[Federal Register Volume 66, Number 122 (Monday, June 25, 2001)]
[Notices]
[Pages 33701-33703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15864]


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FEDERAL TRADE COMMISSION


Agency Information Collection Activities; Submission for OMB 
Review; Comment Request

AGENCY: Federal Trade Commission (FTC).

ACTION: Notice.

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SUMMARY: The Federal Trade Commission (FTC) has submitted to the Office 
of Management and Budget (OMB) for review under the Paperwork Reduction 
Act (PRA) information collection requirements contained in its 
Telemarketing Sales Rule (``TSR'' or ``Rule''). The FTC is seeking 
public comments on its proposal to extend through August 31, 2004 the 
current PRA clearance for information collection requirements contained 
in the regulations. That clearance expires on August 31, 2001.

DATES: Comments must be submitted on or before July 25, 2001.

ADDRESSES: Send comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, New Executive Office 
Building, Room 10202, Washington, DC 20503, ATTN.: Desk Officer for the 
Federal Trade Commission, and to Secretary, Federal Trade Commission, 
Room H-159, Pennsylvania Ave., NW., Washington, DC 20580. All comments 
should be captioned ``Telemarketing Sales Rule: Paperwork comment.''

FOR FURTHER INFORMATION CONTACT: Request for additional information or 
copies of the proposed information requirements should be addressed to 
Karen Leonard, Attorney, Division of Marketing Practices, Bureau of 
Consumer Protection, Federal Trade Commission, Room H-238, 600 
Pennsylvania Ave., NW., Washington, DC 20580, (202) 326-3597.

SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501-3520), Federal 
agencies must obtain approval from OMB for each collection of 
information they conduct or sponsor. On May 4, 2001, the FTC sought 
comment on the information collection requirements associated with the 
TSR, 16 CFR Part 310 (OMB Control Number: 3084-0097). See 66 FR 22562. 
No comments were received on any aspect of the notice, including 
staff's PRA burden estimates. Pursuant to the OMB regulations that 
implement the PRA (5 CFR Part 1320), the FTC is providing this second 
opportunity for public comment while seeing OMB approval to extend the 
existing paperwork clearance for the Rule.
    The TSR implements the Telemarketing and Consumer Fraud and Abuse 
Prevention Act, 15 U.S.C. 6101-6108 (``Act''). The Act seeks to prevent 
deceptive or abusive telemarketing practices. It mandates certain 
disclosures by telemarketers, and directs the Commission to consider 
recordkeeping requirements in its promulgation of a telemarketing rule 
to address such practices. As required by the Act, the TSR mandates 
certain disclosures regarding telephone sales and requires 
telemarketers to retain certain records regarding advertising, sales, 
and employees. The disclosures provide consumers with information 
necessary to make informed purchasing decisions. The records are 
available for inspection by the Commission and other law enforcement 
personnel to determine compliance with the Rule. Records may also yield 
information helpful in measuring and redressing consumer injury 
stemming from Rule violations.

Burden Statement

    Estimated annual hours burden: 2,301,000 hours.
    The estimated recordkeeping burden is 50,000 hours for all industry 
members affected by the Rule. The estimated burden related to the 
Rule's required disclosures is 2,251,000 hours (rounded to nearest 
thousand) for all affected industry members, for a total of 2,301,000 
burden hours.
    Recordkeeping: At the time the Commission issued the Rule, it 
estimated that during the initial and subsequent years after the Rule 
took effect, 100 new telemarketing entities per year would find it 
necessary to revise their practices to conform with the Rule, each 
requiring approximately 100 hours to develop a compliant recordkeeping 
system, for a cumulative yearly total of 10,000 burden hours. The 
Commission received no comments relating to this estimate either when 
it issued the Rule nor during the ensuing rule review and PRA clearance 
processes, and staff believes the estimate remains representative. 
There is no reason to believe that the number of affected new entrants 
each year has increased.
    Of the estimated 39,900 industry members who have already assembled 
and retained the required records in their recordkeeping systems, staff 
estimates that each member requires only one hour per year to file and 
store records required by the Rule. For purposes of estimation, staff 
has rounded up the cumulative sub-total of 39,900 hours to 40,000 
hours. Thus, total estimated annual recordkeeping burden for new and 
existing entities is 50,000 hours.
    Disclosure: Staff believes that a substantial majority of 
telemarketers now make in the ordinary course of business the 
disclosures the Rule requires because doing so constitutes good 
business practice.\1\ To the extent this is so, the time and financial 
resources needed to comply with disclosure requirements do not 
constitute ``burden.'' 16 CFR 1320.3(b)(2). Moreover, many state laws 
require the same or similar disclosures the Rule mandates. Thus, the 
disclosure hours burden attributable solely to the Rule is far less 
than the total number of hours associated with the disclosures overall. 
As it had done when last seeking OMB clearance and related public 
comment, staff estimates that the disclosures the Rule requires would 
be made in at least 75 percent of telemarketing presentations even 
absent the Rule. See 63 FR 40713, July 30, 1998. Staff received no 
comments refuting this estimate. Accordingly, staff determined that the 
hours burden estimate for the Rule's disclosure requirements is 25 
percent of the total hours associated with disclosures of the type the 
TSR requires. Staff estimates the portion attributable to the Rule to 
be 2,251,000, rounded to the nearest thousand. The components of this 
total are detailed in the immediately following paragraphs that address 
hours burden.
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    \1\ Although telemarketing fraud causes significant harm to 
consumers--Congress has estimated that misrepresentations or 
material omissions in telemarketing sales presentations result in $3 
billion to $40 billion annually in consumer injury--the harm by 
telemarketing fraud remains a small fraction of the $400 billion in 
total annual sales through telemarketing.
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    In connection with the Rule's issuance and in the ensuing rule 
review and PRA clearance processes, staff estimated that the 39,900 
(rounded to 40,000) industry members make approximately 9 billion calls 
per year, or 225,000 calls per year per company. The TSR provides that 
if an industry member chooses to solicit inbound calls from consumers 
by advertising media other than direct mail or by using direct mail 
solicitations that make certain required disclosures (providing for an 
inbound telephone call as a possible response), that member is exempted

[[Page 33702]]

from complying with the Rule's oral disclosures. Staff estimates that 
at least 9,000 firms will choose to adopt marketing methods that exempt 
them from complying with the Rules oral disclosure requirements. This 
assumption is based on industry data indicating that slightly over 20% 
of industry members engage in direct mail solicitations involving 
telemarketing \2\ (and staff's corollary assumption that these 
solicitations will include written disclosures the Rule alternatively 
requires).
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    \2\ Direct Marketing Association Statistical Fact Book 2000 (22d 
ed. 2000) (based on data for 1997-1998, the two most recent years 
included within this source information).
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    When the Commission issued the TSR, staff estimated that it takes 7 
seconds for telemarketers to disclose the required outbound call 
information orally. Staff also estimated that at least 60 percent of 
calls result in ``hang-ups'' before the seller or telemarketer can make 
all the required disclosures and that ``hang-up'' calls consume only 2 
seconds. Accordingly, staff estimates that the total time associated 
with these initial disclosure requirements is approximately 250 hours 
per firm [(90,000 non-hang up calls (.40  x  225,000)  x  7 seconds per 
call] + [135,000 hang-up calls (.60  x  225,000)  x  2 seconds per 
call]. Thus, the total time expenditure for the 31,000 firms choosing 
marketing methods that require these oral disclosures is 7.75 million 
hours. The Commission has received no comments on this estimate, and 
staff believes it remains reasonable. Based on the assumption that no 
more than 25 percent of this time constitutes ``burden'' imposed solely 
by the Rule (as opposed to the normal business practices of most 
affected entities apart from the Rule's requirements), the burden 
subtotal attributable to these basic disclosures is 1,937,500 hours.
    The TSR also requires further disclosures before the customer pays 
for goods or services. Specifically, telemarketers must disclose the 
total cost of the offered goods or services; all material restrictions; 
and all material terms and conditions of the seller's refund, 
cancellation, exchange, or repurchase policies (if a representation 
about such a policy is a part of the sales offer). If a prize promotion 
is involved in connection with the sale of goods or services, the 
telemarketer must also disclose information about the non-purchase 
entry method for the prize promotion. Staff estimates that these 
disclosures consume approximately 10 seconds. However, the Rule 
requires these disclosures only when a call results in a sale. Staff 
estimates that sales occur in approximately 6 percent of telemarketing 
calls. Accordingly, the estimated amount of time for these disclosures 
is 37.5 hours per firm [13,500 calls resulting in a sale (.06  x  
225,000  x  10 seconds)] or 1.163 million hours for the 31,000 firms 
choosing marketing methods that require oral disclosures. The 
Commission has received no comments on this estimate. Again, staff 
believes the estimate remains reasonable. Based on the assumption that 
no more than 25 percent of this time constitutes ``burden'' imposed 
solely by the Rule, the burden subtotal attributable to these 
additional disclosures is 290,750 hours.
    As noted above, staff estimates that approximately 9,000 
telemarketing firms will choose the written disclosure option. Firms 
electing this option are likely to be those using written advertising 
materials. Thus, the burden of adding the required disclosures should 
be minimal. Staff previously estimated that a typical firm will spend 
approximately 10 hours per year engaged in activities ensuring 
compliance with this provision of the Rule, for an estimated total 
burden of 90,000 hours for all 9,000 firms using written disclosure. As 
was the case regarding the other estimates stated above, when the 
Commission initially published this estimate, it received no comments 
on it nor had the Commission received any such comments in the ensuing 
Rule review and PRA clearance processes. Staff believes this estimate 
also remains reasonable. Based on the assumption that no more than 25 
percent of this time constitutes ``burden'' imposed solely by the Rule, 
residual burden attributable to these written disclosures is 22,500 
hours.
    Estimated annual labor cost burden: $34,365,000.
    The estimated labor cost for recordkeeping is $600,000. Assuming a 
cumulative burden of 10,000 hours/year to set up compliant 
recordkeeping systems, and applying to that a skilled labor rate $20/
hour, start-up costs would approximate $200,000 yearly for all new 
telemarketing entities. Staff also estimates that existing industry 
members require 40,000 hours, cumulatively, to maintain compliance with 
the TSR's recordkeeping provisions. Applying a clerical cost rate of 
$10/hour, cumulative recordkeeping maintenance would cost approximately 
$400,000 annually. The estimated labor cost for disclosure is 
$33,765,000, based on an estimate of 2,251,000 disclosure burden hours 
and a wage rate of $15/hour. Thus, total labor cost, rounded to the 
nearest thousand, is $34,365,000.
    Estimated annual non-labor cost burden: $10,022,000.
    Total capital and start-up cost: Staff estimates that the capital 
and start-up costs associated withthe TSR's information collection 
requirements are de minimis. The Rule's recordkeeping requirements 
mandate that companies maintain records but not in any particular form. 
While those requirements necessitate that affected entities have a 
means of storage, industry members should have that already regardless 
of the rule. Even if an entity finds it necessary to purchase a storage 
device, the cost is likely to be minimal, especially when annualized 
over the item's useful life. The Rule's disclosure requirements require 
no capital expenditures.
    Other non-labor costs: Affected entities need some storage media 
such as file folders, computer diskettes, or paper in order to comply 
with the Rule's recordkeeping requirements. Although staff believes 
that most affected entities would maintain the required records in the 
ordinary course of business, staff estimated that the approximately 
40,000 industry members affected by the Rule spend an annual amount of 
$50 each on office supplies as a result of the Rule's recordkeeping 
requirements, for a total recordkeeping cost burden of $2,000,000.
    To comply with the Rule's disclosure requirements, telemarketing 
firms likely incur additional costs for telephone service, assuming 
that the firms spend more time on the telephone with customers due to 
the required disclosures. As further detailed above, staff believes 
that the burden relating to the required oral disclosures amounts to 
8,913,000 hours (7.75 million initial disclosure hours + 1.163 million 
hours regarding sales). Assuming all calls to customers are long 
distance, at a commercial calling rate of 6 cents per minute ($3.60 per 
hour), affected entities as a whole may incur up to $32,086,800 in 
telecommunications costs as a result of the Rule's disclosure 
requirements. However, as also noted above, staff estimates that only 
25 percent of such disclosures constitute ``burden.'' Accordingly, the 
oral disclosure cost burden, adjusted for this apportionment, is 
$8,022,000, rounded to the nearest thousand.
    Staff believes that the estimated 9,000 entities choosing to comply 
with the Rule through written disclosures incur no additional capital 
or operating expenses as a result of the Rule's requirements because 
they are likely to provide written information to prospective customers 
in the ordinary course of business. Adding the required

[[Page 33703]]

disclosures to that written information likely requires no supplemental 
expenditures.
    Thus, total estimated non-labor cost burden associated with the 
Rule is $10,022,000 ($2,000,000 for recordkeeping + $8,022,000 for oral 
disclosures).

William E. Kovacic,
General Counsel.
[FR Doc. 01-15864 Filed 6-22-01; 8:45 am]
BILLING CODE 6750-01-M