend any such preemptive effect and is 
persuaded by NAAG's arguments that the quoted preemption provision in 
the revised proposed Rule should be dropped. By including Sec. 310.7(b) 
that tracks section 4(f)(1) of the Act, 15 U.S.C. 6103(f)(1), the 
Commission intends to underscore that the Rule does not ``prohibit any 
attorney general or other authorized State official from proceeding in 
State court on the basis of an alleged violation of any civil or 
criminal statute of such State.''

IV. Effective Date

    The revised proposed Rule set an effective date of 30 days from the 
date the Rule was prescribed. Most industry commenters stated that 30 
days was inadequate to permit systems to be refined, review and rewrite 
materials, review and renegotiate contracts between sellers and 
telemarketers, and train workers.212 The Commission agrees that 
there should be a longer period of time between the date this Rule is 
prescribed and the effective date in order to provide sufficient time 
for industry members to familiarize themselves with the requirements of 
the Final Rule and to ensure that their operations are in compliance. 
The Commission believes four months is an adequate amount of time to 
address the industry's needs in this regard. Accordingly, the effective 
date for this Rule is December 31, 1995.

    \212\ See, e.g., AAF at 1; CHC at 7; DMA at 11-14; NIMA at 4; 
IBM at 23-26; Olan at 6; Spiegel at 2; HII at 2.
---------------------------------------------------------------------------

V. Regulatory Flexibility Act

    In publishing the initially proposed Rule, the Commission 
certified, subject to subsequent public comment, that the proposed 
Rule, if promulgated, would not have a significant economic impact on a 
substantial number of small entities and, therefore, that the 
provisions of the Regulatory Flexibility Act, 5 U.S.C. 605(b), 
requiring an initial regulatory analysis, did not apply.213 The 
Commission noted that any economic costs imposed on small entities by 
the proposed Rule were, in many instances, specifically imposed by 
statute. Where they were not, efforts had been made to minimize any 
unforeseen burden on small entities. The Commission determined, on the 
basis of the information available to the staff at that time, that the 
proposed Rule would result in few, if any, independent additional 
costs. The Commission nonetheless requested comment on the effects of 
the proposed Rule on costs, profitability, competitiveness, and 
employment in small entities, in order not to overlook any substantial 
economic impact that would warrant a final regulatory flexibility 
analysis.214

    \213\ 60 FR 8313, 8322 (Feb. 14, 1995).
    \214\ Id.
---------------------------------------------------------------------------

    The information and comments received by the Commission did not 
provide sufficient reliable statistical or analytical data to quantify 
precisely the effect, differential or otherwise, of the proposed Rule 
on small entities versus its effect on all entities that may be subject 
to this Rule. Accordingly, the Commission has determined that public 
comments and information before the Commission do not alter the 
conclusion that the Final Rule would not have a sufficiently 
significant economic impact on a substantial number of small entities 
to warrant a final regulatory flexibility analysis under the Regulatory 
Flexibility Act. This notice serves as certification to that effect to 
the Small Business Administration.

VI. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA''),215 and implementing 
regulations of the Office of Management and Budget (``OMB'') 216 
require agencies to obtain clearance for regulations that involve the 
``collection of information,'' which includes both reporting and 
recordkeeping requirements. In the RNPRM, the Commission proposed 
requiring sellers or telemarketers to maintain certain records relating 
to telemarketing transactions. The proposed recordkeeping requirements 
were ``collections of information'' as defined by the OMB regulations 
implementing the PRA. The proposed requirements, therefore, were 
submitted to OMB for review under the PRA and were 

[[Page 43864]]
published in the Federal Register for separate comment.217

    \215\ 44 U.S.C. 3501-3520.
    \216\ 5 CFR 1320.7(c).
    \217\ 60 FR 32682 (June 23, 1995).
---------------------------------------------------------------------------

    The Commission estimated that approximately 40,000 industry members 
could be affected by the revised proposed Rule's recordkeeping 
requirements. It further estimated that no more than 100 companies 
would find it necessary to develop, modify, construct, or assemble 
materials or equipment in order to comply with the revised proposed 
Rule. The Commission further estimated that it would take these 100 
entities approximately 100 hours each during the first year of 
compliance to assemble the necessary equipment, for a total of 10,000 
burden hours. It also estimated that the companies that already have 
recordkeeping systems would require only one hour to comply with the 
proposed recordkeeping requirements, for a total burden estimate of 
49,900 hours. The Commission requested that this figure be rounded up 
to a burden estimate of 50,000 hours. The additional burden hours, 
which was a yearly estimate, allowed for approximately 100 new 
companies to enter the industry during each succeeding year without 
requiring the Commission to modify the burden estimate.
    The revised proposed Rule required sellers and telemarketers to 
provide certain disclosures in telemarketing transactions. 
Specifically, the revised proposed Rule required sellers or 
telemarketers to disclose in an outbound telephone call, the identity 
of the seller; the purpose of the call; the nature of the goods or 
services; and that no purchase was necessary to win if a prize 
promotion was offered in conjunction with a sales offer of goods or 
services. If requested, the telemarketer was required to disclose the 
no-purchase entry method for the prize promotion.
    The Commission estimated that 40,000 industry members make 
approximately 9 billion calls per year, or 225,000 calls per year per 
company. However, under Secs. 310.6(d) and (e) of the revised proposed 
Rule, if an industry member chose to solicit consumers by using 
advertising media other than direct mail or by using direct mail 
solicitations that make certain required disclosures, it would be 
exempted from complying with other disclosures required by the Rule. 
Because the burden of complying with written disclosures would be much 
lower than the burden of complying with all the Rule's provisions, the 
Commission estimated that at least 9,000 firms would choose to adopt 
telemarketing methods that exempt them from the revised proposed Rule's 
oral disclosure requirements. The Commission estimated that it would 
take 7 seconds for callers to disclose the required information. It 
also estimated that at least 60% of calls resulted in ``hang-ups'' 
before the seller or telemarketer could make all the required oral 
disclosures and therefore lasted only 2 seconds. Accordingly, the 
Commission estimated that the total disclosure burden of the revised 
proposed Rule's requirements was approximately 250 hours per firm or 
7.75 million hours.
    The revised proposed Rule also required additional disclosures 
before the customer paid for goods or services. Specifically, the 
sellers or telemarketers were required to disclose the total costs to 
purchase, receive, or use the offered goods or services; all material 
restrictions; all material terms and conditions of the seller's refund, 
cancellation, exchange, or repurchase policies if a representation 
about the policy was part of the sales offer; and that no purchase was 
necessary to win if a prize promotion was offered in conjunction with a 
sales offer of goods or services. The telemarketer also had to disclose 
the non-purchase entry method for the prize promotion. The Commission 
estimated that approximately 10 seconds were necessary to make these 
required disclosures orally. However, these disclosures were only 
required to be made where a call resulted in an actual sale. The 
Commission estimated that sales occur in approximately 6 percent of 
telemarketing calls. Accordingly, the estimated burden for the 
disclosures was 37.5 hours per firm or 1.163 million hours.
    Alternately, the disclosures required before the customer paid for 
goods or services could be made in writing. The Commission estimated 
that approximately 9,000 firms would choose to comply with the optional 
written disclosure requirement. Although this burden estimate was 
difficult to quantify, mailing campaigns appeared to be much less 
burdensome for firms than were individual oral disclosures. The 
Commission also found that these disclosure requirements were closely 
consistent with the ordinary business practices of most members of the 
industry. Absent the recordkeeping requirements, the Commission 
believed that this was the type of information that would be retained 
by these entities in any event during the normal course of business 
because it would be useful in resolving private, non-governmental 
inquiries and disputes. Nonetheless, the Commission had no reliable 
data from which to conclude that there was no separately identifiable 
burden associated with this provision. Therefore, it estimated that a 
typical firm would spend approximately 10 hours per year engaged in 
activities ensuring compliance with this provision of the Rule, for an 
estimated burden estimate of 90,000 hours.
    No comments were received addressing the Commission's paperwork 
burden projections. Therefore the Commission sees no reason to revise 
its projections of burden per year per covered industry member, or to 
modify the recordkeeping or disclosure requirements in the revised 
proposed Rule.
    Because the aforementioned requirements would involve the 
``collection of information'' as defined by the regulations of OMB, the 
Commission was required to submit the proposed requirements to OMB for 
clearance, 5 CFR 1320.13, and did so as part of this proceeding. OMB 
approved the request and assigned control number 3084-0097 to the 
information collection requirements. This approval will expire on July 
31, 1998, unless it has been extended before that date.

List of Subjects in 16 CFR Part 310

    Telemarketing, Trade practices.
    Accordingly, the Commission amends chapter I, subchapter C of 16 
CFR 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  Severability.

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

    This part implements the Telemarketing and Consumer Fraud and Abuse 
Prevention Act, 15 U.S.C. 6101-6108.


Sec. 310.2  Definitions.

    (a) Acquirer means a business organization, financial institution, 
or an agent of a business organization or financial institution that 
has authority from an organization that operates or licenses a credit 
card system to authorize merchants to accept, transmit, or process 
payment by credit card through the credit card system for 

[[Page 43865]]
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 express or implied, about past, 
present, or future income, profit, or appreciation.
    (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, offers to provide, or arranges for others 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 Rule 
for any seller or telemarketer to engage in the following conduct:
    (1) Before a customer pays 1 for goods or services offered, 
failing to disclose, in a clear and conspicuous manner, the following 
material information:

    \1\ When a seller or telemarketer uses, or directs a customer to 
use, a courier to transport payment, the seller or telemarketer must 
make the disclosures required by Sec. 310.3(a)(1) before sending a 
courier to pick up payment or authorization for payment, or 
directing a customer to have a courier pick up payment or 
authorization for payment.
---------------------------------------------------------------------------

    (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; 
2

    \2\ For offers of consumer credit products subject to the Truth 
in Lending Act, 15 U.S.C. 1601 et seq., and Regulation Z, 12 CFR 
part 226, compliance with the disclosure requirements under the 
Truth in Lending Act, and Regulation Z, shall constitute compliance 
with Sec. 310.3(a)(1)(i) of this Rule.
---------------------------------------------------------------------------

    (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) If the seller has a policy of not making refunds, 
cancellations, exchanges, or repurchases, a statement informing the 
customer that this is the seller's policy; or, if the seller or 
telemarketer makes a representation about a refund, cancellation, 
exchange, or repurchase policy, a statement of all material terms and 
conditions of such policy;
    (iv) In any prize promotion, the odds of being able to receive the 
prize, and if the odds are not calculable in advance, the factors used 
in calculating the odds; that no purchase or payment is required to win 
a prize or to participate in a prize promotion; and the no purchase/no 
payment method of participating in the prize promotion with either 
instructions on how to participate or an address or local or toll-free 
telephone number to which customers may write or call for information 
on how to participate; and
    (v) All material costs or conditions to receive or redeem a prize 
that is the subject of the prize promotion;
    (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 being able to receive a prize, the nature or 
value of a prize, or that a purchase or payment is required to win 

[[Page 43866]]
a prize or to participate in a prize promotion;
    (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;
    (3) Obtaining or submitting for payment a check, draft, or other 
form of negotiable paper drawn on a person's checking, savings, share, 
or similar account, without that person's express verifiable 
authorization. Such authorization shall be deemed verifiable if any of 
the following means are employed:
    (i) Express written authorization by the customer, which may 
include the customer's signature on the negotiable instrument; or
    (ii) Express oral authorization which is tape recorded and made 
available upon request to the customer's bank and which evidences 
clearly both the customer's authorization of payment for the goods and 
services that are the subject of the sales offer and the customer's 
receipt of all of the following information:
    (A) The date of the draft(s);
    (B) The amount of the draft(s);
    (C) The payor's name;
    (D) The number of draft payments (if more than one);
    (E) A telephone number for customer inquiry that is answered during 
normal business hours; and
    (F) The date of the customer's oral authorization; or
    (iii) Written confirmation of the transaction, sent to the customer 
prior to submission for payment of the customer's check, draft, or 
other form of negotiable paper, that includes:
    (A) All of the information contained in Secs. 310.3(a)(3)(ii)(A)-
(F); and
    (B) The procedures by which the customer can obtain a refund from 
the seller or telemarketer in the event the confirmation is inaccurate; 
and
    (4) 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 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 Sec. 310.4 of this Rule.
    (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 Rule for:
    (1) A merchant to present to or deposit into, or cause another to 
present to or deposit into, the credit card system for payment, a 
credit card sales draft generated by a telemarketing transaction that 
is not the result of a telemarketing credit card transaction between 
the cardholder and the merchant;
    (2) Any person to employ, solicit, or otherwise cause a merchant or 
an employee, representative, or agent of the merchant, to present to or 
deposit into the credit card system for payment, a credit card sales 
draft generated by a telemarketing transaction that is not the result 
of a telemarketing credit card transaction between the cardholder and 
the merchant; or
    (3) Any person to obtain access to the credit card system through 
the use of a business relationship or an affiliation with a merchant, 
when such access is not authorized by the merchant agreement 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 Rule 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 
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 Rule 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 Rule 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 Rule for a telemarketer to engage in outbound telephone calls 
to a person's residence at any time other than between 8 a.m. and 9 
p.m. local time at the called person's location.
    (d) Required oral disclosures. It is an abusive telemarketing act 
or practice and a violation of this Rule for a telemarketer 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 or payment is necessary to be able to win a 
prize or participate in a prize promotion if a 

[[Page 43867]]
prize promotion is offered. This disclosure must be made before or in 
conjunction with the description of the prize to the person called. If 
requested by that person, the telemarketer must disclose the no-
purchase/no-payment entry method for the prize promotion.


Sec. 310.5  Recordkeeping requirements.

    (a) Any seller or telemarketer shall keep, for a period of 24 
months from the date the record is produced, the following records 
relating to its telemarketing activities:
    (1) All 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 are represented, directly or by 
implication, to 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; \3\

    \3\ For offers of consumer credit products subject to the Truth 
in Lending Act, 15 U.S.C. 1601 et seq., and Regulation Z, 12 CFR 
part 226, compliance with the recordkeeping requirements under the 
Truth in Lending Act, and Regulation Z, shall constitute compliance 
with Sec. 310.5(a)(3) of this Rule.
---------------------------------------------------------------------------

    (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; provided, however, that 
if the seller or telemarketer permits fictitious names to be used by 
employees, each fictitious name must be traceable to only one specific 
employee; and
    (5) All verifiable authorizations required to be provided or 
received under this Rule.
    (b) A seller or telemarketer may keep the records required by 
Sec. 310.5(a) in any form, and in the manner, format, or place as they 
keep such records in the ordinary course of business. Failure to keep 
all records required by Sec. 310.5(a) shall be a violation of this 
Rule.
    (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), or 
if no such agreement exists, the seller shall be responsible for 
complying with Secs. 310.5(a)(1)-(3) and (5); the telemarketer shall be 
responsible for complying with Sec. 310.5(a)(4).
    (d) 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, or other change in ownership of 
the seller's or telemarketer's business, the successor business shall 
maintain all records required under this section.


Sec. 310.6  Exemptions.

    The following acts or practices are exempt from this Rule:
    (a) The sale of 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) The sale of franchises subject to the Commission's Rule 
entitled ``Disclosure Requirements and Prohibitions Concerning 
Franchising and Business Opportunity Ventures,'' 16 CFR part 436;
    (c) 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;
    (d) Telephone calls initiated by a customer that are not the result 
of any solicitation by a seller or telemarketer;
    (e) 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 Secs. 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;
    (f) Telephone calls initiated by a customer in response to a direct 
mail solicitation that clearly, conspicuously, and truthfully discloses 
all material information listed in Sec. 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 prize promotions, 
investment opportunities, goods or services described in Secs. 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; and
    (g) Telephone calls between a telemarketer and any business, except 
calls involving the retail sale of nondurable office or cleaning 
supplies; provided, however, that Sec. 310.5 of this Rule shall not 
apply to sellers or telemarketers 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 
Rule. The notice shall be sent to the Office of the Director, Bureau of 
Consumer Protection, Federal Trade Commission, Washington, DC 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) Nothing contained in this section shall prohibit any attorney 
general or other authorized State official from proceeding in State 
court on the basis of an alleged violation of any civil or criminal 
statute of such State.


Sec. 310.8  Severability.

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

    By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
Concurring Statement of Commissioner Mary L. Azcuenaga in Telemarketing 
Sales Rule, Matter No. R411001

    As required by the Telemarketing and Consumer Fraud and Abuse 
Prevention Act, the Commission today promulgates a Telemarketing Sales 
Rule. I join my colleagues in promulgating the Rule, which generally 
should be beneficial in combatting telemarketing fraud. I remain 
concerned, however, about the legal basis for the exemptions (and 
exceptions to the exemptions) for certain categories of business 
activities 

[[Page 43868]]
under Sec. 310.6 of the Rule. The Commission has adopted an intricate 
scheme of exemptions, relying primarily on its law enforcement 
experience to justify its selective application of the requirements of 
the Rule. The Telemarketing and Consumer Fraud and Abuse Prevention Act 
does not provide the Commission with the express authority to grant 
exemptions from the Rule, and the better reading of the statute is that 
the Commission does not have the authority to exempt some of the 
categories of business activities in Sec. 310.6. Although the 
exemptions may be reasonable as a matter of policy, the Commission does 
not have the authority to second-guess the Congress. See Public Citizen 
v. FTC, 869 F.2d 1541, 1553-57 (D.C. Cir. 1989).

   Appendix--List of Commenters and Acronyms, Telemarketing Sales Rule  
                                Proposals                               
------------------------------------------------------------------------
          Acronym                             Commenter                 
------------------------------------------------------------------------
2M........................  2M Office Supply & Furniture**              
3D........................  3D Office Supply and Printing**             
AAAA......................  American Association of Advertising         
                             Agencies***                                
AAF.......................  American Advertising Federation***          
AAP.......................  Association of American Publishers***       
AARP......................  American Association of Retired Persons***  
ABA.......................  American Bankers Association***             
ABI.......................  Archbold Buckeye, Inc.*                     
ACA.......................  American Cemetery Association***            
ACB.......................  Associated Credit Bureaus, Inc.*            
ACRA......................  American Car Rental Association***          
ADC.......................  American Distributing Company***            
ADS.......................  ADS Teleservices*                           
ADVANTA...................  Advanta Corporation*                        
AFSA......................  American Financial Services Association*    
A&H.......................  Arter & Hadden*                             
AIG.......................  American Impact Group*                      
AITS......................  Ass'n of Independent Television Stations,   
                             Inc.*                                      
ALIC......................  Allstate Life Insurance Company*            
ALLARD....................  Allard's**                                  
ALLIED....................  Allied Strauss Office Products**            
A-MARK....................  A-Mark Precious Metals, Inc.*               
AMCI......................  Allstate Motor Club, Inc.*                  
AMERINET..................  AmeriNet, Inc.*                             
AMEX......................  American Express Company*                   
AMOC......................  Arizona Mail Order Company, Inc.*           
ANA.......................  Association of National Advertisers***      
ANDREWS...................  Andrews Satellite & Home Theater*           
ANN ARBOR.................  Ann Arbor News***                           
Anonymous.................  4 comments**                                
APAC......................  APAC TeleServices*                          
APN.......................  American Publishers Network, Inc.*          
ARA.......................  Arizona Retailers Association*              
ARAPAHOE..................  Arapahoe Heating Service, Inc.**            
ARDA......................  American Resort Development Association***  
ARMIN.....................  Armin, Larry**                              
ASAE......................  American Society of Association Executives* 
ASH.......................  Ash, Paul T.**                              
ASTA......................  American Society of Travel Agents, Inc.***  
AT&T......................  AT&T Corp.***                               
ATA.......................  American Telemarketing Association***       
ATAA......................  Air Transport Association of America**      
ATFA......................  American Telephone Fundraisers              
                             Association***                             
ATLANTA...................  Atlanta Journal & Atlanta Constitution*     
AUTOSCRIBE................  AutoScribe Corporation*                     
AVALON....................  Avalon Communications**                     
AWMI......................  American West Marketing, Inc. (comments     
                             filed by two company representatives)*     
BAGGS.....................  Baggs, Andrew*                              
BAGWELL...................  Bagwell, Linda L.*                          
BAKER.....................  Baker, Alden & Blanche**                    
BALLARD...................  Ballard, Barbara**                          
BAUER.....................  Eddie Bauer, Inc.*                          
BAY CITY..................  Bay City Times*                             
B&D.......................  B&D Office City**                           
BEAR......................  Bear Creek Corporation (comments forwarded  
                             by The Honorable Mark Hatfield and The     
                             Honorable Bob Packwood)*                   
BEAVER....................  Beaver, Laurence E.**                       
BELLEVILLE................  Belleville News-Democrat*                   
BENNETT...................  Bennett's Office Supply & Equipment         
                             (comments forwarded by The Honorable Phil  
                             Gramm and The Honorable Kay Bailey         
                             Hutchison)**                               
BESCO.....................  BESCO Business Equipment & Supply Co.**     
BFC.......................  Brown Forman Corporation*                   
BILLER....................  Biller, Mr. & Mrs. Albert C.**              
BIRKHOLZ..................  Birkholtz, Ted**                            

[[Page 43869]]
                                                                        
BMCA......................  Beneficial Management Corporation of        
                             America*                                   
BNC.......................  Birmingham News Company***                  
BOA.......................  Bank of America**                           
BOB.......................  Bank of Boston*                             
BPIA......................  Business Products Industry Association***   
BRADLEY...................  Bradley, MJP*                               
BRANNEN...................  Brannen, Mary**                             
BRANTLEY..................  Brantley, Lamar*                            
BREWSTER..................  Brewster, The Honorable Bill K.*            
BROADBENT.................  Broadbent, Alan R.**                        
BROGDON...................  Brogdon, Doris R.**                         
BROSKI....................  Broski, Jo Ann**                            
BROWNELL..................  Brownell, Catherine A.**                    
BS MGMT...................  BS Management Group**                       
BSA.......................  Business Software Alliance**                
BUBRICK...................  Bubrick's Office Supply Inc.**              
BURKLAND..................  Burkland, George B.**                       
BUTHER....................  Buther, Peggy**                             
CA........................  Commercial Appeal*                          
CAPITAL...................  Capital Press*                              
CAPUTO....................  Caputo, Harriet Q.*                         
CARDOZA...................  Cardoza, James E.**                         
CARMODY...................  Carmody, John**                             
CBA.......................  Consumer Bankers Association***             
CC........................  Circuit City Stores, Inc.**                 
CCA.......................  Career College Association*                 
CDI.......................  Circulation Development, Inc.*              
CFA.......................  Consumer Federation of America***           
CHAMPLIN..................  Champlin, Josephine A.**                    
CHASE.....................  Chase Manhattan Bank (USA)***               
CHAVKA....................  Chavka, Marian**                            
CHC.......................  Columbia House Company***                   
CHEMICAL..................  Chemical Bank*                              
CHERNIKOFF................  Chernikoff, J.D.*                           
CHRISTENSON...............  Christenson, Carl E.**                      
CHRISTIAN.................  Christian Book Store & Office Supply**      
CITICORP..................  Citicorp/Citibank***                        
CME.......................  Center for Media Education*                 
CMOR......................  Council for Marketing and Opinion           
                             Research***                                
COALITION.................  Coalition of various companies*             
COFFEY....................  Coffey, Laurie E.**                         
COMCAST...................  Comcast Corporation/Jones Intercable*       
COMMINS...................  Commins, Kevin J.**                         
CONSORTIUM................  Consortium of nonprofit organizations**     
CONWAY....................  Conway National Bank*                       
COOK......................  Cook Office Machine & Supply Company**      
COPYTEK...................  Copytek Office Products**                   
CORNELL...................  Cornell Group*                              
CORNERSTONE...............  Cornerstone Office Systems, Inc.**          
COX.......................  Cox Newspapers, Inc.*                       
CPA.......................  Colorado Press Association*                 
CRAPO.....................  Crapo, The Honorable Michael D.**           
CRILLY....................  Crilly, Thomas W.***                        
CROAK.....................  Croak, E. Patrick**                         
CROWLEY...................  Crowley, Claude**                           
CROWDER...................  Crowder, Mrs. Lillian A.**                  
CUCI......................  CUC International*                          
CUNA......................  Credit Union National Assn, Inc.**          
CUNNINGHAM................  Cunningham, Georgia**                       
CURRAN....................  Curran, Jeanne**                            
DAILY NEWS................  Daily News*                                 
DAILY OKLA................  Daily Oklahoman*                            
DAISY.....................  Daisy Wheel Ribbon Co., Inc.**              
DANDER....................  Dander, David A.**                          
DAVENPORT.................  Davenport, Frances L. and Jay E.**          
DAWSON....................  Dawson, Burton**                            
DCR.......................  Daily Court Review*                         
DECORA....................  Decora Office Furniture/Supplies**          
DEFAZIO...................  DeFazio, Dominick**                         
DENTON....................  Denton Publishing Company (comments         
                             forwarded by The Honorable Kay Bailey      
                             Hutchison, The Honorable Mac Thornberry and
                             The Honorable Phil Gramm)*                 
DIAMOND...................  Diamond, Peter & Karen**                    

[[Page 43870]]
                                                                        
DICK......................  Dick, Joseph A.**                           
DICKS.....................  Dicks, Della**                              
DILLON....................  Dillon, William R.**                        
DIVERSIFIED...............  Diversified Marketing Service, Inc.*        
DMA.......................  Direct Marketing Association***             
DMBE......................  Department of Marketing and Business        
                             Environment, Florida International         
                             University*                                
DMI.......................  DialAmerica Marketing, Inc.***              
DMSI......................  Direct Marketing Services, Inc.*            
DMT&H.....................  Dickerson, Mackaman, Tyler & Hagen, P.C.*** 
DONREY....................  Donrey Media Group*                         
DOUBLEDAY.................  Doubleday Book & Music*                     
DOUGLAS...................  Douglas Center Stock Farm**                 
DOW JONES.................  Dow Jones & Company, Inc.***                
DSA.......................  Direct Selling Association***               
DSA-NEV...................  Direct Sales Association of Nevada*         
DSI.......................  Direct Sales International*                 
DURKEE....................  Durkee, Dixie**                             
DUSTIN....................  Dustin, Doris**                             
DW&Z......................  Dierman, Wortley & Zola, Inc.*              
EAGLE.....................  Eagle Newspapers (forwarded by The Honorable
                             John M. McHughes)*                         
EAKES.....................  Eakes Office Products Center, Inc.**        
EDMUND....................  Edmund Scientific Company*                  
EDWARDS...................  Edwards, Susan E.**                         
EHRLICH...................  Ehrlich, The Honorable Robert L., Jr.*      
ELLIOTT...................  Elliott Office Equipment Co., Inc.**        
EMA.......................  Electronic Messaging Association***         
EMMONS....................  Emmons, Ethel B.*                           
EPSTEIN, A................  Epstein, Ann C.**                           
EPSTEIN, R................  Epstein, Rosalie**                          
EQUIFAX...................  Equifax Credit Information Services, Inc.*  
ERIE......................  Erie Construction (2 copies: one original;  
                             one forwarded by The Honorable Marcy       
                             Kaptur)*                                   
ERNST.....................  Ernst, Michael*                             
EXPRESS...................  Express Office Products**                   
FAIRFAX...................  Fairfax County Dept of Consumer Affairs**   
FAYETTE...................  Fayetteville Publishing Co.*                
FEDEX.....................  Federal Express*                            
FFF.......................  Feature Films for Families**                
FINGERHUT.................  Fingerhut Companies***                      
FLINN.....................  Flinn, Richard M.**                         
FLINT.....................  Flint Journal***                            
FLUCH.....................  Fluch, Mrs. Louise R.**                     
FORD......................  Ford Office Supply**                        
FORD, W...................  Ford, Wendell**                             
FORMS-NC..................  Forms & Supplies, Inc. (NC)**               
FORMS-TN..................  Forms and Supplies, Inc. (TN)**             
FORNEY....................  Forney Messenger Inc.*                      
FORREST...................  Forrest Stationers**                        
FOSTER....................  Foster, Alice Wilks**                       
FOURNIER..................  Fournier, Stephanie**                       
FPC.......................  Fayetteville Publishing Company (forwarded  
                             by The Honorable Bill Hefner)*             
FRANKLIN..................  Franklin Mint***                            
FRB.......................  Federal Reserve Banks*                      
FRB-SF....................  Federal Reserve Bank of San Francisco***    
FREECOM...................  FreeCom Communications, Inc.*               
FRIENDS...................  Friends Office Products**                   
F&W.......................  F&W Publications*                           
GA OCA....................  Georgia Office of Consumer Affairs***       
GABRIEL...................  Gabriel, Mrs. Harry J. Jr.*                 
GAIL......................  Gail's Office Supply Company**              
GANNETT...................  Gannett Co., Inc.*                          
GARAVALIA.................  Garavalia, Barbara A.**                     
GARDNER...................  Gardner, Darien**                           
GCM.......................  Good Cents Marketing*                       
GE........................  GE Appliances*                              
GEROVICAP.................  Gerovicap Pharmaceutical**                  
GGP.......................  Gift Gallery Promotions*                    
GHA.......................  Group Health Association of America*        
GIBSON CO.................  C.J. Gibson Co., Inc.**                     
GIBSON, D.................  Gibson, Derek**                             
GIBSON, S.................  Gibson, Stewart & Jean*                     
GLAMOUR...................  Glamour Shots (forwarded by The Honorable   
                             Don Nickles)**                             
GLOBE.....................  Old Globe*                                  

[[Page 43871]]
                                                                        
GODDARD...................  Goddard, Ed**                               
GODFREY...................  Godfrey, Florence**                         
GOODMAN...................  Goodman, Marcia L.**                        
GORDON....................  Gordon, Philip J. (forwarded by The         
                             Honorable John M. McHugh**)                
GOS.......................  GOS Office Supply**                         
GOSLOW....................  Goslow, Alice**                             
GRA.......................  Georgia Retail Association*                 
GREEN.....................  Green, Jean**                               
GREENE....................  Greene Russ*                                
GRIDER....................  Grider, Felicia*                            
GRIFFIN...................  Griffin, Dennis O.**                        
GROLIER...................  Grolier TeleMarketing, Inc.*                
GUERNSEY..................  Guernsey Office Products**                  
GUTHY.....................  Guthy-Renker*                               
HALL......................  Henry Hall Office Products**                
HAND......................  Hand, Robert & Lisbeth**                    
HARKAWAY..................  Harkaway, Mrs. Patricia**                   
HAWES.....................  Hawes Center, Inc.*                         
HEAD......................  Head, W.L.***                               
HEARST....................  Hearst Magazines*                           
HEARSTCO..................  Hearst Corporation**                        
HEATON....................  Heaton, Peggy**                             
HERRERA...................  Herrera, Barbara*                           
HERTZ.....................  Hertz Corporation*                          
HFC.......................  Household Finance Corporation*              
H&H-1.....................  Howe & Hutton, Ltd.--March 14 comment*      
H&H-2.....................  Howe & Hutton, Ltd.--March 30 comment*      
HHDM......................  Harte-Hanks Direct Marketing*               
HHMS......................  Harte-Hanks Marketing Services*             
HII.......................  Household International***                  
HILLSBOROUGH..............  Hillsborough County Consumer Protection     
                             Div.**                                     
HISER.....................  Hiser, James & Sherrill**                   
HNM&T.....................  Hearst New Media & Technology*              
HOFMANIS..................  Hofmanis, Alfred**                          
HOLSTEIN..................  Holstein, Everett & Irma**                  
HOUSEHOLD.................  Household Bank*                             
HSN.......................  Home Shopping Network*                      
HUDSON....................  Hudson City Savings Bank*                   
HUNTINGTON................  Huntington National Bank*                   
HUNTSVILLE................  Huntsville Times/Huntsville News*           
IA DOJ....................  Iowa Department of Justice***               
IBAA......................  Independent Bankers Association of America**
IBM.......................  International Business Machines             
                             Corporation***                             
ICTA......................  Industry Council for Tangible Assets***     
ID AG.....................  Idaho Attorney General*                     
IFA.......................  International Franchise Association*        
IFI.......................  International Fabricare Institute*          
IH........................  Investment Hotlines*                        
IMC.......................  InfoCision Management Corporation*          
IMS.......................  International Magazine Service of Northern  
                             California (comment forwarded by the       
                             Honorable Lynn Woolsey)*                   
IMS-TX....................  International Magazine Service (Texas)      
                             (comment forwarded by the Honorable Kay    
                             Bailey Hutchison)*                         
IMSI......................  Infomercial Monitoring Service, Inc.*       
IMSP......................  IMS Promotions*                             
INFOMALL..................  Infomall TV Network*                        
INSP......................  Inspirational Network*                      
IRC.......................  Indiana Retail Council, Inc.*               
IRL.......................  International Readers League of             
                             Indianapolis*                              
ISA.......................  Interactive Services Association***         
ISENBERG..................  Isenberg, Angeline C.**                     
ITI.......................  ITI Marketing Services, Inc.***             
ITT HARTFORD..............  ITT Hartford**                              
IVAN......................  Ivan Allen Company**                        
JACKSON...................  Jackson Office Equipment, Inc.**            
JACKSON, B................  Jackson, Bogle**                            
JACOBSON..................  Jacobson, Frances S.**                      
JCP.......................  Jackson Citizen Patriot*                    
JENSON....................  Jenson, Ines V.**                           
JERSEY....................  Jersey Business Supply Co., Inc.**          
JOCKS.....................  Jocks, Donald B.**                          
JOHNSON, D................  Johnson, Darlene**                          
JOHNSON...................  Johnson Stationers**                        
JOHNSTON..................  Johnston, Gloria*                           

[[Page 43872]]
                                                                        
JOINER....................  Joiner, Alex & Debbie**                     
JOSEPH....................  Joseph, Laura**                             
JUD.......................  Jud's Office Supply, Inc.**                 
KALAMAZOO.................  Kalamazoo Gazette***                        
KAPLAN....................  Kaplan, Jules*                              
KIKENDALL.................  Kikendall, Thomas J.*                       
KARLE.....................  Karle Publications & Communications, Inc.** 
KELLY.....................  Kelly, Marion R.**                          
KEMPF.....................  Kempf, L.W.**                               
KING......................  King, Donna E.**                            
KLAVON....................  Klavon, Karl F.**                           
KLEID.....................  Kleid Company*                              
KNIGHT....................  Knight Ridder***                            
KNOBE.....................  Knobe's Office Supply & Equipment**         
KNOXVILLE.................  Knoxville News Sentinel Co. (comments from  
                             two company representatives)*              
KRELL.....................  Krell, Sadie**                              
LANDMARK..................  Landmark Community Newspapers, Inc.*        
LARK......................  Lark In The Morning*                        
LA TIMES..................  The Los Angeles Times*                      
LAURENZA..................  Laurenza, Joseph*                           
LCS.......................  LCS Direct Marketing Service*               
LEFORT....................  LeFort, Peter F.**                          
LEIBACHER.................  Leibacher, Philip J.*                       
LENOX.....................  Lenox, Inc.*                                
LEVINSON..................  Levinson, Mrs. Rosalie**                    
LIGHTFOOT.................  Lightfoot, The Honorable Jim*               
LINDSAY...................  Lindsay, Mrs. Sandra**                      
LM........................  LM Office Supply & Furniture**              
LOMBARD...................  Lombard, Barbara C.**                       
LOWE'S....................  Lowe's Studio*                              
LS........................  Landmark Stationers**                       
MACHCINSKI................  Machcinski, Lynnae**                        
MAGADITSCH................  Magaditsch, Gwyn**                          
MAGNUSON..................  Magnuson, Donna**                           
MALACINSKI................  Malacinski, George M.**                     
MANSFIELD.................  Mansfield Typewriter Co.**                  
MARKETLINK................  Marketlink*                                 
MARTIN....................  Martin Direct*                              
MARWYCK...................  Marwyck, Inc.**                             
MARX......................  Marx, June D.**                             
MASON.....................  Mason, William Raymond**                    
MASS AG...................  Massachusetts Attorney General**            
MASTERCARD................  Mastercard Intl, Inc. and VISA USA, Inc.*** 
MBAA......................  Mortgage Bankers Association of America***  
MBNA......................  MBNA America Bank, N.A.*                    
MBR.......................  Macauley's Business Resources, Inc.**       
MCI.......................  MCI Telecommunications Corp***              
McKNIGHT..................  McKnight Management Company*                
MCUL......................  Michigan Credit Union League**              
MD AG.....................  Maryland Attorney General**                 
MELLON....................  Mellon Bank Corporation*                    
MELTON....................  Melton, Carol A.*                           
MERCURY...................  Mercury Media*                              
MESSENGER.................  Messenger (forwarded by The Honorable Ed    
                             Whitfield)*                                
MEYER.....................  Meyer, Alice W. (forwarded by The Honorable 
                             Lynn C. Woolsey)**                         
MEYERS....................  Meyers, Patricia**                          
MFDA......................  Missouri Funeral Directors' Association**   
MGC.......................  Merchants Golden Checks*                    
MGCB......................  Merchants Gift Check Book*                  
M-I.......................  Messenger-Inquirer*                         
MIDESHA...................  Midesha Enterprises, Inc. (3 copies: one    
                             original; one forwarded by The Honorable   
                             Trent Lott; one forwarded by The Honorable 
                             Thad Cochran)**                            
MILLIGAN..................  Milligan, A.M.**                            
MILLS, S..................  Mills, Susan*                               
MILLS, M..................  Mills, Maria**                              
MINDHEIM..................  Mindheim, Mrs. Arthur D.**                  
MM........................  Merchant Masters*                           
MMC.......................  Moore Medical Corporation*                  
MMS.......................  Metropolitan Marketing Services*            
MOBILE....................  Mobile Media*                               
MOERSCHELL................  Moerschell, Mrs. G.E.**                     
MONEX.....................  Monex Deposit Company***                    

[[Page 43873]]
                                                                        
MOORE.....................  Moore Medical (2 copies: one original; one  
                             forwarded by The Honorable Nancy L.        
                             Johnson)*                                  
MOPA......................  Missouri Press Association*                 
MORA......................  Missouri Retailers Association*             
MORSE.....................  Morse, Larry E.*                            
MOUNTAIN..................  Mountain, Raymond**                         
MP........................  Merchants Promotions*                       
MPA.......................  Magazine Publishers of America***           
MPG.......................  MPG Newspapers*                             
MPR.......................  Mobile Press Register***                    
MRA.......................  Michigan Retailers Association*             
MRG.......................  Marketing Response Group & Laser Co., Inc.* 
MS PRESS..................  Mississippi Press***                        
MS........................  Merchant Sampler*                           
MSSC......................  Magazine Subscription Sales Coalition***    
MTD.......................  MTD Services*                               
MULLINS...................  Mullins, Zelma**                            
MUNSCH....................  Munsch, William C.**                        
MURRAY....................  Murray Ledger & Times*                      
MUSKEGON..................  Muskegon Chronicle*                         
MUTUAL....................  Mutual of Omaha Companies*                  
NAA.......................  Newspaper Association of America***         
NAAG......................  National Association of Attorneys General   
                             ***                                        
NACAA.....................  National Association of Consumer Agency     
                             Administrators ***                         
NAM.......................  National Association of Manufacturers **    
NAMA......................  National Automatic Merchandising Association
                             *                                          
NAPA......................  National Automated Payment Association ***  
NAPA DA...................  Napa County District Attorney **            
NAR.......................  National Association of Realtors ***        
NARASIMHAN................  Narasimban, N. **                           
NARDA.....................  North American Retail Dealers Association * 
NASAA.....................  North American Securities Administrators    
                             Association ***                            
NB........................  NationsBank ***                             
NBR.......................  National Bank of the Redwoods *             
NBS.......................  NBS Office Supply **                        
NCL.......................  National Consumers League ***               
NCMC......................  National Credit Management Corporation *    
NCTA......................  National Cable Television Association ***   
NE........................  New England Office Supply, Inc. **          
NETWORK...................  Network Direct *                            
NEVELING..................  Neveling, Dale *                            
NEWS......................  New Publishing Company *                    
NFA.......................  National Futures Association *              
NFIB......................  National Federation of Independent Business 
                             *                                          
NFN.......................  National Federation of Nonprofits *         
NHI.......................  New Hampton, Inc. *                         
NIE.......................  Nationwide Insurance Enterprise *           
NIMA......................  NIMA International ***                      
NJ DCA....................  New Jersey Division of Consumer Affairs **  
NM AG.....................  New Mexico Attorney General **              
NNA.......................  National Newspaper Association *            
NORDSTROM.................  Norsdstrom *                                
NORTHLAND.................  Northland Lutheran Retirement Community **  
NPC.......................  Neighborhood Periodical Club *              
NPS.......................  National Promotional Services *             
NRF.......................  National Retail Federation ***              
NSF.......................  National Science Foundation *               
NYC DCA...................  New York City Dept of Consumer Affairs **   
NYNEX.....................  NYNEX *                                     
NYSCPB....................  New York State Consumer Protection Board ***
NYSCUL....................  New York State Credit Union League **       
NYTC......................  New York Times Company *                    
OCHOA.....................  Ochoa, Anna & James Becker **               
OCITY.....................  Office City **                              
OCONNECT..................  Office Connection **                        
ODEPOT....................  Office Depot **                             
OENVIRON..................  Office Environments **                      
OEQUIP....................  Office Equipment Co., Inc **                
OHIO......................  Ohio Health Care Products, Inc. *           
OLAN......................  Olan Mills, Inc ***                         
OLIVER....................  Oliver, Louise **                           
OMF.......................  Office Machines & Furniture Inc.**          
OMSCO.....................  Office Machine Service Co.**                

[[Page 43874]]
                                                                        
ONYX......................  House of Onyx (comments forwarded by The    
                             Honorable Wendell H. Ford and The Honorable
                             Ed Whitfield)*                             
OPC.......................  Oregonian Publishing Company*               
OPCO......................  Office Products Inc.**                      
OREGONIAN.................  East Oregonian*                             
ORESOURCE.................  Office Resources**                          
ORKIN--1..................  Orkin Pest Control (comments filed by two   
                             company representatives)***                
ORKIN-L...................  Orkin Lawn Care*                            
ORKIN-M...................  Orkin Maid*                                 
ORKIN-P1..................  Orkin Pest Control--March 23 comment*       
ORKIN-P2..................  Orkin Pest Control--March 30 comment*       
ORKIN-PL..................  Orkin Plantscaping*                         
OSS.......................  Office Supply Services Inc.**               
PACESETTER................  Pacesetter Corporation*                     
PALACE....................  Palace Office Supply**                      
PALMER....................  Palmer, Peter W.**                          
PANNITTO..................  Pannitto, Joseph P.**                       
PARKER....................  Parker, Stella**                            
PATRIOT...................  The Patriot-News***                         
PAUL......................  Paul, Byron S., Jr.**                       
PAYNE.....................  Payne, Mrs. Helen R.**                      
P&C.......................  Pullman & Comley (comment on originally     
                             proposed Rule)                             
P&C-1.....................  Pullman & Comley (June 23 comment on revised
                             proposed Rule)                             
P&C-2.....................  Pullman & Comley (June 27 comment on revised
                             proposed Rule)                             
PCH.......................  Publishers Clearing House***                
PCI.......................  Private Citizen, Inc.*                      
PDW.......................  Publishers Discount Warehouse (comments     
                             filed by five different company            
                             representatives)*                          
PELICAN...................  Pelican Office Supply, Inc.**               
PENCIL....................  The Pencil Box Office Supplies**            
PENNEY....................  J.C. Penney Company, Inc.*                  
PEPPERTREE................  Peppertree Resorts (2 copies: one original; 
                             one forwarded by The Honorable Jesse       
                             Helms)*                                    
PERSHING..................  Pershing, Robert S.**                       
PETERSON, P...............  Peterson, Phyllis G.*                       
PETERSON, R...............  Peterson, Rosie Marie*                      
PETERSON, S...............  Peterson, Selma**                           
P&G.......................  Procter & Gamble**                          
PIERCE....................  Pierce, James & Sally**                     
PINCKNEY..................  Pinckney, Betty**                           
PLAIN.....................  Plain Dealer***                             
PLP.......................  Personal Legal Plans*                       
PMAA......................  Promotional Marketing Association of America
                             and Incentive Federation**                 
POE.......................  Professional Office Enterprises**           
POLK......................  Polk, Arlisha Jerone**                      
PORTER....................  Porter, The Honorable John Edward*          
PPI.......................  Phone Programs Inc.*                        
PRESTIGE..................  Prestige Office Products**                  
PRINTING..................  Printing, Campanella & Rome (forwarded by   
                             The Honorable Lynn Woolsey**               
PROCH.....................  Programmers Clearing House*                 
PRO-PRINT.................  Pro-Print Business Center**                 
PRUDENTIAL................  Prudential Home Mortgage*                   
PTG.......................  Pacific Telesis Group*                      
QUALITY...................  Quality Ribbons & Supplies Company**        
QUICKCARD.................  Quickcard Systems***                        
QUILL.....................  Quill Corporation**                         
QVC.......................  QVC, Inc.***                                
RANKIN....................  Rankin, J.**                                
RDA.......................  Reader's Digest Association, Inc.*          
REGAL GROUP...............  Regal Group*                                
REGAL COMM................  Regal Communications Corporation*           
REICHWEIN.................  Reichwein, Kay*                             
RELIABLE..................  Reliable Office Products**                  
REYMANN...................  Reymann, Clete**                            
RICE, D...................  Rice, David**                               
RICE, R...................  Rice, Rodger D. and Barbara L.*             
RICH......................  Rich, David G.*                             
RIGSBY....................  Rigsby, Janice**                            
RITCHIE...................  Ritchie Swimwear*                           
RIVERS....................  Joan Rivers Products, Inc.*                 
RMH.......................  RMH Telemarketing*                          
ROBERTS, D................  Roberts, Denise A.**                        
ROBERTS, E................  Roberts, E.**                               
RODRIGUEZ.................  Rodriguez, Ann*                             
ROLLINS...................  Rollins, Inc.***                            

[[Page 43875]]
                                                                        
ROTENBERG.................  Rotenberg, Marion*                          
RPI.......................  Resource Publications, Inc.*                
RPOA......................  Resort Property Owners Association*         
RPS.......................  Rollins Protective Services*                
RYBKA.....................  Rybka, Edward C.**                          
SABLATURA.................  Sablatura's Office Supply & Furniture**     
SAGINAW...................  Saginaw News***                             
SAMPLER...................  Business Sampler Advertising, Inc.*         
SAN DIEGO.................  San Diego Department of Agriculture, Weights
                             & Measures**                               
SANTROCK..................  Santrock, Billie**                          
SAUNDERS..................  W.J. Saunders**                             
SBTC......................  Southwestern Bell Telephone Company*        
SC DCA....................  South Carolina Department of Consumer       
                             Affairs**                                  
SCARBOROUGH...............  Scarborough, Peggy S. & Mary A. Bloodworth**
SCHENKEL..................  Schenkel, Walter H. Jr.**                   
SCHMIDT...................  Schmidt, Ann **                             
SCHULENBURG...............  Schulenburg Printing Office Supplies, Inc.  
                             (comments filed by six different company   
                             representatives) **                        
SCIC......................  Service Contract Industry Council ***       
SCOTT.....................  Scott, Nancy A. **                          
SDRA......................  South Dakota Retailers Association *        
SEARCHLIGHT...............  Record Searchlight (comments filed by two   
                             different company representatives) *       
SEARS.....................  Sears Merchandise Group *                   
SFNA......................  San Francisco Newspaper Agency*             
SHANDLING.................  Shandling, Adrian H. **                     
SHI.......................  Shop at Home *                              
SHUBERT...................  Shuberts Inc. **                            
SHULMAN...................  Shulman, Betty *                            
SIA.......................  Staten Island Advance *                     
SIASSR....................  Securities Industry Association *           
SIGNAL....................  Signal Office Supply **                     
SIGNATURE.................  The Signature Group*                        
SIMON, G..................  Simon, Gus & Naomi **                       
SIMON, H..................  Simon, Hank **                              
SIMPSON...................  Simpson, Donald S. **                       
SINGTON...................  Sington, Homer & Coral **                   
SINOPOLI, A...............  Sinopoli, Albert B. **                      
SINOPOLI, M...............  Sinopoli, Michael T. **                     
SINOPOLI, N...............  Sinopoli, Natalie A. **                     
SINOPOLI, P...............  Sinopoli, Peter **                          
SMART.....................  Smart, Bob **                               
SMITH-1...................  Smith, Mrs. Margaret A. **                  
SMITH-2...................  Smith, Margie **                            
SMITH-3...................  Smith, Madelyn **                           
SMITH, R..................  Smith, R. *                                 
SMSI......................  Strategic Marketing Specialists, Inc. *     
SPIEGEL...................  Spiegel, Inc. ***                           
SPRINT....................  Sprint Corporation *                        
S&S.......................  Simpson & Simpson, P.C. *                   
SSE.......................  Superstar Satellite Entertainment *         
SSI.......................  SafeCard Services, Inc. *                   
SSS.......................  ``Strictly'' Subaru Service **              
STANDARD..................  Standard Office Supply **                   
STAPLES...................  Staples, Inc. **                            
STAR......................  Star-Ledger *                               
STOKOE, G.................  Stokoe, Grant **                            
STOKOE, K.................  Stokoe, Kim Neuhoff **                      
STPETE....................  St. Petersburg Times *                      
STRITCHKO.................  Stritchko, Jim **                           
STUART....................  Stuart News *                               
SUBURBAN..................  Suburban Stationers, Inc **                 
SUFFOLK...................  Suffolk Life Newspapers **                  
SUN.......................  Sun Newspapers *                            
SUPERIOR..................  Superior Office Products & Furniture Systems
                             **                                         
SUTTON....................  Sutton Marketing *                          
S&W.......................  Sullivan & Worcester*                       
SYRACUSE..................  Syracuse Newspapers*                        
TALK800...................  Talk800*                                    
TAYLOR....................  Taylor's Stationers**                       
TCI.......................  Thomas Cook, Inc.*                          
TCPS......................  Telephone Check Payment Systems*            
TELENATIONAL..............  Telenational Marketing*                     
TELESULTANTS..............  TeleSultants**                              

[[Page 43876]]
                                                                        
TEZANOS...................  Tezanos, Maritza*                           
THOMPSON..................  Thompson's of Morgantown, Inc.**            
THOMSON...................  Thomson, Ruth M.**                          
THORNTON..................  Thornton, Kevin A.**                        
THUMB.....................  Thumb Office Supply, Inc.**                 
T-I.......................  Times-Independent*                          
TIEDT.....................  Tiedt, Thomas N.***                         
TIEGS.....................  Tiegs, Curtis D.**                          
TIME WARNER...............  Time Warner***                              
TIMES TRENTON.............  Times of Trenton*                           
TITUS.....................  Titus, The Honorable Dina (2 letters)*      
TM........................  Telemarketing Magazine**                    
TMG.......................  Television Marketing Group*                 
TMO.......................  Total Marketing Outbound, Inc.*             
TMW.......................  TMW Marketing*                              
TOTAL.....................  Total Office Products & Service**           
TOWNE.....................  Towne Office Supply**                       
TP........................  Times Picayune***                           
TPA.......................  Tennessee Press Association, Inc.*          
TRIBUNE...................  Tribune Products Company**                  
TUCKER....................  Tucker, H.J.**                              
TULANDER..................  Tulander, Jerry and Alan**                  
TUPPERWARE................  Tupperware Worldwide*                       
TVMARKET..................  TV Marketplace, Inc.*                       
UACU......................  United Airlines Employees Credit Union**    
UCI.......................  United Color, Inc.*                         
UHL.......................  Uhl, J.M.**                                 
UMI.......................  Universal Media, Inc.*                      
UNION.....................  Union-News*                                 
UPS.......................  United Parcel Service, Inc.*                
USCE......................  U.S. Coin Exchange*                         
USD.......................  University of San Diego, Center for Public  
                             Interest Law*                              
USPS......................  U.S. Postal Service***                      
USTA......................  United States Telephone Association*        
USWI......................  US West, Inc.*                              
VBA.......................  Virginia Bankers Association**              
VENTURA...................  Ventura County Star*                        
VIACOM....................  Viacom International***                     
VINCENT...................  Vincent, Chorey, Taylor & Feil*             
VINSON....................  M.A. Vinson Construction Co.**              
VIRGINIA..................  Virginia State Corporation Commission*      
VT AG.....................  Vermont Attorney General's Office**         
WACHOVIA..................  Wachovia Corporation*                       
WADDLE....................  Waddle, Mr. Shannon**                       
WALDOON...................  Waldoon, James B.**                         
WALNUT....................  Walnut Telephone Company**                  
WARD......................  Ward, Doris L.**                            
WARD......................  Montgomery Ward*                            
WASHINGTON................  The Washington Post***                      
WAUGH.....................  Waugh, John C.*                             
WAY.......................  Way Office Products Inc.**                  
WEBB......................  Webb, Mrs. Alice**                          
WEBER, G..................  Weber, G.E.**                               
WEBER.....................  Ron Weber and Associates*                   
WESTVACO..................  Westvaco, Corp.*                            
WFNNB.....................  World Financial Network National Bank*      
WHITLEY...................  Whitley, Claude & Evelyn**                  
WILLIAMS..................  Williams Television Time*                   
WILSON, A.................  Wilson, A.M.**                              
WILSON, C.................  Wilson, Charles R.**                        
WILSON....................  Wilson Daily Times*                         
WINCHESTER................  Winchester Sun*                             
WINDSOR...................  Windsor Vineyards*                          
WINONA....................  Winona Post*                                
WISE......................  Wise, Dorothy**                             
WOODARD...................  Woodard, James P.**                         
WOODBOURNE................  Woodbourne International (comments forwarded
                             by The Honorable Sam Nunn and The Honorable
                             Kay Bailey Hutchison)*                     
WRIGHT, A.................  Wright, Albert R.**                         
WRIGHT, J.................  Wright, Joseph**                            
WRINKLE...................  Wrinkle, Glenn E.**                         
WTC.......................  Wilmington Trust Company*                   

[[Page 43877]]
                                                                        
WTO.......................  West Telemarketing Outbound*                
WU........................  Western Union*                              
YINGLING..................  Yingling, Thomas**                          
YOUNGBERG.................  Youngberg, Arthur D.*                       
ZIRGER....................  Zirger, Louise**                            
------------------------------------------------------------------------
Notes:                                                                  
* Filed comment to the originally proposed Rule.                        
** Filed comment to the revised proposed Rule.                          
*** Filed comments to both proposed Rules.                              


[FR Doc. 95-20655 Filed 8-22-95; 8:45 am]
BILLING CODE 6750-01-P