[Federal Register Volume 67, Number 20 (Wednesday, January 30, 2002)]
[Proposed Rules]
[Pages 4492-4546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1998]



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Part II





Federal Trade Commission





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16 CFR Part 310



Telemarketing Sales Rule; Proposed Rule

  Federal Register / Vol. 67, No. 20 / Wednesday, January 30, 2002 / 
Proposed Rules  

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FEDERAL TRADE COMMISSION

16 CFR Part 310


Telemarketing Sales Rule

AGENCY: Federal Trade Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: In this document, the Federal Trade Commission (the 
``Commission'' or ``FTC'') issues a Notice of Proposed Rulemaking to 
amend the FTC's Telemarketing Sales Rule, and requests public comment 
on the proposed changes. The Telemarketing Sales Rule prohibits 
specific deceptive and abusive telemarketing acts or practices, 
requires disclosure of certain material information, requires express 
verifiable authorization for certain payment mechanisms, sets 
recordkeeping requirements, and specifies those transactions that are 
exempt from the Telemarketing Sales Rule.
    This document invites written comments on all issues raised by the 
proposed changes and seeks answers to the specific questions set forth 
in Section IX of this document. This document also contains an 
invitation to participate in a public forum, to be held following the 
close of the comment period, to afford Commission staff and interested 
parties an opportunity to explore and discuss issues raised during the 
comment period.

DATES: Written comments will be accepted until March 29, 2002. 
Notification of interest in participating in the public forum also must 
be submitted on or before March 29, 2002. The public forum will be held 
at the Federal Trade Commission, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580, on June 5, 6, and 7, 2002, from 9:00 a.m. until 
5:00 p.m.

ADDRESSES: Six paper copies of each written comment should be submitted 
to the Office of the Secretary, Room 159, Federal Trade Commission, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. To encourage prompt and 
efficient review and dissemination of the comments to the public, all 
comments should also be submitted, if possible, in electronic form, on 
either a 5\1/4\ or a 3\1/2\ inch computer disk, with a label on the 
disk stating the name of the commenter and the name and version of the 
word processing program used to create the document. (Programs based on 
DOS are preferred. Files from other operating systems should be 
submitted in ASCII text format to be accepted.) Individual members of 
the public filing comments need not submit multiple copies or comments 
in electronic form.
    Alternatively, the Commission will accept papers and comments 
submitted to the following email address: [email protected], provided the 
content of any papers or comments submitted by email is organized in 
sequentially numbered paragraphs. All comments and any electronic 
versions (i.e., computer disks) should be identified as ``Telemarketing 
Rulemaking--Comment. FTC File No. R411001.'' The Commission will make 
this document and, to the extent possible, all papers and comments 
received in electronic form in response to this document available to 
the public through the Internet at the following address: www.ftc.gov.
    Notification of interest in participating in the public forum 
should be submitted in writing, but separate from written comments, to 
Carole Danielson, Division of Marketing Practices, Bureau of Consumer 
Protection, Federal Trade Commission, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. The public forum will be held at the Federal 
Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580.
    Comments on proposed revisions bearing on the Paperwork Reduction 
Act should additionally be submitted to: Office of Information and 
Regulatory Affairs, Office of Management and Budget, New Executive 
Office Building, Room 10102, Washington, DC 20503, ATTN.: Desk Officer 
for the Federal Trade Commission, as well as to the FTC Secretary at 
the address above.

FOR FURTHER INFORMATION CONTACT: Catherine Harrington-McBride, (202) 
326-2452 (email: [email protected]), Karen Leonard, (202) 326-3597 
(email: [email protected]), Michael Goodman, (202) 326-3071 (email: 
[email protected]), or Carole Danielson, (202) 326-3115 (email: 
[email protected]), Division of Marketing Practices, Bureau of 
Consumer Protection, Federal Trade Commission, 600 Pennsylvania Avenue, 
NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

A. Telemarketing Consumer Fraud and Abuse Prevention Act

    On August 16, 1994, President Clinton signed into law the 
Telemarketing Consumer Fraud and Abuse Prevention Act (``Telemarketing 
Act'' or ``the Act'').\1\ The Telemarketing Act was the culmination of 
Congressional efforts during the early 1990's to protect consumers 
against telemarketing fraud.\2\ The purpose of the Act was to combat 
telemarketing fraud by providing law enforcement agencies with powerful 
new tools, and to give consumers new protections. The Act directed the 
Commission, within 365 days of enactment of the Act, to issue a rule 
prohibiting deceptive and abusive telemarketing acts or practices.
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    \1\ 15 U.S.C. 6101-6108.
    \2\ Other statutes enacted by Congress to address telemarketing 
fraud during the early 1990's include the Telephone Consumer 
Protection Act of 1991 (``TCPA''), 47 U.S.C. 227 et seq., which 
restricts the use of automatic dialers, bans the sending of 
unsolicited commercial facsimile transmissions, and directs the 
Federal Communications Commission (``FCC'') to explore ways to 
protect residential telephone subscribers' privacy rights; and the 
Senior Citizens Against Marketing Scams Act of 1994, 18 U.S.C. 2325 
et seq., which provides for enhanced prison sentences for certain 
telemarketing-related crimes.
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    The Telemarketing Act specified, among other things, certain acts 
or practices the FTC's rule must address. The Act also required the 
Commission to include provisions relating to three specific ``abusive 
telemarketing acts or practices:'' (1) A requirement that telemarketers 
may not undertake a pattern of ``unsolicited telephone calls which the 
reasonable consumer would consider coercive or abusive of such 
consumer's right to privacy;'' (2) restrictions on the time of day 
telemarketers may make unsolicited calls to consumers; and (3) a 
requirement that telemarketers promptly and clearly disclose in all 
sales calls to consumers that the purpose of the call is to sell goods 
or services, and make other disclosures deemed appropriate by the 
Commission, including the nature and price of the goods or services 
sold.\3\ Section 6102(a) of the Act not only required the Commission to 
define and prohibit deceptive telemarketing acts or practices, but also 
authorized the FTC to define and prohibit acts or practices that 
``assist or facilitate'' deceptive telemarketing.\4\ The Act further 
directed the Commission to consider including recordkeeping 
requirements in the rule.\5\ Finally, the Act authorized State 
attorneys general, other appropriate State officials, and private 
persons to bring civil actions in federal district court to enforce 
compliance with the FTC's rule.\6\
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    \3\ 15 U.S.C. 6102(a)(3)(A)-(C).
    \4\ Examples of practices that would ``assist or facilitate'' 
deceptive telemarketing under the Rule include credit card 
laundering and providing contact lists or promotional materials to 
fraudulent sellers or telemarketers. See, 60 FR 43843, 43853 (Aug. 
23, 1995) (codified at 16 CFR part 310 (1995)).
    \5\ 15 U.S.C. 6102(a)(3).
    \6\ 15 U.S.C. 6103.

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B. Telemarketing Sales Rule

    Pursuant to the Telemarketing Act, the FTC adopted the 
Telemarketing Sales Rule, 16 CFR part 310, (``Telemarketing Rule,'' 
``the Rule,'' ``TSR,'' or ``original Rule'') on August 16, 1995.\7\ The 
Rule, which became effective on December 31, 1995, requires that 
telemarketers promptly tell each consumer they call several key pieces 
of information: (1) the identity of the seller; (2) the fact that the 
purpose of the call is to sell goods or services; (3) the nature of the 
goods or services being offered; and (4) in the case of prize 
promotions, that no purchase or payment is necessary to win.\8\ 
Telemarketers must, in any telephone sales call, also disclose cost and 
other material information before consumers pay.\9\ In addition, 
telemarketers must have consumers' express verifiable authorization 
before using a demand draft (or ``phone check'') to debit consumers'' 
bank accounts.\10\ The Rule prohibits telemarketers from calling before 
8:00 a.m. or after 9:00 p.m. (in the time zone where the consumer is 
located), and from calling consumers who have said they do not want to 
be called by or on behalf of a particular seller.\11\ The Rule also 
prohibits misrepresentations about the cost, quantity, and other 
material aspects of the offered goods or services, and the terms and 
conditions of the offer.\12\ Finally, the Rule bans telemarketers who 
offer to arrange loans, provide credit repair services, or recover 
money lost by a consumer in a prior telemarketing scam from seeking 
payment before rendering the promised services,\13\ and prohibits 
credit card laundering and other forms of assisting and facilitating 
deceptive telemarketers.\14\

    \7\ 60 FR 43843.
    \8\ 16 CFR 310.4(d).
    \9\ 16 CFR 310.3(a)(1).
    \10\ 16 CFR 310.3(a)(3).
    \11\ 16 CFR 310.4(c), and 310.4(b)(1)(ii).
    \12\ 16 CFR 310.3(a)(2).
    \13\ 16 CFR 310.4(a)(2)-(4).
    \14\ 16 CFR 310.3(b) and (c).
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    The Rule expressly exempts from its coverage several types of 
calls, including calls where the transaction is completed after a face-
to-face sales presentation, calls subject to regulation under other FTC 
rules (e.g., the Pay-Per-Call Rule, or the Franchise Rule),\15\ calls 
that are not in response to any solicitation, calls initiated in 
response to direct mail, provided certain disclosures are made, and 
calls initiated in response to advertisements in general media, such as 
newspapers or television.\16\ Lastly, catalog sales are exempt, as are 
most business-to-business calls, except those involving the sale of 
office or cleaning supplies.\17\
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    \15\ 16 CFR 310.6(a)-(c).
    \16\ 16 CFR 310.6(d)-(f).
    \17\ 16 CFR 310.2(u) (pursuant to 15 U.S.C. 6106(4) (catalog 
sales)); 16 CFR 310.6(g) (business-to-business sales). In addition 
to these exemptions, certain entities including banks, credit 
unions, savings and loans, companies engaged in common carrier 
activity, non-profit organizations, and companies engaged in the 
business of insurance are not covered by the Rule because they are 
specifically exempt from coverage under the FTC Act. 15 U.S.C. 
45(a)(2); but see, discussion immediately following concerning the 
USA PATRIOT Act amendments to the Telemarketing Act. Finally, a 
number of entities and individuals associated with them that sell 
investments and are subject to the jurisdiction of the Securities 
and Exchange Commission or the Commodity Futures Trading Commission 
are exempt from the Rule. 15 U.S.C. 6102(d)(2)(A); 6102(e)(1).
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C. The USA PATRIOT Act of 2001

    On Thursday, October 25, 2001, President Bush signed into law the 
Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism Act (``USA PATRIOT Act'') 
of 2001, Pub. L. 107-56 (Oct. 25, 2001). This legislation contains 
provisions that have significant impact on the TSR. Specifically, 
section 1011 of that Act amends the Telemarketing Act to extend the 
coverage of the TSR to reach not just telemarketing to induce the 
purchase of goods or services, but also charitable fund raising 
conducted by for-profit telemarketers for or on behalf of charitable 
organizations. Because enactment of the USA PATRIOT Act took place 
after the comment period for the Rule review (described below) closed, 
the Commission did not address issues relating to charitable 
fundraising by telemarketers in the Rule review.
    Section 1011(b)(3) of the USA PATRIOT Act amends the definition of 
``telemarketing'' that appears in the Telemarketing Act, 15 U.S.C. 
6106(4), expanding it to cover any ``plan, program, or campaign which 
is conducted to induce * * * a charitable contribution, donation, or 
gift of money or any other thing of value, by use of one or more 
telephones and which involves more than one interstate telephone call * 
* *''
    In addition, section 1011(b)(2) adds a new section to the 
Telemarketing Act directing the Commission to include new requirements 
in the ``abusive telemarketing acts or practices'' provisions of the 
TSR.\18\ Section 1011(b)(1) amends the ``deceptive telemarketing acts 
or practices'' provision of the Telemarketing Act, 15 U.S.C. 
6102(a)(2), by specifying that ``fraudulent charitable solicitation'' 
is to be included as a deceptive practice under the TSR.
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    \18\ Specifically, section 1011(b)(2)(d) mandates that the TSR 
include ``a requirement that any person engaged in telemarketing for 
the solicitation of charitable contributions, donations, or gifts of 
money or any other thing of value, shall promptly and clearly 
disclose to the person receiving the call that the purpose of the 
call is to solicit charitable contributions, donations, or gifts, 
and make such other disclosures as the Commission considers 
appropriate, including the name and mailing address of the 
charitable organization on behalf of which the solicitation is 
made.'' Pub. L. 107-56 (Oct. 25, 2001).
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    The impact of the USA PATRIOT amendments to the Telemarketing Act 
is discussed more fully in the part of this notice that analyzes 
Sec. 310.1 of the Rule, which deals with the scope of the Rule's 
coverage. This notice sets forth a number of proposed changes 
throughout the text of the TSR to implement the USA PATRIOT amendments. 
Also, in section IX of this notice, the Commission specifically seeks 
comment and information about its proposals to conform the TSR to 
section 1011 of the USA PATRIOT Act.

D. Rule Review and Request for Comment

    The Telemarketing Act required that the Commission initiate a Rule 
review proceeding to evaluate the Rule's operation no later than five 
years after its effective date of December 31, 1995, and report the 
results of the review to Congress.\19\ Accordingly, on November 24, 
1999, the Commission commenced the mandatory review with publication of 
a Federal Register notice announcing that Commission staff would 
conduct a forum on January 11, 2000, limited to examination of issues 
relating to the ``do-not-call'' provision of the Rule, and soliciting 
applications to participate in the forum.\20\ Seventeen associations, 
individual businesses, consumer organizations, and law enforcement 
agencies, each with an affected interest and an ability to represent 
others with similar interests, were selected to engage in the Forum's 
roundtable discussion (``Do-Not-Call'' Forum), which was held on 
January 11, 2000, at the FTC offices in Washington, DC.\21\
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    \19\ 15 U.S.C. 6108.
    \20\ 64 FR 66124 (Nov. 24, 1999). Comments regarding the Rule's 
``do-not-call'' provision, Sec. 310.4(b)(1)(ii), as well as the 
other provisions of the Rule, were solicited in a later Federal 
Register notice on February 28, 2000. See 65 FR 10428 (Feb. 28, 
2000).
    \21\ The selected participants were: AARP, American Teleservices 
Association, Callcompliance.com, Consumer.net, Direct Marketing 
Association, Junkbusters, KTW Consulting Techniques, Magazine 
Publishers Association, National Association of Attonerys General, 
National Association of Consumer Agency Administrators, National 
Association of Regulatory Utility Commissioners, North American 
Securities Administrators Association, National Consumers League, 
National Federation of Nonprofits, National Retail Federation, 
Private Citizen, and Promotion Marketing Association. References to 
the ``Do-Not-Call'' Forum transcript are cited as ``DNC Tr.'' 
followed by the appropriate page designation.

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    On February 28, 2000, the Commission published a second notice in 
the Federal Register, broadening the scope of the inquiry to encompass 
the effectiveness of all the Rule's provisions. This notice invited 
comments on the Rule as a whole and announced a second public forum to 
discuss the provisions of the Rule other than the ``do-not-call'' 
provision.\22\ In response to this notice, the Commission received 92 
comments from representatives of industry, law enforcement, and 
consumer groups, as well as from individual consumers.\23\ The 
commenters uniformly praised the effectiveness of the TSR in combating 
the fraudulent practices that had plagued the telemarketing industry 
before the Rule was promulgated. They also strongly supported the 
Rule's continuing role as the centerpiece of federal and State efforts 
to protect consumers from interstate telemarketing fraud. However, 
commenters were less sanguine about the effectiveness of the Rule's 
provisions dealing with consumers' right to privacy, such as the ``do-
not-call'' provision and the provision restricting calling times. They 
also identified a number of areas of continuing or developing fraud and 
abuse, as well as the emergence of new technologies that affect 
telemarketing for industry members and consumers alike.
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    \22\ 65 FR 10428 (Feb. 28, 2000). The Commission extended the 
comment period from April 27, 2000, to May 30, 2000. 65 FR 26161 
(May 5, 2000).
    \23\ A list of the commentes, and the acronyms used to identify 
each commenter in this Notice, is attached as Appendix A. References 
to comments are cited by the commenter's acronym followed by the 
appropriate page designation.
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    Specifically, commenters opined that the TSR has been successful in 
reducing many of the abuses that led to the passage of the 
Telemarketing Act,\24\ and that consumer confidence in the industry has 
increased and complaints about telemarketing practices have decreased 
dramatically since the Rule became effective.\25\ Commenters credited 
the TSR with these positive developments.\26\ Commenters generally 
agreed that the Rule has been effective in protecting consumers, 
without unnecessarily burdening the legitimate telemarketing 
industry.\27\ Commenters also agreed that the Rule has been an 
effective tool for law enforcement, especially because it allows 
individual States to obtain nationwide injunctive relief, or to 
collectively file a common federal action against a single 
telemarketer, thereby creating enforcement avenues not available under 
State law.\28\ Commenters uniformly stressed that it is important to 
retain the Rule.\29\
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    \24\ For example, complaints about ``recovery'' schemes declined 
dramatically, from a number 3 ranking in 1995 to a number 25 ranking 
in 1999, while complaints about credit repair have remained at a 
relatively low level since 1995 (steadily ranking about number 23 or 
24 in terms of number of complaints received by the National Fraud 
Information Center (``NFIC'')). NCL at 11. Unfortunately, complaints 
about advance fee loan schemes rose from a number 15 ranking in 1995 
to the number 2 ranking in 1998, with about 80% of the advance fee 
loan companies reported to NFIC located in Canada. NCL at 12.
    \25\ ATA at 6 (consumers now have increased comfort with the 
telemarketing industry because of the TSR); ATA at 4-5 (according to 
NAAG, telemarketing complaints declined from the top consumer 
complaint in 1995 to number 10 in the first year that the Rule was 
in effect); KTW at 3 (TSR has added value, respect, and credibility 
to industry); MPA at 5-7 (complaints about magazine sales have 
decreased); NAA at 2; NCL at 2-3 (reports to NFIC of telemarketing 
fraud have decreased over the last five years from 15,738 in 1995 to 
4,680 in 1999).
    \26\ ATA at 4-5; MPA at 5-7; NAA at 2.
    \27\ AARP at 2; ARDA at 2; ATA at 3-5; Bell Atlantic at 2; DMA 
at 2; ERA at 2, 6; Gardner at 1; ICFA at 1; KTW at 1; LSAP at 1; MPA 
at 4-6; NAA at 1-2; NASAA at 1; NACAA at 1; NCL at 2, 17 PLP at 1; 
Texas at 1; Verizon at 1.
    \28\ AARP at 2; MPA at 4, 6; NAAG at 1; NACAA at 1; NASAA at 1; 
NCL at 2; Texas at 1.
    \29\ AARP at 2; ARDA at 2; ATA at 3-5; Bell Atlantic at 2; DMA 
at 2; ERA at 2, 6; Gardner at 1; ICFA at 1; KTW at 1; LSAP at 1; MPA 
at 4-6; NAA at 1-2; NACAA at 1; NASAA at 1; NCL at 2, 17; PLP at 1; 
Texas at 1; Verizon at 1.
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    Commenters report that, despite the success of the Rule in 
correcting many of the abuses in the telemarketing industry, complaints 
about deceptive and abusive telemarketing practices continue to flow 
into the offices of consumer groups and law enforcement agencies.\30\ 
As will be discussed in greater detail below, many of these complaints 
suggest that some of the TSR's provisions need to be amended to better 
address recurring abuses and to reach emerging problem areas.
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    \30\ See, e.g., LSAP at 2; NAAG at 4, 10-11; NCL at 5-6, 10, 15-
16.
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    Following the receipt of public comments, the Commission held a 
second forum on July 27 and 28, 2000 (``July Forum''), to discuss 
provisions of the Rule other than the ``do-not-call'' provision. At 
this forum, which was held at the FTC offices in Washington, DC, 
sixteen participants representing associations, individual businesses, 
consumer organizations, and law enforcement agencies engaged in a 
roundtable discussion of the effectiveness of the Rule.\31\
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    \31\ The selected participants were: AARP, ATA, DMA, DSA, ERA, 
Junkbusters, MPA, NAAG, NACAA, NACHA, NCL, NRF, PLP, Private 
Citizen, Promotion Marketing Association, and Verizon. References to 
the July Forum are cited as ``Rule Tr.'' followed by the appropriate 
page designation.
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    At both the ``Do-Not-Call'' Forum and the July Forum, the 
participants were encouraged to address each other's comments and 
questions, and were asked to respond to questions from Commission 
staff. The forums were open to the public, and time was reserved to 
receive oral comments from members of the public in attendance. Several 
members of the public spoke at each of the forums. Both proceedings 
were transcribed and placed on the public record. The public record to 
date, including the comments and the forum transcripts, has been placed 
on the Commission's website on the Internet.\32\ Based on the record 
developed during the Rule review proceeding, as well as the 
Commission's law enforcement experience, the Commission has determined 
to retain the Rule, but proposes to amend it.
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    \32\ The electronic portions of the public record can be found 
at www.ftc.gov/bcp/rulemaking/tsr/tsr-review.htm. The full paper 
record is available in Room 130 at the FTC, 600 Pennsylvania Avenue, 
N.W., Washington, DC 20580, telephone number: 1-877-FTC-HELP (1-877-
382-4357).

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D. Notice of Proposed Rulemaking

    By this document, the Commission is proposing revisions to the TSR 
in order to ensure that consumers receive the protections that the 
Telemarketing Act, as amended, mandated. The proposed changes to the 
Rule are made pursuant to the rule review requirements of the 
Telemarketing Act,\33\ and pursuant to the rulemaking authority granted 
to the Commission by that Act to protect consumers from deceptive and 
abusive practices,\34\ including practices that may be coercive or 
abusive of the consumer's interest in protecting his or her 
privacy.\35\ As discussed in detail below, the Commission believes the 
proposed modifications are necessary to ensure that the Rule fulfills 
this statutory mandate. As noted, the Commission has proposed changes 
throughout the Rule pursuant to section 1011 of the USA PATRIOT Act. 
The Commission invites written comment on the questions in Section IX 
to assist the Commission in determining whether the proposed 
modifications strike the appropriate balance, maximizing consumer 
protections while avoiding the imposition of unnecessary compliance 
burdens on the legitimate telemarketing industry.
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    \33\ 15 U.S.C. 6108.
    \34\ 15 U.S.C. 6102(a)(1) and (a)(3).
    \35\ 15 U.S.C. 6102(a)(3)(A).

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[[Page 4495]]

II. Overview

A. Changes in the Marketplace

    Since the Rule was promulgated, the marketplace for telemarketing 
has changed in significant ways that impact the effectiveness of the 
TSR. The proposed amendments to the TSR, therefore, attempt to respond 
to and reflect these changes in the marketplace.
    One of the changes in the way telemarketing is conducted relates to 
refinements in data collection and target marketing techniques that 
allow sellers to pinpoint with greater precision which consumers are 
most likely to be potential customers.\36\ These developments offer the 
obvious benefit of making telemarketing more effective and efficient 
for sellers. However, enhanced data collection and target marketing 
also have led to increasing public concern about what is perceived to 
be increasing encroachment on consumers' privacy. These privacy 
concerns initially focused on the Internet. However, the privacy debate 
has expanded to include all forms of direct marketing. Consumers have 
demanded more power to determine who will have access to their time and 
attention while they are in their homes.\37\ Indeed, a majority of the 
comments received during the Rule review focused on issues relating to 
consumer privacy and consumer sovereignty, rather than on fraudulent 
telemarketing practices.
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    \36\ See, e.g., DNC Tr. at 35-36; Rule Tr. at 70-81; ATA at 9 
(industry goes to great lengths to identify only those consumers who 
are likely purchasers of their products). See also Robert O'Harrow, 
A Hidden Toll on Free Calls: Lost Privacy--Not even unlisted numbers 
protected from marketers. Washington Post, p. A1 (Dec. 19, 1999); 
Robert O'Harrow, Horning In On Privacy: As Databases Collect 
Personal Details Well Beyond Credit Card Numbers, It's Time to Guard 
Yourself, Washington Post, p. H1 (Jan. 2, 2002); Dialing for 
Dollars: How to be Rid of Telemarketers, Orlando Sentinel (Sept. 29, 
1999), p. E2 (describing process of data mining and types of 
information gleaned by list brokers for sale to telemarketing 
firms): Carol Pickering, They're Watching You: Data-Mining firms are 
watching your every move--and predicting the next one, Business 2.0 
(Feb. 2000), p. 135; and, Selling is Getting Personal, Consumer 
Reports, p. 16 (Nov. 2000).
    \37\ See, e.g., Bennett at 1; Biagiotti at 1; Card at 1; Conway 
at 1; Gilchrist at 1; Gindin at 1; Heagy at 1; Holloway at 1; Kelly 
at 1; Lee at 1; Runnels at 1; Ver Steegt at 1; and DNC Tr. at 83-
130. See also O'Harrow, ``A Hidden Toll'' at A1 and ``Horning In'' 
at H1; and Gene Gray, The Future of the Teleservices Industry--Are 
You Aware?, 17 Call Ctr. Solutions (Jan. 1999) p. 90.
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    One result of the call for greater consumer empowerment on issues 
of privacy has been a greater public and governmental focus on the 
``do-not-call'' issue.\38\ Related to the ``do-not-call'' issue is the 
proliferation of technologies, such as caller identification service, 
that assist consumers in managing incoming calls to their homes.\39\ 
Similarly, privacy advocates have raised concerns about technologies 
used by telemarketers (such as predictive dialers and deliberate 
blocking of Caller ID information) that hinder consumers' attempts to 
screen calls or make requests to be placed on a ``do-not-call'' list.
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    \38\ See generally DNC Tr. See also George Raine, Drive to Ban 
Unsolicited Sales Calls; Consumer Activist's Initiative Would Bar 
Unwanted E-mail, Telemarketing, The San Francisco Examiner, p.B-1 
(Dec. 21, 1999). See also the discussion below of the proposed 
revision to the ``do-not-call'' provision, Sec. 310.4(b)(1)(iii).
    \39\ See, e.g., DNC Tr. at 83-130. See also, Donna Halvorsen, 
Home defense against telemarketing: Consumers reaching out to 
services that screen telemarketers, Star Tribune (Minneapolis), p. 
1A (July 17, 1999); Stephanie N. Mehta, Playing Hide-and-Seek by 
Telephone, Wall Street Journal, p. B-1 (Dec. 13, 1999); Stanley A. 
Miller II, Privacy Manager Thwarts Telemarketers. Ameritech says 7 
out of 10 ``junk'' calls do not get through to customers, Milwaukee 
Journal, p. 1 (Aug. 10, 1999); and Ed Russo, Phone Devices Put Chill 
on Cold Calls Screening, ID Altering Telemarketing, Omaha World-
Herald, p. 1a (Sept. 26, 1999).
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    A second change in the marketplace involves payment methods 
available to consumers and businesses. The growth of electronic 
commerce and payment systems technology has led, and likely will 
continue to lead, to new forms of payment and further changes in the 
way consumers pay for goods and services they purchase through 
telemarketing. Examples of emerging payment devices include stored 
value cards and a host of Internet-based payment systems.\40\ In 
addition, billing and collection systems of telephone companies, 
utilities, and mortgage lenders are becoming increasingly available to 
a wide variety of vendors of all types of goods and services.\41\
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    \40\ See NCL at 5. A more complete discussion of these new 
payment methods is included below in the section discussing express 
verifiable authorization, Sec. 310.3(a)(3).
    \41\ Id.; NAAG at 10; Rule Tr. 111; 254-257.
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    The type of payment device used by a consumer to pay for goods and 
services purchased through telemarketing determines the level of 
protection that a consumer has in contesting unauthorized charges and, 
in some instances, the kinds of dispute resolution proceedings 
available to the consumer should the goods or services be 
unsatisfactory. Of all the payment devices available to consumers to 
pay for telemarketing transactions, only credit cards afford limited 
liability for unauthorized charges and dispute resolution procedures 
pursuant to federal law.\42\ Therefore, because newly available payment 
methods in many instances are relatively untested, and may not provide 
protections for consumers from unauthorized charges, consumers may need 
additional protections--and vendors heightened scrutiny--when using 
these new payment methods.
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    \42\ The Fair Credit Billing Act, 15 U.S.C. 1666 et seq. 
provides customers with dispute resolution rights when they believe 
a credit card charge is inaccurate. Debit cards are not similarly 
protected by federal law; however, Visa offers ```$0 liability' 
protection in cases of fraud, theft or unauthorized card usage if 
reported within two business days of discovery,'' capping liability 
at $50 after that. See www.visa.com/ct/debit/main.html. Similarly, 
Mastercard offers a zero liability policy when loss, theft, or 
unauthorized use is reported within 24 hours of discovery, and 
otherwise caps liability at $50 ``in most circumstances.'' See 
www.mastercard.com/general/zero__liability.html. In addition, the 
Commission's 900-Number Rule specifies dispute resolution procedures 
for disputes involving pay-per-call transactions. 16 CFR 308.7.
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    Finally, over the past five years, the practice of preacquired 
account telemarketing--where a telemarketer acquires the customer's 
billing information prior to initiating a telemarketing call or 
transaction--has increasingly resulted in complaints from consumers 
about unauthorized charges. Billing information can be preacquired in a 
variety of ways, including from a consumer's financial institution or 
utility company, from the consumer in a previous transaction, or from 
another source.\43\ In many instances, the consumer is not involved in 
the transfer of the billing information and is unaware that the seller 
possesses it during the telemarketing call.\44\
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    \43\ See NAAG at 10. The review of the TSR was completed before 
the implementation of the FTC's Privacy Rule, 16 CFR Part 313, 
mandated by the Gramm-Leach-Bliley Act. 15 USC 6801-6810. The 
Privacy Rule prohibits financial institutions from disclosing, other 
than to a consumer reporting agency, customer account numbers or 
similar forms of access to any non-affiliated third party for use in 
direct marketing, including telemarketing. 16 CFR 313.12(a).
    \44\ Id.
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    The related practice of ``up-selling'' has also become more 
prevalent in telemarketing.\45\ Through this technique, customers are 
offered additional items for purchase after the completion of an 
initial sale. In the majority of up-selling scenarios, the

[[Page 4496]]

seller or telemarketer already has received the consumer's billing 
information, either from the consumer or from another source. When the 
consumer is unaware that the seller or telemarketer already has his or 
her billing information, or that this billing information will be used 
to process a charge for goods or services offered in an ``up-sell,'' 
the most fundamental tool consumers have for controlling commercial 
transactions--i.e., withholding the information necessary to effect 
payment unless and until they have consented to buy--is ceded, without 
the consumers' knowledge, to the seller before the sales pitch ever 
begins.
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    \45\ See generally Rule Tr. at 95-99, 107-111, 176-177. For the 
purposes of this Notice, the Commission intends the term ``up-
selling'' to mean any instance when, after a company captures credit 
card, or other similar account, data to close a sale, it offers the 
customer a second product or service. For example, a consumer might 
initiate an inbound telemarketing call in response to a direct mail 
solicitation for a given product, and, after making a purchase, be 
asked if he or she would be interested in another product or service 
offered by the same or another seller. Sometimes the further 
solicitation is made by the same telemarketer, and sometimes the 
call is transferred to a different telemarketer. When the product or 
service is offered by the same seller, the practice is called 
internal up-selling; when a second seller is involved, the practice 
is termed external up-selling.
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    Cognizant of these changes to the marketplace, and their 
potentially deleterious effect on consumers, the Commission proposes to 
amend the TSR.

B. Summary of Proposed Changes to the Rule

    The highlights of the Commission's proposal to amend the TSR are 
summarized below. In brief, the Commission proposes:
     To supplement the current company-specific ``do-not-call'' 
provision with an additional provision that will empower a consumer to 
stop calls from all companies within the FTC's jurisdiction by placing 
his or her telephone number on a central ``do-not-call'' registry 
maintained by the FTC;
     To permit a consumer who places his or her telephone 
number on the central ``do-not-call'' registry to receive telemarketing 
sales calls from an individual company to whom the consumer has 
provided his or her express verifiable authorization to make 
telemarketing calls to his or her telephone.
     To modify Sec. 310.3(a)(3) to require express verifiable 
authorization for all transactions in which the payment method lacks 
dispute resolution protection or protection against unauthorized 
charges similar or comparable to those available under the Fair Credit 
Billing Act and the Truth in Lending Act.
     To delete Sec. 310.3(a)(3)(iii), the provision allowing a 
telemarketer to obtain express verifiable authorization by sending 
written confirmation of the transaction to the consumer prior to 
submitting the consumer's billing information for payment;
     To require, in the sale of credit card protection, the 
disclosure of the legal limits on a cardholder's liability for 
unauthorized charges;
     To prohibit misrepresenting that a consumer needs offered 
goods or services in order to receive protections he or she already has 
under 15 U.S.C. 1643 (limiting a cardholder's liability for 
unauthorized charges on a credit card account);
     To mandate, explicitly, that all required disclosures in 
Sec. 310.3(a)(1) and Sec. 310.4(d) be made truthfully;
     To expand upon the current prize promotion disclosures to 
include a statement that any purchase or payment will not increase a 
consumer's chances of winning;
     To prohibit the practices of receiving any consumer's 
billing information from any third party for use in telemarketing, or 
disclosing any consumer's billing information to any third party for 
use in telemarketing;
     To prohibit additional practices: blocking or otherwise 
subverting the transmission of the name and/or telephone number of the 
calling party for caller identification service purposes; and denying 
or interfering in any way with a consumer's right to be placed on a 
``do-not-call'' list;
     To narrow certain of the Rule's exemptions;
     To clarify that facsimile transmissions, electronic mail, 
and other similar methods of delivery are direct mail for purposes of 
the direct mail exemption; and
     To modify various provisions throughout the Rule to 
effectuate expansion of the Rule's coverage to include charitable 
solicitations, pursuant to Section 1011 of the USA PATRIOT Act.

III. Analysis of Comments and Discussion of Proposed Revisions

    The proposed amendments to the Rule do not alter Sec. 310.7 
(Actions by States and Private Persons), or Sec. 310.8 (Severability).

A. Section 310.1--Scope of Regulations in This Part

    The amendment of the Telemarketing Act by section 1011 of the USA 
PATRIOT Act is reflected in this section of the TSR. Section 310.1 of 
the proposed Rule states that ``this part of the CFR implements the 
Telemarketing Act,\46\ as amended by the USA PATRIOT Act.''
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 6101-6108. The Telemarketing Act was amended by 
the USA PATRIOT Act on October 25, 2001. Pub. L. 107-56 (Oct. 25, 
2001).
---------------------------------------------------------------------------

    During the comment period that occurred prior to enactment of the 
USA PATRIOT Act, several commenters recommended that the Rule's reach 
be expanded or clarified.\47\ The impact of the USA PATRIOT Act 
amendments on the scope of coverage of the TSR, the commenters' 
proposals, and the Commission's reasoning in accepting or rejecting the 
commenters' proposals, are discussed below.
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    \47\ See, e.g., DMA at 4; KTW at 4; LSAP at 1; NAAG at 19; NACAA 
at 2; NCL at 5, 7, 10; Telesource at 4.
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    Effect of the USA PATRIOT Act. As noted above, section 1011(b)(3) 
of the USA PATRIOT Act amends the definition of ``telemarketing'' that 
appears in the Telemarketing Act, 15 U.S.C. 6306(4), by inserting the 
underscored language:

    The term ''telemarketing'' means a plan, program, or campaign 
which is conducted to induce purchases of goods or services or a 
charitable contribution, donation, or gift of money or any other 
thing of value, by use of one or more telephones and which involves 
more than one interstate telephone call * * 

In addition, Section 1011(b)(2) adds a new section to the Telemarketing 
Act requiring the Commission to include in the ``abusive telemarketing 
acts or practices'' provisions of the TSR:

a requirement that any person engaged in telemarketing for the 
solicitation of charitable contributions, donations, or gifts of 
money or any other thing of value, shall promptly and clearly 
disclose to the person receiving the call that the purpose of the 
call is to solicit charitable contributions, donations, or gifts, 
and make such other disclosures as the Commission considers 
appropriate, including the name and mailing address of the 
charitable organization on behalf of which the solicitation is made.

Finally, section 1011(b)(1) amends the ``deceptive telemarketing acts 
or practices'' provision of the Telemarketing Act, 15 U.S.C. 
6102(a)(2), by inserting the underscored language:

    The Commission shall include in such rules respecting deceptive 
telemarketing acts or practices a definition of deceptive 
telemarketing acts or practices which shall include fraudulent 
charitable solicitations and which may include acts or practices of 
entities or individuals that assist or facilitate deceptive 
telemarketing, including credit card laundering.

    Notwithstanding its amendment of these provisions of the 
Telemarketing Act, neither the text of section 1011 nor its legislative 
history suggest that it amends Sections 6105(a) of the Telemarketing 
Act--the provision which incorporates the jurisdictional limitations of 
the FTC Act into the Telemarketing Act and, accordingly, the TSR. 
Section 6105(a) states:

    Except as otherwise provided in sections 6102(d) (with respect 
to the SEC), 6102(e) (Commodity Futures Trading Commission), 6103 
(state attorney general actions), and 6104 (private consumer 
actions) of this title, this chapter shall be enforced by the 
Commission under the Federal Trade Commission Act (15 U.S.C. Sec. 41 
et seq.).

[[Page 4497]]

Consequently, no activity which is outside of the jurisdiction of 
that Act shall be affected by this chapter. (Emphasis added.) \48\

    \48\ Section 6105(b) reinforces the point made in Section 
6105(a), as follows:
    The Commission shall prevent any person from violating a rule of 
the Commission under section 6102 of this title in the same manner, 
by the same means, and with the same jurisdiction, powers, and 
duties as though all applicable terms and provisions of the Federal 
Trade Commission Act (15 U.S.C. 41 et seq. were incorporated into 
and made a part of this chapter. Any person who violates such rule 
shall be subject to the penalties and entitled to the same 
privileges and immunities provided in the Federal Trade Commission 
Act in the same manner, by the same means, and with the same 
jurisdiction, power, and duties as though all applicable terms and 
provisions of the Federal Trade Commission Act were incorporated 
into and made a part of this chapter. (Emphasis added.)
---------------------------------------------------------------------------

    One type of ``activity which is outside the jurisdiction'' of the 
FTC Act, as interpreted by the Commission and federal court decisions, 
is that of non-profit entities. Sections 4 and 5 of the FTC Act, by 
their terms, provide the Commission with jurisdiction only over 
persons, partnerships or ``corporations organized to carry on business 
for their own profit or that of their members.'' \49\
---------------------------------------------------------------------------

    \49\ Section 5(a)(2) of the FTC Act states: ``The Commission is 
hereby empowered and directed to prevent persons, partnerships, or 
corporations * * * from using unfair or deceptive acts or practices 
in or affecting commerce.'' 15 U.S.C. 45(a)(2). Section 4 of the Act 
defines ``corporation'' to include: ``any company, trust, so-called 
Massachusetts trust, or association, incorporated or unincorporated, 
which is organized to carry on business for its own profit or that 
of its members * * * '' 15 U.S.C. 44 (emphasis added).
---------------------------------------------------------------------------

    Reading the amendments to the Telemarketing Act effectuated by 
section 1011 of the USA PATRIOT Act together with the unchanged 
sections of the Telemarketing Act compels the conclusion that for-
profit entities that solicit charitable donations now must comply with 
the TSR, although the Rule's applicability to charitable organizations 
themselves is unaffected.\50\ The USA PATRIOT Act brings the 
Telemarketing Act's jurisdiction over charitable solicitations in line 
with the jurisdiction of the Commission under the FTC Act, by expanding 
the Rule's coverage to include not only the sale of goods or services 
but also charitable solicitations by for-profit entities on behalf of 
nonprofit organizations.\51\
---------------------------------------------------------------------------

    \50\ A fundamental tenet of statutory construction is that ``a 
statute should be read as a whole, * * * and that provisions 
introduced by the amendatory Act should be read together with the 
provisions of the original section that were * * * left unchanged * 
* * as if they had been originally enacted as one section.'' 
Sutherland Stat. Constr. Sec. 22.34, p. 297 (5th ed)., citing, inter 
alia, Brothers v. First Leasing, 724 F.2d 789 (9th Cir. 1984); 
Republic Steel Corp. v. Costle, 581 F.2d 1228 (6th Cir. 1978); 
American Airlines, Inc., v. Remis Indus., Inc., 494 F.2d 196 (2d 
Cir. 1974); Kirchner v. Kansas Turnpike Auth., 336 F.2d 222 (10th 
Cir. 1964); National Center for Preservation Law v. Landrieu, 496 F. 
Supp. 716 (D. SC. 1980); Conoco, Inc. v. Hodel, 626 F. Supp. 287 (D. 
Del. 1986); Palardy v. Horner, 711 F. Supp. 667 (D. Mass. 1989). 
Thus, in constructing a statute and its amendments, ``[e]ffect is to 
be given to each part, and they are to be interpreted so that they 
do not conflict.'' Id.
    \51\ While First Amendment protection for charities extend to 
their for-profit solicitors, e.g., Riley v. Nat'l Fed. of the Blind, 
487 U.S. 781 (1988), this narrowly tailored proposed rule furthers 
government interests that justify the regulation. One such interest 
is prevention of fraud. E.g., Sec. of State of Maryland v. Joseph H. 
Munson Co., 467 U.S. 947, 969 n.16 (1984); Telco Communications, 
Inc. v. Carbaugh, 885 F.2d 1231,1232 (4th Cir. 1989), cert. denied, 
495 U.S. 904 (1990). Another is protection of home privacy. See, 
e.g., Frisby v. Schultz, 487 U.S. 474, 484 (1988) (targeted 
picketing around a home); Watchtower Bible and Tract Society of New 
York, Inc. v. Village of Stratton, Ohio, 240 F.3d 553 (6th Cir.), 
cert. granted on other grounds, __U.S.__ (2001) (upholding law, 
based on both privacy and fraud grounds, forbidding canvassing of 
residents who filed a No Solicitation Form with mayor's office).
---------------------------------------------------------------------------

    Commenters' Proposals. A number of commenters urged the expansion 
of the Rule's scope beyond its current boundaries. For example, LSAP 
strongly suggested that the Commission amend the Rule to provide 
additional protection for consumers in light of the convergence of the 
banking, insurance, and securities industries, noting that this 
phenomenon has resulted in increased sharing of information between 
these entities, including customers' billing information.\52\ 
Similarly, NCL noted that distinctions between common carriers and 
other vendors are becoming less relevant as deregulation, detariffing, 
and mergers have led to increased competition among all types of 
entities to provide similar products and services.\53\ NCL urged that 
consumers receive the same protections in all commercial telemarketing, 
regardless of the type of entity involved.\54\
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    \52\ See LSAP at 1.
    \53\ See NCL at 4-5, 7, 15.
    \54\ Id. at 5, 15. NCL also raised concerns about ``cramming,'' 
which refers to the practice of placing unauthorized charges on a 
telephone subscriber's telephone bill. Id. at 7. This practice is 
being considered in connection with the review of the Commission's 
Pay-Per-Call Rule, see, 63 FR 58524, (Oct. 30, 1998); thus, it need 
not be treated in the context of the TSR.
---------------------------------------------------------------------------

    The jurisdictional reach of the Rule is set by statute, and the 
Commission has no authority to expand the Rule beyond those statutory 
limits. Thus, absent amendments to the FTC Act, the Commission is 
limited with regard to any additional protections it might provide in 
response to acts and practices resulting from the convergence of 
entities that are otherwise exempt from the Commission's jurisdiction.
    In a similar vein, some commenters urged the Commission to clarify 
the Rule's applicability to non-profit entities.\55\ As explained 
above, although section 1011 of the USA PATRIOT Act expanded the reach 
of the TSR by enlarging the definition of ``telemarketing'' to 
encompass not only calls made to induce purchases of goods or services, 
but also those to solicit charitable contributions, it did not change 
the fact that the Telemarketing Act and the TSR do not apply to 
activities excluded from the FTC's reach by the FTC Act.
---------------------------------------------------------------------------

    \55\ NAAG at 19; NACAA at 2; NFN at 1.
---------------------------------------------------------------------------

    It should be noted, however, that although the Commission's 
jurisdiction is limited with respect to the entities exempted by the 
FTC Act, the Commission has made clear that the Rule does apply to any 
third-party telemarketers those entities might use to conduct 
telemarketing activities on their behalf.\56\ As the Commission stated 
when it promulgated the Rule, ``[t]he Final Rule does not include 
special provisions regarding exemptions of parties acting on behalf of 
exempt organizations; where such a company would be subject to the FTC 
Act, it would be subject to the Final Rule as well.'' \57\
---------------------------------------------------------------------------

    \56\ For example, although the Rule does not apply to the 
activities of banks, savings and loan institutions, certain federal 
credit unions, or to the business of insurance to the extent that 
such business is regulated by State law, any non-exempt telemarketer 
calling on behalf of one of these entities would be covered by the 
Rule. See 60 FR at 43843; FTC/Direct Mktg. Ass'n., Complying with 
the Telemarketing Sales Rule (Apr. 1996), p. 12.
    \57\ 60 FR at 43843. This discussion also addresses NACAA's 
request that the Commission clarify that it has jurisdiction over 
telemarketing activities involving the switching of consumers' long-
distance service. NACAA at 2. The TSR covers the telemarketing of 
long-distance service to the extent that the telemarketing is 
conducted by entities that are subject to the FTC Act.
---------------------------------------------------------------------------

    NACAA suggested that the Commission clarify that the Rule applies 
to international calls made by telemarketers located outside the United 
States who call consumers within the United States. The Commission 
believes that its enforcement record leaves no doubt that sellers or 
telemarketers located outside the United States are subject to the Rule 
if they telemarket their goods or services to U.S. consumers.\58\
---------------------------------------------------------------------------

    \58\ See, e.g., FTC v. Win USA, No. C98-1614Z (W.D. Wash. filed 
Nov. 13, 1998); FTC v. Pacific Rim Pools Int'l, No. C97-1748, (W.D. 
Wash. filed Nov. 7, 1997) (Order for Permanent Injunction and Final 
Judgment entered on Jan. 12, 1999); FTC v. The Tracker Corp. of 
America, No. 1:97-CV-2654-JEC (N.D. Ga. filed Sept. 11, 1997); FTC 
v. 9013-0980 Quebec, Inc., No. 1:96 CV 1567 (N.D. Ohio filed July 
18, 1996); and FTC v. Ideal Credit Referral Svcs., Ltd., No. C96-
0874, (W.D. Wash. filed June 5, 1996).
---------------------------------------------------------------------------

    NCL and KTW suggested that the complementary use of the Internet 
and telephone technologies necessitates

[[Page 4498]]

broadening the scope of the Rule to cover online solicitations.\59\ In 
the original rulemaking, the Commission stated that it lacked 
sufficient information to support coverage of online services under the 
Rule,\60\ but noted that such media were subject to the Commission's 
jurisdiction under the FTC Act. Indeed, since 1995, the Commission has 
brought more than 200 actions against entities who have used the 
Internet to defraud consumers.\61\
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    \59\ See KTW at 4; NCL at 7.
    \60\ 60 FR at 30411.
    \61\ Included among the FTC's enforcement actions against 
Internet fraud and deception are cases attacking unfair and 
deceptive use of ``dialer programs.'' NCL expressed concern about 
these programs, which are downloadable software programs that 
consumers access via the Internet. Once a dialer program is 
downloaded, it disconnects a consumer's computer modem from the 
consumer's usual Internet service provider, dials an international 
phone number in a country with a high per-minute telephone rate, and 
reconnects the consumer's modem to the Internet from some overseas 
location, typically opening at an adult website. Line subscribers--
the consumers responsible for paying phone charges on the telephone 
lines--then begin incurring charges on their phone lines for the 
remote connection to the Internet, typically at the rate of about 
$4.00 per minute. The charges for the Internet-based adult 
entertainment are represented on the consumer's phone bill as 
international telephone calls. Under its Section 5 authority, the 
Commission has brought cases against videotext providers who use 
these dialer programs in an unfair or deceptive manner. See, e.g., 
FTC v. Hillary Sheinkin, No. 2-00-3636-18 (D.S.C. filed Nov. 18, 
2000); FTC v.Ty Anderson, No. C00-1843P (W.D. Wash. filed Oct. 27, 
2000); FTC v. Verity Int'l, Ltd., No. 7422 (S.D.N.Y. filed Oct. 2, 
2000); FTC v. Audiotex Connection, Inc., No. 97-0726 (E.D.N.Y filed 
Feb. 13, 1997).
---------------------------------------------------------------------------

    The Commission believes that the issue of whether there is a need 
for standards for Internet or online advertising and marketing is 
distinct from the issues relevant to telemarketing. E-commerce issues 
are best considered within the specific context of business practices 
in the realm of electronic commerce. In fact, the Commission has begun 
considering these issues by conducting an inquiry on how to apply its 
rules and guides to online activities, and issuing a staff working 
paper that provides guidelines for appropriate disclosures when 
marketing online.\62\ The Commission believes that the body of case law 
that has been developed on Internet fraud and deception, coupled with 
its published business education materials \63\ for online advertising 
disclosures, provide a developing source of guidance for promoting and 
marketing on the Internet.
---------------------------------------------------------------------------

    \62\ 63 FR 24996 (May 6, 1998) (public comments and the workshop 
transcript for the proceeding are available at www.ftc.gov/bcp/rulemaking/elecmedia/index.htm); FTC, Dot Com Disclosures: 
Information About Online Advertising (Staff Working Paper, May, 
2000). See also, FTC, Advertising and Marketing on the Internet: 
Rules of the Road (September, 2000), a guide to comlying with FTC 
rules and guides when advertising and marketing on the Internet.
    \63\ See FTC, Dot Com Disclosures; FTC, Advertising and 
Marketing on the Internet.

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B. Section 310.2--Definitions

    The Commission received comments on several of the Rule's 
definitions. Each suggested change and the Commission's reasoning in 
accepting or rejecting that change is discussed below.
    The proposed Rule retains the following definitions from the 
original Rule unchanged, apart from renumbering: ``acquirer,'' 
``attorney general,'' ``cardholder,'' ``Commission,'' ``credit,'' 
``credit card,'' ``credit card sales draft,'' ``credit card system,'' 
``customer,'' ``investment opportunity,'' ``person,'' ``prize,'' 
``prize promotion,'' ``seller,'' and ``State.''
    In addition, as discussed in detail below, the Commission proposes 
modifying the definition of ``outbound telephone call,'' and also 
proposes adding several new definitions: ``billing information,'' 
``caller identification service,'' ``express verifiable 
authorization,'' ``Internet services,'' and ``Web services.''
    Further, in order to implement the amendments to the Telemarketing 
Act made by section 1011 of the USA PATRIOT Act, the Commission 
proposes adding certain definitions to the Rule, and modifying others. 
Section 1011(b)(3) of the USA PATRIOT Act amends the definition of 
``telemarketing'' in the Telemarketing Act, 15 U.S.C. 6306(4), by 
inserting the underscored language:

    The term ``telemarketing'' means a plan, program, or campaign 
which is conducted to induce purchases of goods or services or a 
charitable contribution, donation, or gift of money or any other 
thing of value, by use of one or more telephones and which involves 
more than one interstate telephone call * * * (emphasis added).

    The proposed Rule's definition of ``telemarketing'' incorporates 
this change. To fully implement this definitional change, the proposed 
Rule adds definitions of the terms ``charitable contribution'' and 
``donor,'' discussed below. In addition, the existing definition of 
``telemarketer'' requires modification to reflect the expanded reach of 
the Rule to cover telephone solicitations of charitable contributions 
pursuant to the USA PATRIOT Act. Accordingly, the definition of 
``telemarketer'' now includes the analogous phrase ``or donor'' 
following each appearance of the term ``customer'' or ``consumer.'' 
Similarly, in two of the new proposed definitions, ``billing 
information,'' and ``express verifiable authorization,'' the analogous 
phrase ``or donor'' has also been included following each appearance of 
the terms ``customer'' or ``consumer.''
    Another proposed global change necessitated by the USA PATRIOT Act 
is the modification of several of the Rule's existing definitions to 
reflect the expansion of the Rule's coverage to include the 
solicitation via telemarketing of ``charitable contributions.'' The 
affected definitions, ``material,'' ``merchant,'' ``merchant 
agreement,'' and ``outbound telephone call,'' now include the analogous 
phrase ``or charitable contributions'' following each occurrence of the 
phrase ``goods or services.''

Section 310.2(c)--``Billing information''

    The Commission proposes adding a definition of ``billing 
information.'' This term comes into play in proposed Sec. 310.3(a)(3), 
which would add ``billing information'' to the items that must be 
recited in obtaining a consumer's express verifiable authorization. It 
is also implicated in proposed Sec. 310.4(a)(5), which would prohibit 
the abusive practices of receiving any consumer's billing information 
from any third party for use in telemarketing, or disclosing any 
consumer's billing information to any third party for use in 
telemarketing.
    As explained further below, in the section discussing proposed 
changes to Sec. 310.3(a)(3), the Commission proposes to require that 
``billing information'' be recited as part of the process of obtaining 
a consumer's or donor's express verifiable authorization. Under the 
original Rule, if the telemarketer opted to seek oral authorization for 
a demand draft, the Rule required that the telemarketer tape record the 
customer's oral authorization, as well as the provision of the 
following information: the number, date(s) and amount(s) of payments to 
be made, the date of authorization, and a telephone number for customer 
inquiry that is answered during normal business hours. The proposed 
Rule would expand the express verifiable authorization requirement to 
other payment methods, and would add to this list of disclosures 
``billing information,'' i.e., the identification of the consumer's or 
donor's specific account and account number to be charged in the 
particular transaction, to ensure that consumers and donors know which 
of their accounts will be billed. A definition of ``billing 
information'' would clarify sellers' and telemarketers' obligations 
under this proposed revision.

[[Page 4499]]

    As explained in the section discussing proposed Sec. 310.4(a)(5)--
which would prohibit receiving from any person other than the consumer 
or donor for use in telemarketing any consumer's or donor's ``billing 
information,'' or disclosing any such ``billing information'' to any 
person for use in telemarketing--the inclusion of this provision 
banning trafficking in ``billing information'' makes it necessary to 
provide in the Rule a definition of that term. The proposed Rule 
defines ``billing information'' as any data that provides access to a 
consumer's or donor's account, such as a credit card, checking, 
savings, share or similar account, utility bill, mortgage loan account, 
or debit card. The Commission intends this term to include information 
such as a credit or debit card number and expiration date, bank account 
number, utility account number, mortgage loan account number, 
customer's or donor's date of birth or mother's maiden name, and any 
other information used as proof of authorization to effect a charge 
against a person's account.

Section 310.2(d)--``Caller Identification Service''

    The Commission proposes adding a definition of ``caller 
identification service.'' As described, below, in the discussion of 
Sec. 310.4(a)(6), the Commission proposes specifying that it is an 
abusive practice to block, circumvent, or alter the transmission of, or 
direct another person to block, circumvent, or alter the transmission 
of, the name and/or telephone number of the calling party for caller 
identification service purposes, provided that it shall not be a 
violation to substitute the actual name of the seller and the seller's 
customer service number, which is answered during regular business 
hours, for the phone number used in making the call. In order to 
clarify what is prohibited under this proposed provision, the 
Commission has defined ``caller identification service'' as ``a service 
that allows a telephone subscriber to have the telephone number and, 
where available, name of the calling party transmitted 
contemporaneously with the telephone call, and displayed on a device in 
or connected to the subscriber's telephone.'' The Commission intends 
the proposed definition of ``caller identification service'' to be 
sufficiently broad to encompass any existing or emerging technology 
that provides for the transmission of calling party information during 
the course of a telephone call.

Section 310.2(f)--``Charitable Contribution''

    The Commission proposes adding a definition of ``charitable 
contribution.'' Section 1011 of the USA PATRIOT Act amends the 
Telemarketing Act to specify as an abusive practice the failure of 
``any person engaged in telemarketing for the solicitation of 
charitable contributions, donations, or gifts of money or any other 
thing of value'' to make certain prompt and clear disclosures. The 
Commission has determined that the single term ``charitable 
contribution,'' defined for the purposes of the Rule to mean ``any 
donation or gift of money or any other thing of value'' succinctly 
captures the meaning intended by Congress. Therefore, the Commission 
proposes to add this definition to the Rule.
    The Commission has also determined that this definition should 
explicitly clarify that the definition and, accordingly, the entire 
Rule, is inapplicable to political contributions, including 
contributions to political parties and candidates. Calls to solicit 
such contributions are outside the scope of the Rule because they 
involve neither purchases of goods or services nor solicitations of 
charitable contributions, donations or gifts, and thus fall outside the 
statutory definition of ``telemarketing.'' 15 U.S.C. 6106(4). Thus, the 
Commission proposes to exclude from the definition of ``charitable 
contribution'' any contributions to ``political clubs, committees, or 
parties.'' \64\ Additionally, as a matter of policy, and following the 
example of many state laws, the Commission also proposes to exclude 
from the definition contributions to constituted religious 
organizations or groups affiliated with and forming an integral part of 
the organization where no part of the net income inures to the direct 
benefit of any individual, and which has received a declaration of 
current tax exempt status from the United States government.'' \65\ The 
Commission believes that the risk of actual or perceived infringement 
on a paramount societal value--free and unfettered religious 
discourse--likely outweighs the benefits of protection from fraud and 
abuse that might result from including contributions to such 
organizations within the scope of the definition.
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    \64\ Similarly, a number of state statutes regulating charitable 
solicitations exempt political organizations. E.g., Fla. Stat. ch. 
496.403 (2000). Ill. Rev. Stat. ch. 23 para. 5103(2000).
    \65\ See, e.g., Ga. Code Ann. Sec. 43-17-2(2); Ill. Rev. Stat. 
ch. 14 para. 54 (2000).
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Section 310.2(m)--``Donor''

    As part of its implementation of section 1011 of the USA PATRIOT 
Act, the Commission proposes adding a definition of ``donor.'' This 
Act's expansion of the TSR's coverage to encompass charitable 
solicitations necessitates the inclusion of a term in the Rule to 
denote a person solicited to make a charitable contribution. Throughout 
the original Rule, the terms ``customer'' and ``consumer'' are used to 
refer to those subject to a solicitation to purchase goods or services 
by a seller or telemarketer. The meaning of these terms cannot 
reasonably be stretched to include persons being asked to make a 
charitable contribution. Therefore, the Commission proposes adding to 
the Rule an analogous term--``donor''--for use in the context of 
charitable solicitations. Under the proposed definition, a person need 
not actually make a donation or contribution to be a ``donor.'' He or 
she need only be solicited to make a charitable contribution. (In this 
respect, the definition tracks the definition of ``customer''--``any 
person who is or may be required to pay for goods or services * * *.'')

Section 310.2(n)--``Express Verifiable Authorization''

    The Commission proposes adding a definition of ``express verifiable 
authorization'' because the proposed Rule expands the use of the term 
beyond its meaning in the original Rule. The term ``express verifiable 
authorization'' comes into play in the proposed Rule in two distinct 
provisions: Sec. 310.3(a)(3), requiring the express verifiable 
authorization of a customer or donor to a charge when certain payment 
methods are used; and Sec. 310.4(b)(1)(iii)(b), which makes it a 
violation of the Rule to call any consumer or donor who has placed 
himself or herself on the national ``do-not-call'' list absent that 
consumer's or donor's express verifiable authorization. In order to 
ensure clarity, the term ``express verifiable authorization'' has been 
defined to mean ``the informed, explicit consent of a consumer or 
donor, which is capable of substantiation.'' The specific means of 
obtaining express verifiable authorization for a charge are listed in 
Sec. 310.3(a)(3)(i)-(ii) and the specific means of obtaining express 
verifiable authorization to place a call to a consumer or donor who is 
on the national ``do-not-call'' list is found in 
Sec. 310.4(b)(1)(iii)(B)(1)-(2).

[[Page 4500]]

Section 310.2(m)--``Internet Services''

    The Commission also proposes adding a definition of ``Internet 
services'' because of the proposed modification of the business-to-
business exemption, Sec. 310.6(g), to make the exemption unavailable to 
telemarketers of Internet services, a line of business that is 
increasingly pursued by fraudulent telemarketers. Thus, the Commission 
proposes that the term ``Internet services'' be defined as ``the 
provision, by an Internet Service Provider, or another, of access to 
the Internet.'' The Commission intends for this term to encompass the 
provision of whatever is necessary to gain access to the Internet, 
including software and telephone or cable connection, as well as other 
goods or services providing access to the Internet. Specifically, the 
term includes provision of access to the Internet, or any component 
thereof, such as electronic mail, the World Wide Web, websites, 
newsgroups, Internet Relay Chat or file transfers.

Section 310.2(r)--``Outbound Telephone Call''

    The Commission proposes modifying the Rule's definition of 
``outbound telephone call''\66\ to clarify the Rule's coverage in two 
situations: (1) When, in the course of a single call, a consumer or 
donor is transferred from one telemarketer soliciting one purchase or 
charitable contribution to a different telemarketer soliciting a 
different purchase or contribution, such as in the case of ``up-
selling;''\67\ and (2) when a single telemarketer solicits purchases or 
contributions on behalf of two separate sellers or charitable 
organizations (or some combination of the two). Under the proposed 
definition, when a call, whether originally initiated by a consumer/
donor or by a telemarketer, is transferred to a separate telemarketer 
or seller for the purpose of inducing a purchase or charitable 
contribution, the transferred call shall be considered an ``outbound 
telephone call'' under the Rule. Similarly, if a single telemarketer 
solicits for two or more distinct sellers or charitable organizations 
in a single call, the second (and any subsequent) solicitation shall be 
considered an ``outbound telephone call'' under the Rule.
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    \66\ The definition of ``outbound telephone call'' is in 
Sec. 310.2(n) of the original Rule.
    \67\ See n.45 for an explanation of this term.
---------------------------------------------------------------------------

    The Commission proposes this change in response to evidence in the 
Rule review record that the practice of ``up-selling'' is becoming 
increasingly common.\68\ The Commission believes that in external up-
selling, when calls are transferred from one seller or telemarketer to 
another, or when a single telemarketer solicits on behalf of two 
distinct sellers, it is crucial that consumers or donors clearly 
understand that they are dealing with separate entities. In the 
original Rule, the Commission determined that a disclosure of the 
seller's identity was necessary in every outbound call to enable the 
customer to make a fully-informed purchasing decision.\69\ In the case 
of a call transferred by one telemarketer to another to induce the 
purchase of goods or services, or one in which a single telemarketer 
offers the goods or services of two separate sellers, it is equally 
important that the consumer know the identity of the second seller, and 
that the purpose of the second call is to sell goods or services. Such 
information is equally material to a donor's decision in the context of 
solicitations for charitable contributions. The Commission has 
determined that treating the transferred call as a separate outbound 
call will ensure that consumers receive the disclosures required by 
Sec. 310.4(d) and that donors receive the disclosures proposed by 
Sec. 310.4(e),\70\ thereby clarifying the nature of the transaction for 
the consumer or donor, and providing him or her with material 
information necessary to make an informed decision about the 
solicitation(s) being made.\71\
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    \68\ See Rule Tr. at 95-99, 107-111, 176-177.
    \69\ The Act specified that the Commission include in the Rule a 
requirement that the telemarketer ``promptly and clearly disclose to 
the person receiving the call that the purpose of the call is to 
sell goods and services and make such other disclosures as the 
Commission deems appropriate, including the nature and price of the 
goods and services.'' 15 U.S.C. 6102(a)(3)(c). In the original 
rulemaking, the Commission determined that two additional 
disclosures were necessary: (1) The identity of the seller, and (2) 
that no purchase or payment is necessary to be able to win a prize 
or participate in a prize promotion if a prize promotion is offered. 
16 CFR 310.4(d)(1) and (4). Section 310.4(e)(1) of the proposed Rule 
imposes an analogous requirement to disclose the identity of the 
charitable organization on behalf of whom an outbound telemarketing 
call is being made to solicit charitable contributions.
    \70\ In particular, consumers and donors need to understand that 
they are dealing with more than one seller or charitable 
organization, and the identity of each. It is also important that 
consumers understand that the purpose of the second transaction is 
to solicit sales goods or services, or charitable contributions 
(whichever is applicable).
    \71\ Additionally, the disclosures in Sec. 310.3(a)(1) (or of 
proposed Sec. 310.3(a)(4) as to charitable solicitations) would, of 
course, also have to be made by each telemarketer. In fact, as 
discussed, below, in the discussion of Sec. 310.3, the Commission 
believes that even when a single telemarketer acts on behalf of two 
sellers or charitable organizations, it is necessary for these 
transactions to be treated as separate for the purposes of complying 
with the TSR. Therefore, in such an instance, the telemarketer 
should take care to ensure that the customer/donor is provided with 
the necessary disclosures for the primary solicitation, as well as 
any further solicitation. Similarly, express verifiable 
authorization for each solicitation, when required, would be 
necessary. Of course, even absent the Rule's requirement to obtain 
express verifiable authorization, telemarketers must always take 
care to ensure that consumers' or donors' explicit consent to the 
purchase or contribution is obtained.
---------------------------------------------------------------------------

    In addition, the Commission wishes to clarify that a transferred 
call or a solicitation by a single telemarketer on behalf of a separate 
seller or charitable organization is, for the purposes of the Rule, a 
separate transaction. Because it is a separate transaction, it will be 
covered by the Rule if the separate seller or charitable organization 
is subject to the Commission's jurisdiction. Thus, if an initial 
inbound call is exempt from the Rule's coverage--for example, under the 
Sec. 310.6(e) exemption for calls in response to general media 
advertising--but the consumer or donor is transferred to another seller 
or telemarketer, or if a second (or subsequent) seller's or charitable 
organization's solicitation is made by a single telemarketer, the 
transaction with the second solicitation will not be exempt under the 
general media exemption. On the contrary, the Commission will consider 
this to be a separate transaction and will make a separate 
determination whether that second seller or telemarketer falls within 
the FTC's jurisdiction and thus is subject to all of the Rule's 
requirements.

Section 310.2(aa)--``Telemarketing''

    As explained above, the USA PATRIOT Act's amended definition of 
``telemarketing'' has been incorporated into the definition of 
``telemarketing'' in the Rule.

Section 310.2(bb)--``Web Services''

    The Commission proposes adding a definition of ``Web services'' 
because of the proposed amendment to the business-to-business 
exemption, Sec. 310.6(g), to make it unavailable to sellers and 
telemarketers of Web services, a line of business demonstrated by the 
Commission's recent law enforcement experience to be an area of 
particular abuse by fraudulent telemarketers. The Commission proposes 
that the term ``Web services'' be defined as ``designing, building, 
creating, publishing, maintaining, providing, or hosting a website on 
the Internet.'' The Commission intends for this term to encompass any 
and all services related to the World Wide Web.

[[Page 4501]]

Other Recommendations by Commenters Regarding Proposed Definitions
    Credit terms. NCL recommended that changes in the way consumers pay 
for goods and services they purchase via telemarketing may necessitate 
changes in the Rule.\72\ NCL further suggested that, if the Rule were 
amended to address telephone billing and other new forms of electronic 
payment, the definitions of ``credit card,'' ``merchant,'' and 
``merchant agreement'' might need to be changed to ensure coverage of 
these new or alternative billing methods.\73\ The Commission agrees 
that consumers need additional protection in certain telemarketing 
sales situations, but has effected these protections through proposed 
changes to the express verifiable authorization provision.\74\ 
Therefore, the definitions of ``credit card,'' ``merchant,'' and 
``merchant agreement'' are retained unchanged.
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    \72\ See NCL at 9.
    \73\ Id.
    \74\ Sec. 310.3(a)(3). A complete analysis of the proposed 
revisions to this section can be found below in the discussion of 
Sec. 310.3(a)(3).
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    Telemarketing. DSA recommended that the definition of 
``telemarketing'' be changed to make the Rule applicable only when more 
than one telephone is used in conducting a plan, program, or campaign 
to induce the purchase of goods or services.\75\ The Commission's 
definition of telemarketing, which states that telemarketing occurs 
when one or more telephones are used to induce the purchase of goods or 
services, tracks verbatim the Telemarketing Act.\76\ Even if it is 
assumed that the Commission has authority to deviate from the very 
specific definition mandated by the statute, the Commission believes 
that there is no justification to do so. Limiting the definition as DSA 
proposed would unnecessarily restrict the application of the Rule, 
which currently governs interstate calls which are part of a plan, 
program or campaign to induce the purchase of goods or services or to 
induce charitable contributions, even if only a single phone is used to 
place or receive calls. Therefore, the Commission has determined not to 
modify the definition in this manner.
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    \75\ See DSA at 6.
    \76\ 15 U.S.C. 6106(4). At the end of the definition, however, 
the Rule adds a clarifying sentence not present in the statute.
---------------------------------------------------------------------------

    Transactions Involving ``Preacquired Account Telemarketing.'' LSAP 
recommended that new definitions be added for the terms ``account,'' 
``account holder,'' ``inbound telephone call,'' and ``preacquired 
account number,'' to address the practice of preacquired account 
telemarketing.\77\ The Commission agrees that a definition of something 
like ``account'' would be helpful in clarifying the Rule's coverage, 
but has determined that the broader term ``billing information'' better 
serves the purpose. As set forth above, the definition of ``billing 
information'' is designed to ensure that sellers and telemarketers 
understand their new obligations under proposed Sec. 310.4(a)(5), which 
prohibits as an abusive practice the receipt for use in telemarketing 
from any person other than the consumer or donor any consumer's or 
donor's billing information, and further prohibits disclosure of any 
consumer's or donor's billing information to any person for use in 
telemarketing.\78\ Therefore, because it has addressed concerns about 
preacquired account telemarketing in other ways, the Commission 
believes that it is unnecessary to add definitions of ``account 
holder,'' ``inbound telephone call'' and ``preacquired account 
number.''
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    \77\ See LSAP at 2-3.
    \78\ See the section discussing Sec. 310.4(a)(5), below, for a 
complete analysis of this provision.
---------------------------------------------------------------------------

    Online solicitation. NCL recommended that the scope of the Rule be 
expanded to cover online solicitations (discussed above in the section 
addressing proposed revisions to Sec. 310.1), and that a definition of 
``online solicitation'' be added to the Rule. For the reasons discussed 
above, the Commission has decided not to expand the Rule's coverage to 
online solicitations. Therefore, a definition of ``online 
solicitation'' is not necessary.
    Free Trial Offers. NCL recommended that the Commission include 
definitions of ``free offer'' and ``trial offer'' if the Rule were 
amended to include specific requirements for sellers and telemarketers 
who make such offers. Several commenters noted that the practice of 
making a free trial offer has generated significant numbers of consumer 
complaints when those offers are coupled with preacquired-account 
telemarketing.\79\ The Rule review record and the enforcement 
experience of the Commission and other law enforcement agencies confirm 
that consumers are often confused about their obligations when a 
product or service is offered to them for a trial period at no cost and 
the seller or telemarketer already possesses the consumer's billing 
information.\80\
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    \79\ See NACAA at 2; NAAG at 11-12, 16-17; NCL at 5-6.
    \80\ See, e.g., FTC v. Triad Discount Buying Service, Inc. (S.D. 
Fla. No. 01-8922 CIV ZLOCH complaint and stipulated order filed Oct. 
23, 2001); New York v. Memberworks, Assurance of Discontinuance 
(Aug. 2000); Minnesota v. Memberworks, Inc., No. MC99-010056 (4th 
Dist. MN June, 1999); Minnesota v. Damark Int'l, Inc., No. C8-99-
10638, Assurance of Discontinuance (Ramsey County Dist. Ct. Dec. 3, 
1999); FTC v. S.J.A. Society, Inc., No. 2:97 CV472 (E.D. Va. filed 
May 31, 1997).
---------------------------------------------------------------------------

    As noted by NAAG, in many preacquired account telemarketing 
solicitations, products and services (often buyers' clubs) are marketed 
through the use of free trial offers, which are presented to consumers 
as ``low involvement marketing decisions.''\81\ Consumers are asked 
merely to consent to the mailing of materials about the offer. 
Consumers frequently do not realize that the seller or telemarketer 
already has their billing information in hand and, instead, mistakenly 
believe they must take some action before they will be charged--i.e., 
that they are under no obligation unless they take some additional 
affirmative step to consent to the purchase. When such free trial 
offers are coupled with preacquired account telemarketing, 
telemarketers often use the preacquired billing information to charge 
the consumers at the end of the trial period, even when consumers have 
taken no additional steps to assent to a purchase or authorize the 
charge, and have never provided any billing information themselves.\82\
---------------------------------------------------------------------------

    \81\ See NAAG at 11.
    \82\ Id. at 11-12.
---------------------------------------------------------------------------

    The proposed Rule addresses concerns about free trial offers that 
are marketed in conjunction with preacquired-account telemarketing by 
banning the receipt of the consumer's billing information for use in 
telemarketing from any source other than the consumer.\83\ The ban on 
the receipt of customer billing information from any source other than 
the consumer should curtail abuses that have occurred when free trial 
offers are made in conjunction with preacquired account telemarketing 
by effectively eliminating the trade in preacquired billing 
information. Free trial offers that are made to consumers via 
telemarketing, but absent the use of preacquired billing information, 
would, of course, remain subject to the Rule's requirements, including 
the disclosure requirements in Sec. 310.3(a)(1) and Sec. 310.4(d), and 
the prohibition on misrepresentations in Sec. 310.3(a)(2). Pursuant to 
these provisions, any seller or telemarketer offering goods or services 
on a free trial basis would be required to disclose, among other 
things, the total cost and quantity of the goods or services and that 
the customer's account will be automatically charged or debited at the 
end of the free trial period, if such is the

[[Page 4502]]

case. Adherence to these Rule requirements will afford consumers the 
protections needed when accepting goods or services on a free trial 
basis.
---------------------------------------------------------------------------

    \83\ Proposed Rule, Sec. 310.4(a)(5).
---------------------------------------------------------------------------

    ``Promptly.'' As described in detail below in the discussion of 
Sec. 310.4(d), NACAA and Texas suggested defining the term ``prompt'' 
as used in Sec. 310.4(d) of the Rule, suggesting that the term be 
defined to mean ``at the onset'' of a call.\84\ The Commission believes 
that the Rule's Statement of Basis and Purpose makes clear that 
``prompt'' means ``at once or without delay,''\85\ and that further 
clarification is unnecessary.
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    \84\ See NACAA at 2; Texas at 2.
    \85\ 60 FR at 43856, n. 150.

---------------------------------------------------------------------------
C. Section 310.3--Deceptive Telemarketing Acts or Practices

    Section 310.3 of the Rule sets forth required disclosures that must 
be made in every telemarketing call; prohibits misrepresentations of 
material information; requires that a telemarketer obtain a customer's 
express verifiable authorization before obtaining or submitting for 
payment a demand draft; prohibits false and misleading statements to 
induce the purchase of goods or services or, pursuant to the USA 
PATRIOT Act amendments, to induce charitable contributions; holds 
liable anyone who provides substantial assistance to another in 
violating the Rule; and prohibits credit card laundering in 
telemarketing transactions. During the Rule review, the Commission 
received a large number of comments addressing various provisions of 
this section, the substance of which are discussed in turn below.

Section 310.3(a)(1)--Required Disclosures

    Section 310.3(a)(1) requires the disclosure by a seller or 
telemarketer of five types of material information before a customer 
pays for goods and services. That information includes: the total cost 
and quantity of the goods offered; all material restrictions, 
limitations, or conditions to purchase, receive, or use the offered 
goods or services; information regarding the seller's refund policy if 
the seller has a policy of not making refunds or if the telemarketer 
makes a representation about such a policy; certain information 
relating to the odds involved in prize promotions; and all material 
costs or conditions to receive or redeem a prize.
    Most of the comments about this section expressed support for the 
required disclosures,\86\ and some recommended that additional 
disclosures be added to the Rule. MPA noted that the inclusion of the 
required disclosures in the Rule has been beneficial both for industry 
and consumers by providing clear guidelines for good business 
practices, and by establishing a standard that helps consumers to 
distinguish between legitimate and fraudulent telemarketing 
practices.\87\ NASAA noted that the disclosure provisions also have 
been helpful in protecting investors from ``bait and switch'' scams 
where stockbrokers claim to be selling blue chip investments, but 
deliver only high-risk, little-known stocks.\88\
---------------------------------------------------------------------------

    \86\ See, e.g., MPA at 5; ARDA at 2 (asserting that immediate 
disclosures benefit consumers ``[w]ithout placing an unreasonable 
burden on telemarketers'').
    \87\ See MPA at 5.
    \88\ See NASAA at 3.
---------------------------------------------------------------------------

    The Commission received no comments addressing the provisions 
regarding disclosure of refund policies (Sec. 310.3(a)(1)(iii)), or the 
disclosure of material costs or conditions to receive a prize 
(Sec. 310.3(a)(1)(v)). Moreover, the Commission's enforcement 
experience with these provisions does not suggest that there are 
deficiencies or omissions that need to be addressed through amendments. 
Therefore, these sections are included in the proposed Rule without 
change.
    Several commenters suggested additional disclosures or other 
changes to Sec. 310.3(a)(1), which they felt would enhance the consumer 
protections provided by this section. Each recommendation and the 
Commission's reasons for accepting or rejecting it are set forth below.

Section 310.3(a)(1)(i)--Disclosure of Total Costs

    Some commenters suggested that the Commission clarify that, in the 
case of sales involving monthly installment payments, the total cost to 
be disclosed should be the total cost of the entire contract, not just 
the amount of the monthly installment.\89\ These commenters noted that 
it is typical in magazine subscription sales for a telemarketer to 
state the weekly price for a subscription without giving the total cost 
for the entire term of the subscription period. For example, a magazine 
telemarketer might state that a consumer would be charged $3.45 per 
week for 48 months, rather than stating that the consumer's ultimate 
liability for the magazines will be more than $700.\90\
---------------------------------------------------------------------------

    \89\ See NAAG at 8; Texas at 2.
    \90\ NAAG at 8.
---------------------------------------------------------------------------

    The Commission has already noted that in disclosing total costs it 
is sufficient for a seller or telemarketer to disclose the total number 
of installment payments and the amount of each payment.\91\ The 
Commission recognizes, however, that it is possible to state the cost 
of an installment contract in such a way that, although literally true, 
obfuscates the actual amount that the consumer is being asked to pay. 
Such a statement of cost would not meet the relevant ``clear and 
conspicuous'' standard for disclosures under the Rule.\92\ Particularly 
in long-term, high-cost contracts, where it may be advantageous to the 
seller or telemarketer to break the cost down to weekly or monthly 
amounts, and for the customer to pay over time, the disclosure of the 
number of installment payments and the amount of each must correlate to 
the billing schedule that will actually be implemented. Therefore, to 
comply with the Rule's total cost disclosure provision, it would be 
inadequate to state the cost per week if the installments are to be 
paid monthly or quarterly.
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    \91\ 60 FR at 43847; Complying With the Telemarketing Sales Rule 
at 16.
    \92\ 16 CFR 310.3(a)(1). The Commission believes that the best 
practice to ensure the clear and conspicuous standard is met is to 
``do the math'' for the consumer wherever possible. For example, 
where the contract entails 24 monthly installments of $8.99 each, 
the best practice would be to disclose that the consumer will be 
paying $215.76. In open-ended installment contracts it may not be 
possible to ``do the math'' for the consumer. In such a case, 
particular care must be taken to ensure that the cost disclosure is 
easy for the consumer to understand.
---------------------------------------------------------------------------

    The Commission believes that the current total cost disclosure 
provision provides a customer with the necessary material information 
with which to make a purchasing decision when a seller discloses either 
the overall total cost, or, in the case of installment payments, the 
total number of payments and the amount of each. Therefore, the 
provision's language is retained in the proposed Rule without change.

Section 310.3(a)(1)(ii)--Disclosure of Material Restrictions

    NAAG opined that the material information that a seller or 
telemarketer must disclose to a consumer in a telemarketing transaction 
includes the illegal nature of any goods and services offered. For 
example, NAAG noted that several cross-border telemarketing cases have 
involved the sale of foreign lottery chances to citizens of the United 
States, a practice which is illegal under U.S. law.\93\ NAAG expressed 
the concern that

[[Page 4503]]

some courts may construe the term ``material'' narrowly, so as not to 
require a disclosure of the inherent illegality of such offers.
---------------------------------------------------------------------------

    \93\ NAAG at 15. Law enforcement actions against telemarketers 
selling foreign lottery chances to U.S. citizens include: FTC v. Win 
USA Ltd., No. C98-1614Z (W.D. Wash filed Nov. 13, 1998) (brought by 
the FTC, the State of Arizona, and the State of Washington); and FTC 
v. Windermere Big Win Int'l, Inc., No. 98CV 8066, (N.D. Ill. filed 
Dec. 16, 1998). Federal law prohibits the importing and transmitting 
of lottery materials by mail and otherwise, 18 U.S.C. 1301-1302; 
such schemes may also violate anti-racketeering laws relating to 
gambling, 18 U.S.C. 1952-1953, 1084.
---------------------------------------------------------------------------

    The Commission believes that the definition of ``material'' 
contained in the Rule, which comports with the Commission's Deception 
Statement and established Commission precedent,\94\ is sufficiently 
clear and broad enough to encompass the illegality of goods or services 
offered. Therefore, no change is proposed with respect to this 
provision.
---------------------------------------------------------------------------

    \94\ Cliffdale Assocs., Inc., 103 F.T.C. 110, 165, appeal 
dismissed sub nom., Koven v. F.T.C., No. 84-5337 (11th Cir. 1984); 
Thompson Medical Co., 104 F.T.C. 648 (1984), aff'd 791 F.2d 189 
(D.C. Cir. 1986).
---------------------------------------------------------------------------

Section 310.3(a)(1)(iv)--Disclosures Regarding Prize Promotions

    Section 310.3(a)(1)(iv) requires that, in any prize promotion, a 
telemarketer must disclose the odds of being able to receive the prize, 
that no purchase or payment is required to win a prize or participate 
in a prize promotion, and the no purchase/no payment method of 
participating in the prize promotion. NCL suggested adding a disclosure 
that making a purchase will not improve a customer's chances of 
winning,\95\ noting that this disclosure would be consistent with the 
requirements for direct mail solicitations under the Deceptive Mail 
Prevention and Enforcement Act (``DMPEA'').\96\ The Commission has 
determined to add such a disclosure requirement, both in 
Sec. 310.3(a)(1) (governing all telemarketing calls), and in 
Sec. 310.4(d) (governing outbound telemarketing).
---------------------------------------------------------------------------

    \95\ See NCL at 9. Although this suggestion was made with 
respect to Sec. 310.4(d), governing oral disclosures required in 
outbound telemarketing calls, the rationale and purpose of the 
proposed disclosure applies with equal force to all telemarketing, 
as covered by Sec. 310.3(a). See also the discussion, below, in the 
section on sweepstakes disclosures within the analysis of 
Sec. 310.4(d).
    \96\ Id. The Deceptive Mail Prevention and Enforcement Act of 
1999 is codified at 39 U.S.C. 3001(k)(3)(A)(II). In this regard, it 
is noteworthy that the Direct Marketing Association's Code of Ethics 
advises that ``[n]o sweepstakes promotion, or any of its parts, 
should represent * * * that any entry stands a greater chance of 
winning a prize than any other entry when this is not the case.'' 
``The DMA Guidelines for Ethical Business Practice,'revised Aug. 
1999, accessible online at http://www.the-dma.org/library/
guidelines/dotherightthing.shtml23 (Article #23, Chances of 
Winning).
---------------------------------------------------------------------------

    The Commission believes that this disclosure will ensure that 
consumers are not deceived. The legislative history of the DMPEA 
suggests that without such a disclosure, many consumers reasonably 
interpret the overall presentation of many prize promotions to convey 
the message that making a purchase will enhance their chances of 
winning the touted prize.\97\ This message is likely to influence these 
consumers' purchasing decisions, inducing them to purchase a product or 
service they are otherwise not interested in purchasing just so they 
can become winners. For this reason, it is important that entities 
using these promotions take particular care to dispel deception by 
disclosing that a purchase will not enhance the chance of winning.
---------------------------------------------------------------------------

    \97\ Moreover, Publishers Clearing House (``PCH'') recently 
agreed to settle an action brought by 24 States and the District of 
Columbia alleging, among other things, that the PCH sweepstakes 
mailings deceived consumers into believing that their chances of 
winning the sweepstakes would be improved by buying magazines from 
PCH. As part of the settlement, PCH agreed to include disclaimers in 
its mailings stating that buying does not increase the recipient's 
chances of winning (and to pay $18.4 million in redress). In 2001, 
PCH agreed to pay $34 million in a settlement with the remaining 26 
States. See, e.g., Missouri ex rel. Nixon v. Publishers Clearing 
House, Boone County Circuit Court, No. 99 CC 084409 (2001); Ohio ex 
rel. Montgomery v. Publishers Clearing House, Franklin County Court 
of Common Pleas, No. 00CVH-01-635 (2000). Similarly, in 1999, 
American Family Publishers (``AFP'') settled several multi-state 
class actions that alleged the AFP sweepstakes mailings induced 
consumers to buy magazines to better their chances of winning a 
sweepstakes. The original suit, filed by 27 States, was settled in 
March 1998 for $1.5 million, but was reopened and expanded to 48 
States and the District of Columbia after claims that AFP violated 
its agreement. The State action was finally settled in August 2000 
with AFP agreeing to pay an additional $8.1 million in damages. See, 
e.g., Washington v. American Family Publishers, King County Superior 
Court, No. 99-09354-2 SEA (2000). See also, U.S. Senate, ``Deceptive 
Mail Prevention and Enforcement Act,'' (1st Sess. 1999), Sen. Rep. 
No. 106-102; and U.S. House of Representatives, ``Deceptive Mail 
Prevention and Enforcement Act,'' (1st Sess. 1999), H. Rep. No. 106-
431.
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Section 310.3(a)(1)(vi)--Disclosures in the Sale of Credit Card 
Protection

    The current TSR does not address telemarketing of credit card 
protection. NCL recommended that the Commission amend the Rule to do 
so, specifically to prohibit worthless credit card loss protection 
plans.\98\ NCL reports that fraudulent solicitations for credit card 
loss protection plans ranked 9th among the most numerous complaints to 
the NFIC in 1999.\99\ The Commission's complaint-handling experience is 
consistent with that of NCL. Credit card loss protection plans ranked 
12th among the most numerous complaints received by the Commission 
during fiscal year 2000 (October 1, 1999-September 30, 2000). NCL's 
statistics also showed that these schemes disproportionately affected 
older consumers: over 71% of the complaints about these schemes were 
from consumers over 50 years of age.\100\
---------------------------------------------------------------------------

    \98\ NCL at 10.
    \99\ NCL at 10.
    \100\ NCL at 16.
---------------------------------------------------------------------------

    Telemarketers of credit card loss protection plans represent to 
consumers that they will protect or otherwise limit the consumer's 
liability if his or her credit card is lost or stolen,\101\ but 
frequently misrepresent themselves as being affiliated with the 
consumer's credit card issuer, or misrepresent either affirmatively or 
by omission that the consumer is not currently protected against credit 
card fraud, or that the consumer has greater potential legal liability 
for unauthorized use of his or her credit cards than he or she actually 
does under the law.\102\ Both the Commission and the State Attorneys 
General have devoted major resources to bringing cases that challenge 
the deceptive marketing of credit card loss protection plans as 
violations of the Rule.\103\
---------------------------------------------------------------------------

    \101\ Credit card loss protection plans are distinguished from 
credit card registration plans, in which consumers pay a fee to 
register their credit cards with a central party, and that party 
agrees to contact the consumers' credit card companies if the 
consumers' cards are lost or stolen.
    \102\ NCL at 10. See, e.g., FTC v. Universal Mktg. Svcs., Inc., 
No. CIV-00-1084L (W.D. Okla. filed June 20, 2000); FTC v. NCCP Ltd., 
No. 99 CV-0501 A(Sc) (W.D.N.Y. filed July 22, 1999); South Florida 
Business Ventures, No. 99-1196-CIV-T-17F (M.D. Fla. filed May 24, 
1999); Tracker Corp. of America, No. 1:97-CV-2654-JEC.
    \103\ See, e.g., FTC v. Consumer Repair Svcs., Inc., No. 00-
11218 (C.D. Cal. filed Oct. 23, 2000); FTC v. Forum Mktg. Svcs., 
Inc., No. 00 CV 0905C (W.D.N.Y. filed Oct. 23, 2000); FTC v. 1306506 
Ontario, Ltd., No. 00 CV 0906A (SR) (W.D.N.Y. filed Oct. 23, 2000); 
FTC v. Advanced Consumer Svcs., No. 6-00-CV-1410-ORL-28-B (M.D. Fla. 
filed Oct. 23, 2000); Capital Card Svcs., Inc. No. CIV 00 1993 PHX 
ECH (D. Ariz. filed Oct. 23, 2000); FTC v. First Capital Consumer 
Membership Svcs, Inc., Civil No. 00-CV-0905C(F) (W.D.N.Y. filed Oct. 
23, 2000); Universal Mktg. Svcs., Inc., No. CIV-00-1084L; FTC v. 
Liberty Direct, Inc., No. 99-1637 (D. Ariz. filed Sept. 13, 1999); 
FTC v. Source One Publications, Inc., No. 99-1636 PHX RCP (D. Ariz. 
filed Sept. 14, 1999); FTC v. Creditmart Fin. Strategies, Inc., No. 
C99-1461 (W.D. Wash. filed Sept. 13, 1999); NCCP Ltd., No. 99 CV-
0501 A(Sc); South Florida Business Ventures, No. 99-1196-CIV-T-17F; 
FTC v. Bank Card Sec. Ctr., Inc., No. 99-212-Civ-Orl-18C (M.D. Fla. 
filed Feb. 26, 1999); Tracker Corp. of America, No. 1:97-CV-2654-
JEC.
---------------------------------------------------------------------------

    To address the deception that frequently characterizes the sale of 
credit card loss protection plans, the Commission believes consumers 
need disclosure of information about existing protections afforded by 
Federal law. Deception occurs if, first, there is a representation, 
omission, or practice that, second, is likely to mislead consumers 
acting reasonably under the circumstances, and third, the 
representation, omission, or practice is material.\104\ Unscrupulous 
sellers and telemarketers of credit card protection create the 
impression, by omission and

[[Page 4504]]

affirmative misrepresentation, that without the protection they offer, 
consumers' liability for unauthorized purchases is unlimited. In fact, 
Federal law limits this liability to $50.\105\ This is obviously a 
material fact, since consumers would not likely purchase protection 
that duplicates free protection the law already provides them. Yet 
laypersons may be unaware of this feature of Federal law, and are not 
unreasonable to interpret the sales pitch of unscrupulous sellers and 
telemarketers of credit card protection to mean that unless they 
purchase this protection, a cardholder is exposed to unlimited 
liability. Therefore, omission of this material information in the 
context of a sales pitch for such protection is deceptive, and violates 
section 5 of the FTC Act.
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    \104\ Cliffdale Assocs., 103 F.T.C. at 165.
    \105\ Under Sec. 133 of the Consumer Credit Protection Act, the 
consumer's liability for unauthorized charges is limited to $50. 15 
U.S.C. 1643.
---------------------------------------------------------------------------

    Thus, based on the record compiled in this proceeding and on its 
law enforcement experience, the Commission believes that credit card 
loss protection plans--like prize promotions, advance fee loan offers, 
recovery services, and credit repair--are so commonly the subject of 
telemarketing fraud complaints and have caused such substantial injury 
to consumers, particularly the elderly, that it is warranted to modify 
the Rule to include specific provisions to address this problem.\106\ 
Therefore, the Commission proposes to add new Sec. 310.3(a)(1)(vi), 
which would require the seller or telemarketer of such plans to 
disclose, before the customer pays, the $50 limit on a cardholder's 
liability for unauthorized use of a credit card pursuant to 15 U.S.C. 
1643. The requirement that sellers of such plans provide consumers with 
the material information about statutory limitations on a cardholder's 
liability for unauthorized charges will ensure that consumers have the 
information necessary to evaluate the worth of the plan and provide law 
enforcement with the necessary tools to identify and combat fraudulent 
credit card protection plans.
---------------------------------------------------------------------------

    \106\ The Commission has not proposed to prohibit as an abusive 
practice the requesting or receiving of payment for credit card 
protection before delivery of the offered protection--the approach 
adopted in the original TSR with respect to advance fee loan offers, 
recovery services, and credit repair. The Commission took that 
approach because there are no disclosures that could effectively 
remedy the problems that arise from the telemarketing of those 
illusory services; the harm to consumers could be averted only by 
specifying that the seller's performance of any of these three 
services must precede payment by the consumer. In the case of credit 
card protection, such a remedy seems unworkable, because the 
protection would come into play only upon a purchaser's loss of his 
or her card and/or incurrence of unauthorized charges. More 
importantly, in such an event, federal law would provide the 
protection at issue, regardless of whether the offered protection 
did or not. Moreover, since it is possible that a seller could non-
deceptively offer--and consumers could wish to purchase--credit card 
protection that provides more than that which federal law provides, 
the Commission is reluctant to ban outright the sale of credit card 
protection. Thus, requiring disclosure of material information seems 
the appropriate remedy to cure the deception, coupled with a 
prohibition in proposed Sec. 310.3(a)(2)(viii) against 
misrepresenting such protection.
---------------------------------------------------------------------------

Other Recommendations by Commenters Regarding Disclosure Requirements
    Several commenters addressed issues related to the timing of 
disclosures.\107\ In general, the commenters agreed that disclosures 
are most meaningful if customers receive them in time to make a ``truly 
informed buying decision.'' \108\ This premise was endorsed by the 
Commission in the initial rulemaking when it noted that the intent of 
the Rule was to have disclosures given ``so as to be meaningful to a 
customer's purchase decision.'' \109\ In this regard, the Commission 
noted that, when a seller or telemarketer chooses to use written 
disclosures, ``any outbound telephone call made after written 
disclosures have been sent to customers must be made sufficiently close 
in time to enable the customer to associate the telephone call with the 
written document.'' \110\
---------------------------------------------------------------------------

    \107\ See, e.g., AARP at 3-4; NAAG at 9-10; NACAA at 2.
    \108\ AARP at 4.
    \109\ 60 FR at 43846.
    \110\ Id.
---------------------------------------------------------------------------

    Commenters raised three specific concerns regarding the timing of 
disclosures: the appropriate timing of required disclosures in 
preacquired account telemarketing; situations where disclosures are 
made only in the verification portion of a call, rather than in the 
earlier sales pitch; and the appropriate timing of required disclosures 
in dual or multiple purpose calls. The first of these concerns--the 
appropriate timing of disclosures in preacquired account 
telemarketing--is addressed in the discussion of proposed 
Sec. 310.4(a)(5), which bans the receipt of a consumer's billing 
information from any source other than the consumer. The other two 
concerns regarding the timing of disclosures--disclosures during the 
verification portion of the call and disclosures in multiple purpose 
calls--are each discussed below, as is the recommendation, advanced by 
some commenters, that the Commission allow some disclosures to be made 
in writing.
    Disclosures in the Sales and Verification Portions of Calls. NAAG 
expressed concern about the failure of some telemarketers to make the 
disclosures required by Sec. 310.3(a)(1)--especially the disclosure of 
total cost--during the sales portion of the call, instead making these 
disclosures during the verification portion of the call, after payment 
information has already been discussed and assent to the transaction 
has already occurred.\111\ NAAG noted that when telemarketers make 
disclosures only during the verification portion of the call, consumers 
are deprived of the opportunity to receive meaningful disclosures at an 
appropriate time.\112\ NAAG and Texas recommended that the total cost 
be disclosed before any payment information is discussed, and that the 
total cost be stated during both the sales and verification portions of 
the call.\113\
---------------------------------------------------------------------------

    \111\ See NAAG at 10; Texas at 2. In the original rulemaking, 
the initially proposed Rule included a requirement that a 
telemarketer repeat certain disclosures if verification occurred. 60 
FR 8313, 8331 (Feb. 14, 1995) (citing the original proposed Rule 
Sec. 310.4(d)(2)). The Commission later deleted this requirement 
after receiving numerous comments from industry representatives who 
argued that such a requirement would be ``unnecessary and unduly 
burdensome, requiring duplicative disclosures that would add to the 
cost of the call and annoy potential customers.'' 60 FR 30406, 30419 
(June 8, 1995). The Commission finds nothing in the Rule review 
record to contradict its earlier determination, and therefore, 
declines to propose a requirement to make a second disclosure of 
total cost in the verification portion of the call. Of course, there 
is nothing in the Rule that would preclude a seller or telemarketer 
from making the required disclosures in the sales portion of the 
call and then voluntarily repeating those disclosures during the 
verification process.
    \112\ See NAAG at 9.
    \113\ See id. at 8, 10 (noting that the failure to disclose the 
total cost of the contract is common in magazine subscription sales 
when a telemarketer states only the weekly price for a subscription, 
rather than the total cost for the entire term); Texas at 2.
---------------------------------------------------------------------------

    As discussed above, the Rule requires that the disclosures in 
Sec. 310.3(a)(1) be made before the customer pays, which means before 
the telemarketer comes into possession of the customer's billing 
information.\114\ The disclosures required by Sec. 310.3(a)(1), 
including disclosure of the total cost of the goods or services 
offered, must be made before the telemarketer receives information that 
will enable him or her to bill charges to the consumer. These 
disclosures would logically occur during the sales portion of the call, 
before the consumer has assented to the purchase by providing billing 
information. A verification process is precisely what the term implies: 
corroboration of a contract that has already been formed--of the 
consumer's assent to the purchase. It is an opportunity to ensure that 
the billing

[[Page 4505]]

information received from the consumer is correct. It is not the 
appropriate time for disclosure of additional material information that 
a consumer needs to make a decision whether to enter into the 
transaction in the first place. Disclosure of previously undisclosed 
information in a ``verification'' comes too late for it to be of value 
to consumers, or to satisfy the requirements of the Rule. Thus, a 
telemarketer or seller who does not make the required disclosures until 
the verification portion of the call has violated the Rule.
---------------------------------------------------------------------------

    \114\ 60 FR at 43846.
---------------------------------------------------------------------------

    Dual or Multiple Purpose Calls. In a dual or multiple purpose 
telemarketing call, there are both sales and non-sales objectives, such 
as when a telemarketer calls to inquire about a customer's satisfaction 
with a particular good or service already purchased, and then proceeds 
to offer additional goods or services.\115\ Both NACAA and NAAG 
suggested that the Rule be clarified to require that, in such dual or 
multiple purpose calls, the required oral disclosures be made in the 
initial portion of the call, and that total cost also be disclosed in 
that initial portion.\116\ These recommendations are considered below 
in the discussion of proposed changes to Sec. 310.4(d).
---------------------------------------------------------------------------

    \115\ This sales practice was identified and explained in the 
original Rule's Statement of Basis and Purpose. 60 FR at 43856.
    \116\ See NAAG at 6-8; NACAA at 2.
---------------------------------------------------------------------------

    Written versus oral disclosures. In its Request for Comment on the 
Rule, the Commission asked for information regarding the burdens, if 
any, the disclosure requirements have placed on sellers and 
telemarketers.\117\ Reese noted that ``(d)isclosures associated with 
sales increase the length of a sales presentation by factors ranging 
from 10% to 50%,'' and suggested that the burden on industry could be 
reduced by allowing timely written disclosures to complement shorter 
oral disclosures under the Rule.\118\ On the other hand, ARDA expressed 
the view that the current disclosures are not unreasonably 
burdensome.\119\
---------------------------------------------------------------------------

    \117\ 65 FR 10428, 10431; Question 10(f).
    \118\ Reese at 5.
    \110\ See ARDA at 2.
---------------------------------------------------------------------------

    In response to the recommendation that written disclosures be 
allowed, the Commission notes that the Rule's requirement that 
disclosures regarding material terms of the offer be made before the 
customer pays does not preclude a telemarketer from providing these 
disclosures in writing, should the telemarketer choose to do so.\120\ 
In the Statement of Basis and Purpose, the Commission noted in this 
regard that ``[t]hese disclosures may be made either orally or in 
writing.'' \121\ Therefore, there is no need to modify this provision 
of the Rule in this regard.
---------------------------------------------------------------------------

    \120\ Nevertheless, in outbound telemarketing calls, four prompt 
oral disclosures must be made: (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) disclosures about any prize 
promotion being offered. Sec. 310.4(d).
    \121\ 60 FR at 43846. The Commission further noted that it 
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.'' Id.
---------------------------------------------------------------------------

Section 310.3(a)(2)--Prohibited Misrepresentations in the Sale of Goods 
and Services

    Section 310.3(a)(2) prohibits a seller or telemarketer from 
misrepresenting certain material information in a telemarketing 
transaction involving the sale of goods or services. These include: 
Total cost, any material restrictions, and any material aspect of the 
performance, efficacy, nature, or central characteristics of the goods 
or services offered; any material aspect of the seller's refund policy; 
any material aspect of a prize promotion; any material aspect of an 
investment opportunity; and a seller's or telemarketer's affiliation 
with, or endorsement by, any governmental or third-party 
organization.\122\
---------------------------------------------------------------------------

    \122\ 16 CFR 310.3(a)(2).
---------------------------------------------------------------------------

    MPA, the only commenter who directly addressed this section in its 
comment, stated that it ``wholeheartedly supports'' the provision, 
noting that it is in the best interests of legitimate firms that all 
telemarketing calls include full and accurate disclosures.\123\ 
Therefore, the only proposed modification to Sec. 310.3(a)(2) is two 
minor wording changes necessitated by the amendments to the 
Telemarketing Act contained in section 1011 of the USA PATRIOT Act. 
First, the phrase ``in the sale of goods or services'' has been added 
to Sec. 310.3(a)(2) to clarify the intended scope of that provision. 
Newly proposed Sec. 310.3(d) lists prohibited misrepresentations in the 
context of the solicitation of charitable contributions. Second, the 
language in Sec. 310.3(a)(2)(vii) has been modified to read: ``A 
seller's or telemarketer's affiliation with, or endorsement or 
sponsorship by, any person or government entity'' to conform with the 
new analogous provision proposed in Sec. 310.3(d)(8).
---------------------------------------------------------------------------

    \123\ MPA at 7-8.
---------------------------------------------------------------------------

Section 310.3(a)(2)(viii)--Credit Card Loss Protection Plans

    The current TSR does not include prohibitions regarding the sale of 
credit card protection. As discussed above, NCL, citing the numerous 
complaints it receives, recommended that the Commission revise the Rule 
to address the telemarketing of credit card loss protection plans.\124\ 
The Commission's complaint-handling and law enforcement experience 
confirms the points made in NCL's comments. Telemarketers of credit 
card loss protection plans represent to consumers that they will 
protect or otherwise limit the consumer's liability if his or her 
credit card is lost or stolen, but frequently misrepresent themselves 
as being affiliated with the consumer's credit card issuer,\125\ or 
misrepresent either affirmatively or by omission that the consumer is 
not currently protected against credit card fraud, or that the consumer 
has greater potential legal liability for unauthorized use of his or 
her credit cards than he or she actually does under the law.
---------------------------------------------------------------------------

    \124\ NCL at 10.
    \125\ This practice violates Sec. 310.3(a)(2(vii), which 
prohibits misrepresenting a seller's or telemarketer's affiliation 
with any third-party organization.
---------------------------------------------------------------------------

    In addition to the new requirement proposed in 
Sec. 310.3(a)(1)(vii) to disclose material information about existing 
protections afforded by federal law, the Commission proposes to add to 
the Rule a prohibition against misrepresenting that any customer needs 
offered goods or services to provide protections a customer already has 
pursuant to section 133 of the Consumer Credit Protection Act, 15 
U.S.C. section 1643, which limits a cardholder's liability for 
unauthorized charges to $50.\126\
---------------------------------------------------------------------------

    \126\ This approach parallels the TSR's treatment of cost and 
quantity of goods (Secs. 310.3(a)(1)(i) and 310.3(a)(2)(i)), 
material restrictions, limitations, or conditions 
(Secs. 310.3(a)(1)(ii) and 310.3(a)(2)(ii)), refund policy 
(Secs. 310.3(a)(1)(iii) and 310.3(a)(2)(iv)), and prize promotions 
(Secs. 310.3(a)(1)(iv) & (v) and 310.3(a)(2)(v)). In each case, 
material facts must be disclosed, and misrepresentations are 
prohibited.
---------------------------------------------------------------------------

    Deception occurs if, first, there is a representation, omission, or 
practice that, second, is likely to mislead consumers acting reasonably 
under the circumstances, and third, the representation, omission, or 
practice is material.\127\ Unscrupulous sellers and telemarketers of 
credit card protection frequently misrepresent, either expressly or by 
implication, that without the protection they offer, consumers' 
liability for unauthorized purchases is unlimited. This is obviously a 
material fact, since consumers would not likely purchase

[[Page 4506]]

protection that duplicates free protection the law already provides 
them. Yet laypersons may be unaware of this feature of federal law, and 
reasonably interpret the sales pitch of unscrupulous sellers and 
telemarketers of credit card protection to mean that unless they 
purchase this protection, a cardholder is exposed to unlimited 
liability. Therefore, this is a material misrepresentation, and is 
deceptive, in violation of section 5 of the FTC Act. Accordingly, the 
Commission proposes to add new Sec. 310.3(a)(2)(viii), which would 
prohibit misrepresenting that any customer needs offered goods or 
services in order to have protections provided pursuant to 15 U.S.C. 
1643.
---------------------------------------------------------------------------

    \127\ Cliffdale Assocs., 103 F.T.C. at 165.
---------------------------------------------------------------------------

Section 310.3(a)(3)--Express Verifiable Authorization

    Section 310.3(a)(3) of the Rule requires that a telemarketer obtain 
express verifiable authorization in sales involving payment by demand 
drafts or similar negotiable paper, and provides that authorization 
will be deemed verifiable if any of three specified means are employed 
to obtain it: (1) Express written authorization by the customer, 
including signature; (2) express oral authorization that is tape 
recorded and made available upon request to the customer's bank; or (3) 
written confirmation of the transaction, sent to the customer before 
submission of the draft for payment. If the telemarketer chooses to use 
the taped oral authorization method, the Rule requires the telemarketer 
to provide tapes evidencing the customer's oral authorization, 
including an explanation of the number, date(s) and amount(s) of 
payments to be made, date of authorization, and a telephone number for 
customer inquiry that is answered during normal business hours.\128\
---------------------------------------------------------------------------

    \128\ Section 310.3(a)(3)(iii)(A) requires that all information 
required to be included in a taped oral authorization be included in 
any written confirmation of the transaction.
---------------------------------------------------------------------------

    The Commission proposes to amend the express verifiable 
authorization provision. The proposed Rule retains the concept that it 
is a deceptive practice and a rule violation to obtain or submit 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; however, the proposed Rule 
extends the provision to specify that is a deceptive practice and a 
Rule violation to submit billing information for payment without the 
customer's express verifiable authorization when the method of payment 
does not have the protections provided by, or comparable to those 
available under, the Fair Credit Billing Act (``FCBA'') and the Truth 
in Lending Act (``TILA'')(such as is the case with checks, drafts, or 
other forms of negotiable paper). By expanding the express verifiable 
authorization provision to cover billing methods besides demand drafts, 
the Rule would provide protections for consumers in a much larger class 
of transactions where an unauthorized charge is likely to present a 
particular hardship to the consumer because of the lack of TILA and 
FCBA protections.
    In addition to expanding the scope of Sec. 310.3(a)(3) to require 
express verifiable authorization for additional payment methods, the 
proposed Rule also requires that the customer must receive additional 
information in order for authorization to be deemed verifiable: the 
name of the account to be charged (e.g., ``Mastercard,'' or ``your XYZ 
Mortgage statement'') and the account number, which must be recited by 
either the consumer or the telemarketer.
    The Commission also proposes to delete Sec. 310.3(a)(3)(iii), which 
allows a seller or telemarketer to obtain express verifiable 
authorization by confirming a transaction in writing, provided the 
confirmation is sent to the customer prior to the submission of the 
customer's billing information for payment. This change would leave the 
two other methods of authorization--written authorization before a 
charge is placed and taped oral authorization--available for use by 
sellers and telemarketers.
    Finally, pursuant to section 1011 of the USA PATRIOT Act, the 
Commission proposes a global revision throughout Sec. 310.3(a)(3)--
specifically, in every instance where the word ``customer'' (including 
the possessive form) occurs, the phrase ``or donor'' (again, including 
the possessive form, where appropriate) has been added. This change 
brings within the coverage of the express verifiable authorization 
requirement all situations where a telemarketer accepts payment of a 
solicited charitable contribution through a payment method that does 
not impose a limitation on liability for unauthorized charges nor 
provide for dispute resolution procedures pursuant to, or comparable 
to, those available under the FCBA and the TILA.
    The Commission received several comments regarding 
Sec. 310.3(a)(3), and discussed the topic of express verifiable 
authorization extensively at the July 2000 Forum.\129\ MPA stated that 
this provision strikes an appropriate balance, allowing telemarketers 
to compete fairly with other point-of-sale providers while still 
protecting customers' checking accounts.\130\ Law enforcement agencies 
and consumer protection groups, however, recommended several changes to 
the provision. Each recommendation and the Commission's reasoning for 
accepting or rejecting it is discussed below.
---------------------------------------------------------------------------

    \129\ See generally LSAP at 4; MPA at 8; NAAG at 20; NCL at 5, 
10-11, 13; Rule Tr. at 131-190.
    \130\ MPA at 8.
---------------------------------------------------------------------------

    Express Verifiable Authorization When Using Novel Payment Methods. 
Some commenters suggested that the TSR be amended to ensure that 
consumers are protected when using any of the ever-increasing array of 
payment methods to pay for telemarketing transactions.\131\ NCL 
suggested that emerging payment methods may necessitate Rule changes to 
safeguard consumers using these methods from unauthorized charges.\132\ 
NAAG expressed concern that, given the increasing number of available 
payment options, consumers' authorization extend not only to the amount 
of the charge, but also to the payment method to be used.\133\
---------------------------------------------------------------------------

    \131\ See NCL at 5; NAAG at 20.
    \132\ See NCL at 5 (suggesting the Rule be expanded to ``protect 
consumers from abuses and provide better oversight of vendors who 
participate in new electronic payment systems'').
    \133\ See NAAG at 20 (recommending that ``consumers' agreement 
to any participant form of payment be expressly demonstrated and 
subject to verification'').
---------------------------------------------------------------------------

    As examples of emerging payment methods, commenters and attendees 
of the July Forum cited the increasing prevalence and use of debit 
cards,\134\ the development of electronic payment systems,\135\ and the 
growing use, by

[[Page 4507]]

unrelated vendors, of the billing and collection systems of mortgage or 
utility companies to bill and collect for telemarketing purchases.\136\ 
When asked to predict what additional payment methods might likely 
emerge in the coming years, industry representatives at the July Forum 
noted that new technologies have already expanded the range of payment 
options. For example, the DMA representative noted that a small 
percentage of DMA telemarketer members already offer to accept payment 
via the Internet.\137\ Another Forum participant predicted ``the 
continued growth of debit mechanisms,'' including not only debit cards, 
but electronic benefit transfer cards that would, for example, enable 
recipients of Social Security benefits to make payments using an access 
card tied to those benefits.\138\ Still another participant noted the 
development of technology that would enable a consumer to purchase 
goods and services advertised on television with a simple click of a 
remote control device, with the resulting charge billed to the 
subscriber's cable account.\139\
---------------------------------------------------------------------------

    \134\ See NCL at 5 (``Debit cards accounted for one percent of 
the fraudulent telemarketing transactions reported to the NFIC in 
1999 and this form of payment is likely to grow as more customers 
are issued debit cards and grow more comfortable using them.''); 
Rule Tr. at 132-133 (NCL noting a ``dramatic increase in debit card 
usage in the last several years;'' and that debit cards accounted 
for three percent of the fraudulent telemarketing transactions 
reported to NFIC in the first half of 2000.). See also, John Reosti, 
Debit Cards Seen as No Threat to Credit Card Revenues, The American 
Banker, (June 29, 2000), p. 11A (noting that the popularity of debit 
cards is increasing, with some predicting that debit cards will 
outpace credit cards as a payment method by 2005).
    \135\ See, e.g., NCL at 5 (noting that the growth in electronic 
commerce has led to the development of new forms of payment, such as 
``cyberwallets''). ``Cyberwallets'' provide secure access to a 
customer's existing bank or credit card accounts via the Internet, 
and are now offered by many companies, such as Visa and Mastercard. 
See www.visa.com/pd/ewallet/main.html; www.mastercard.com/shoponline/e-wallets/. Other new electronic access devices include 
stored value cards (SVCs) and smartcards, which allow customers to 
purchase goods or services using money ``loaded'' onto the cards, 
which contain embedded microchips to track the cards' value. See 
Janine S. Hiller and Don Lloyd Cook, From Clipper Ships to Clipper 
Chips: The Evolution of Payment Systems For Electronic Commerce, 
J.L.& Com., Fall, 1997, p. 53, 79-81. Visa Cash is one example of a 
stored value card that can be used in lieu of cash for purchases. 
See www.visa.com/pd/cash/main.html. Mastercard offers a smartcard 
product. See www.mastercard.com/ourcards/smartcard/. ``Electronic 
cash'' services, using prepaid accounts that can be drawn against 
for making online purchases, are also under development. See Stacy 
Collett, ``New Online Payment Options Emerging,'' www.cnn.com/2000/TECH/computing/02/03/pay.online.options.idg.
    \136\ See LSAP at 4; NAAG at 10, 20; NCL at 5, 10. For example, 
buyers' club programs can be billed to customers' mortgage 
statements or telephone or electricity bills. The growth of this 
type fo non-traditional billing has led to complaints regarding 
unauthorized charges from customers unfamiliar with such billing 
arrangements.
    \137\ Rule Tr. at 180.
    \138\ Id. at 183.
    \139\ Id. at 185. Such a transaction could occur without any 
telephone contact between the seller and customer, thus making it 
outside the scope of this Rule. However, this technology could also 
be used in conjunction with telemarketing, and thus merits inclusion 
here.
---------------------------------------------------------------------------

    In advancing their argument, those commenters who advocated 
expanding the express verifiable authorization provision to cover novel 
payment methods suggested that consumers may not be aware that they can 
be billed for a telemarketing purchase via some of these methods (such 
as on their utility and mortgage bills). This concern is analogous to 
the concerns articulated about deception in the use of demand drafts in 
the original rulemaking--concerns which led the Commission to determine 
that consumers' unfamiliarity with demand drafts could lead them 
unwittingly to provide their bank account numbers to a telemarketer 
without realizing that funds could be withdrawn in the absence of a 
signed check.\140\ Unaccustomed to this new type of transaction, 
consumers had no reason to expect that funds could be debited from 
their checking accounts unless they wrote and signed a check. But 
telemarketers, through omissions or affirmative misrepresentations, 
were inducing consumers to divulge their checking account numbers, with 
the result that funds were debited from their accounts. Thus, the 
Commission determined that to dispel consumers' false expectations 
about their checking account numbers, disclosure of material facts 
about how telemarketers would use the account information they were 
being asked to divulge was necessary. Thus, Sec. 310.3(a)(3) of the 
original TSR provides that it is a deceptive practice and a rule 
violation to obtain or submit 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.\141\ Section 310.3(a)(3) also established ``safe 
harbor'' disclosure procedures to use in obtaining express verifiable 
authorization
---------------------------------------------------------------------------

    \140\ 60 FR at 43850..
    \141\ The Commission was persuaded that verifiable authorization 
was necessary for demand drafts because demand drafts lacked 
chargeback protection and dispute resolution rights, and because of 
the risk that a consumer's bank account could be drained by 
unauthorized charges.
---------------------------------------------------------------------------

    The Commission believes that the increased availability and use of 
new payment methods necessitates expanding the Rule's express 
verifiable authorization provision to cover those new methods. The 
emergence of novel and, for the consumer, unexpected billing and 
collection systems for telemarketing purchases has brought an attendant 
rise in consumer complaints about unauthorized charges for 
telemarketing purchases on, among other things, mortgage accounts and 
utility bills. The Commission believes that deception is occurring in 
connection with telemarketers' use of new billing and collection 
systems. The rationale which supported the original requirement for 
express verifiable authorization in the use of demand drafts pertains 
with equal force to other unconventional payment methods not covered by 
the TILA and FCBA. Consumers have no reason to anticipate that their 
accounts can be debited or charged without their signature, and they 
may be induced to divulge their billing information on the basis of 
this misperception. To obviate deception on this issue, consumers need 
disclosure of material facts about how telemarketers will use the 
billing information they are being asked to divulge. Finally, an 
additional factor supporting the expanded coverage of the express 
verifiable authorization provision to novel payment systems is that 
many of the emerging payment systems cited by commenters in this 
proceeding lack chargeback protection and dispute resolution rights, as 
well as limited customer liability in the event of unauthorized 
charges. As was the case with demand drafts, the Commission believes 
that express verifiable authorization for novel payment systems will 
ensure that such systems are only used when consumers clearly agree to 
that use.
    The Commission believes that requiring express verifiable 
authorization when novel payment systems are used to bill and collect 
for a telemarketing purchase will remedy the deceptive practices often 
associated with the growth of new payment systems. Therefore, the 
Commission proposes to amend Sec. 310.3(a)(3) to require that the 
consumer's express verifiable authorization be obtained when payment is 
to be made by any method that ``does not impose a limitation on the 
customer's liability for unauthorized charges nor provide for dispute 
resolution procedures pursuant to, or comparable to those available 
under, the Fair Credit Billing Act and the Truth in Lending Act, as 
amended.''
    The proposed Rule retains the safe harbor that calls for the 
customer receiving the following information as evidence of oral 
authorization: the number, date(s) and amount(s) of payments, a 
telephone number for customer inquiry, and the date of the customer's 
oral authorization. In addition, the proposed Rule would call for 
another piece of information to be included in any taped oral 
authorization: Specific identification or recitation of the name of the 
specific account and the account number to be charged in the particular 
transaction. This material information will ensure that consumers are 
aware of the specific account against which the charge or debit will be 
placed.
    The proposed Rule deletes the term ``draft'' to reflect the 
expanded application of the provision to forms of payment other than 
demand drafts; and, for the same reason, the term ``payor'' has been 
replaced by the term ``customer.''
    Finally, the proposed Rule eliminates Sec. 310.3(a)(3)(iii), which 
deemed verifiable any authorization obtained by

[[Page 4508]]

written confirmation of the transaction, sent to the customer before 
submission of the draft for payment. Commenters and participants at the 
July Forum made clear that written confirmation prior to the submission 
of a customer's billing information for payment is seldom, if ever, 
used as a method of express verifiable authorization.\142\ Moreover, 
the Commission's law enforcement record provides ample evidence that 
when this method is used, it is subject to abuse.\143\ Given that the 
method of authorization in Sec. 310.3(a)(3)(iii) is used infrequently, 
and that complaints received by the Commission suggest that it has been 
subject to abuse by those telemarketers who employ it, the Commission 
proposes to delete this provision from the Rule.
---------------------------------------------------------------------------

    \142\ See Reese at 5; Rule Tr. 116-118; 122.
    \143\ See, e.g., FTC v. S.J.A. Society, Inc., No. 2:97cv472 
(E.D. Va. filed May 12, 1997) (defendants sent consumers written 
``confirmation'' of unauthorized debit payments). See also FTC v. 
Diversified Mktg. Serv. Corp., No. 96-388 (W.D. Okla. filed Mar. 13, 
1996); FTC v. Winward Mktg., Ltd., et al., No. 96-cv-0615-FWH (N.D. 
Ga. filed Mar. 12, 1996).
---------------------------------------------------------------------------

    In proposing to expand the coverage of the express verifiable 
authorization provision to include novel payment methods beyond demand 
drafts, the Commission has considered the effect this change would have 
on telemarketing businesses. Although the proposed change might be 
expected to result in additional costs to some telemarketers, the 
record reflects that telemarketers already commonly tape the customer's 
oral authorization in all calls in which a sale is made.\144\ Given the 
apparent prevalence of taping, the Commission believes that any 
additional burden on telemarketers will be minimal.
---------------------------------------------------------------------------

    \144\ See Reese at 5 (stating that it is ``standard practice * * 
* to ask the buyer's permission to record all or part of a sale on 
tape, as a mutual protection and to allow for post-sale independent 
verification''); Rule Tr. at 116-118 (``* * * 100% of sales calls 
are taped, and not the call, the portion in which the agreement to 
purchase goods and services and the terms for that purchase are tape 
recorded. I don't have a client that doesn't insist on it right 
now.''), 122 (noting an increase in taping to ensure that consent 
has been provided and for use in any law enforcement investigation).
---------------------------------------------------------------------------

Other Recommendations by Commenters Regarding Authorization
    Some commenters suggested that the Rule restrict the allowable 
methods of authorization in certain circumstances. For example, some 
commenters recommended requiring written authorization when funds will 
be withdrawn from a customer's bank account or when a telemarketer has 
preacquired billing information.\145\ These commenters assert that 
written authorization is necessary when a consumer's bank account is 
being accessed by a telemarketer because consumers have limited 
recourse when funds are misappropriated from their bank accounts.\146\
---------------------------------------------------------------------------

    \145\ AARP at 4; NAAG at 20 (suggesting that the Rule require 
written authorization when funds are withdrawn from bank account); 
Id. at 13 (suggesting that the Rule require written authorization 
when a telemarketer has preacquired billing information).
    \146\ AARP at 4; NAAG at 20.
---------------------------------------------------------------------------

    Requiring Written Authorization for Preacquired Account 
Telemarketing. Some commenters expressed the view that in situations 
when the telemarketer possesses preacquired billing information, the 
Rule should require the telemarketer to obtain the consumer's written 
authorization. In this way, the consumer would have a readily 
recognizable means to signal assent to a purchase.\147\ NAAG argued 
that such a means of ensuring the customer's assent is particularly 
necessary where an imbalance of information exists because the 
telemarketer, often unbeknownst to the consumer, has the means to 
charge the customer's account without ever seeking permission to do 
so.\148\
---------------------------------------------------------------------------

    \147\ See AARP at 4; NAAG at 10.
    \148\ NAAG at 10.
---------------------------------------------------------------------------

    As outlined below, in the discussion of Sec. 310.4(a)(5), the 
Commission proposes to prohibit as an abusive practice the receipt of a 
consumer's billing information from any source other than from the 
consumer. Therefore, the Commission declines to require written 
authorization in instances of preacquired account telemarketing.
    Requiring Written Authorization to Withdraw Funds From a Customer's 
Checking Account. Some commenters urged the Commission to amend the 
Rule to prohibit any telemarketer from debiting a customer's bank 
account without the customer's written authorization.\149\ In the 
original rulemaking, the Commission declined to adopt such a position, 
stating that:
---------------------------------------------------------------------------

    \149\ AARP at 4; NAAG at 20 (citing laws in Vermont and Kentucky 
that already require written authorization before a customer's bank 
account can be debited).

    Requiring such 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.\150\
---------------------------------------------------------------------------

    \150\ 60 FR at 43851.

    The Commission reaffirms its reluctance to impose on demand drafts 
more stringent requirements than those imposed on electronic funds 
transfers.\151\ Moreover, the Commission believes that the oral 
authorization alternative provided in Sec. 310.3(a)(3)(ii) has proven 
sufficient to protect consumers against unauthorized access to their 
bank accounts, except, perhaps, in those cases where a fraudulent 
telemarketer has resorted to altering verification tapes, or has 
flouted the requirement of the provision altogether. The Commission 
believes that even a written authorization requirement would not solve 
such problems because a telemarketer willing to alter verification 
tapes might also be inclined to forge signatures, and one ignoring the 
current oral authorization procedure would be no more likely to follow 
a more stringent one. Therefore, the Commission rejects this proposal.
---------------------------------------------------------------------------

    \151\ In this regard, the TSR's express verifiable authorization 
provision is also consistent with the NACHA Operating Rules, which 
govern payments made through the Automated Clearing House system. 
See NACHA at 2; Rule Tr. at 131-186.
---------------------------------------------------------------------------

Section 310.3(a)(4)--Prohibition of False and Misleading Statements to 
Induce the Purchase of Goods or Services or a Charitable Contribution

    Only MPA commented on this provision of the Rule, noting that its 
broad prohibition against false or misleading statements to induce the 
purchase of goods or services provided flexibility for law enforcement 
to address fraud, regardless of the method of payment used. The 
Commission has used this provision extensively in cases it has brought 
under the Rule and has determined that the provision should be retained 
unchanged.\152\
---------------------------------------------------------------------------

    \152\ The Commission has brought over eighty cases that included 
allegations under Sec. 310.3(a)(4) since the Rule was enacted. See, 
e.g., FTC v. Pacific Rim Pools Int'l, No. C97-1748, (W.D. Wash. 
filed Nov. 7, 1997) (Order for Permanent Injunction and Final 
Judgment entered on Jan. 12, 1999); FTC v. National Business 
Distribs. Co., Inc., No. 96-4470 (Mcx) JGD, (C.D. Cal. filed June 
26, 1996) (Final Judgment and Order for Permanent Injunction entered 
on Jan. 24, 1997); FTC v. Ideal Credit Referral Svcs. Ltd., No. C96-
0874, (W.D. Wash. filed June 5, 1996) (Default Judgment and Order 
for Permanent Injunction and for Monetary Relief entered on Apr. 16, 
1997); FTC v. USA Credit Svcs., Inc., No. 96-639 J LSP, (S.C. Cal. 
filed Apr. 10, 1996) (Final Judgment and Order for Permanent 
Injunction and Other Equitable Relief entered on Mar. 20, 1997).
---------------------------------------------------------------------------

    Pursuant to section 1011 of the USA PATRIOT Act, the Commission 
proposes to expand the coverage of this prohibition to encompass 
misrepresentations ``to induce a charitable contribution.'' No other 
revision is proposed.

Section 310.3(b)--Assisting and Facilitating

    Section 310.3(b) prohibits a person from providing substantial 
assistance or support to any seller or telemarketer

[[Page 4509]]

when that person knows or consciously avoids knowing that the seller or 
telemarketer is violating certain provisions of the Rule. Comments 
about this provision of the Rule were mixed. MPA asserted that the 
assisting and facilitating standard ``struck exactly the right 
balance,'' \153\ while law enforcement and consumer advocacy groups 
were critical, reiterating many of the concerns they raised during the 
original rulemaking about the difficulty in meeting the Rule's scienter 
standard.\154\
---------------------------------------------------------------------------

    \153\ MPA at 8.
    \154\ See NAAG at 6; NACAA at 2; Texas at 2.
---------------------------------------------------------------------------

    The critics of the provision argued that the Rule's current 
standard--which requires showing that the individual or entity knew or 
consciously avoided knowing about the law violations--sets the standard 
too high, and should be changed to a ``knew or should have known'' 
standard.\155\ They opined that the ``conscious avoidance'' standard is 
not used in other areas of enforcement and is a departure from legal 
authority under many State consumer protection statutes and under the 
FTC Act, where the ``knew or should have known'' standard is commonly 
accepted.\156\ They further argued that a ``knew or should have known'' 
standard would make it easier for law enforcement to challenge the 
support system for cross-border fraud.\157\
---------------------------------------------------------------------------

    \155\ Id. Despite the high standard of proof set by the 
``conscious avoidance'' standard, the Commission has successfully 
used the provision in a number of cases. See, e.g., FTC v. Woofter 
Inv. Corp., No. CV-S-97-00515-LDG (RLH), (D. Nev. filed May 12, 
1997) (Stipulated Order for Permanent Injunction and Final Judgment 
entered on Dec. 28, 1998); FTC v. Ideal Credit Referral Svcs. Ltd., 
No. C96-0874, (W.D. Wash. filed June 5, 1996) (Default Judgment and 
Order for Permanent Injunction and for Monetary Relief entered on 
Apr. 16, 1997).
    \156\ See NAAG at 5-6; Texas at 2.
    \167\ See NACAA at 2; NAAG at 6; Texas at 2.
---------------------------------------------------------------------------

    The Commission has considered the recommendation to change the 
standard, but believes that the ``conscious avoidance'' standard is 
appropriate because the Rule creates potential liability to pay redress 
or civil penalties based on another person's violation of the Rule. The 
``knew or should have known'' standard is appropriate where an alleged 
wrongdoer is liable to be placed under an administrative cease-and-
desist order or conduct injunction in a district court order based on 
his or her own direct violation of the Rule. As noted in the Rule's 
Statement of Basis and Purpose, ``in a situation where a person's 
liability to pay redress or civil penalties for a violation of this 
Rule depends on the wrongdoing of another person, the ``conscious 
avoidance'' standard is correct.'' \158\ However, the Commission 
invites additional comment on, and proposals for alternatives to, this 
provision in Section IX.
---------------------------------------------------------------------------

    \158\ 60 FR at 43852 (citations omitted).
---------------------------------------------------------------------------

Section 310.3(c)--Credit Card Laundering

    Section 310.3(c) prohibits credit card laundering. The few comments 
received concerning this section expressed strong support for the 
provision. ATA noted that the bright line this provision draws between 
legitimate and illegitimate business has made the Rule successful.\159\ 
MPA stated that this provision strictly targets bad actors because 
legitimate companies would be able to establish relationships with 
credit card companies, leaving only illegitimate companies to violate 
this provision.\160\ ATA agreed with MPA on this point, noting that 
stricter guidelines adopted by credit card companies for acceptable 
chargeback rates have further separated good from bad actors.\161\
---------------------------------------------------------------------------

    \159\ ATA at 4-5.
    \160\ MPA at 9.
    \161\ ATA at 4-5.
---------------------------------------------------------------------------

    The Commission's enforcement experience has demonstrated that 
Sec. 310.3(c) can be a useful tool in pursuing fraudulent telemarketers 
and those who provide them credit card laundering services.\162\ 
However, the Commission believes the provision's usefulness may be 
unduly restricted by the phrases ``(e)xcept as expressly permitted by 
the applicable credit card system,'' in the preamble to Sec. 310.3(c), 
and ``when such access is not authorized by the merchant agreement or 
the applicable credit card system'' in Sec. 310.3(c)(3). In the initial 
rulemaking proceeding, Visa and Mastercard urged that these limiting 
phrases be adopted to ensure that the Rule did not unduly restrict 
legitimate activity. In its enforcement activities, however, the 
Commission has sometimes met with unwillingness on the part of overseas 
affiliates or branches of credit card system operators, such as Visa 
and Mastercard, to corroborate whether the conduct of specific 
telemarketers and others providing assistance to telemarketers is 
allowable under the rules of the credit card system or the specific 
terms of the telemarketer's merchant agreement. The absence of such 
cooperation has, in some instances, hobbled law enforcement efforts to 
bring fraudulent telemarketers to justice.
---------------------------------------------------------------------------

    \162\ See, e.g., FTC v. Windermere Big Win Int'l, Inc., No. 98CV 
8066, (N.D. Ill. filed Dec. 16, 1998); FTC v. Pacific Rim Pools 
Int'l, No. C97-1748, (W.D. Wash. filed Nov. 7, 1997) (Order for 
Permanent Injunction and Final Judgment entered on Jan. 12, 1999); 
FTC v. Woofter Inv. Corp., No. CV-S-97-00515-LDG (RLH), (D. Nev. 
filed May 12, 1997) (Stipulated Order for Permanent Injunction and 
Final Judgment entered on Dec. 28, 1998).
---------------------------------------------------------------------------

    As a result of concern about the enforceability of the original 
provision in the absence of the full cooperation of credit card system 
operators, the Commission has requested comment in Section IX on 
possible changes to this provision that would better facilitate law 
enforcement efforts.
    The Commission proposes no changes to the text of Sec. 310.3(c) 
pursuant to section 1011 of the USA PATRIOT Act. The proposed Rule, 
however, expands coverage of the Sec. 310.3(c) prohibition on credit 
card laundering through modification of the definition of a key term 
used in this provision--``merchant.'' As discussed, the proposed 
definition would encompass persons authorized to honor or accept credit 
card payment, not only for the purchase of goods or services, but also 
for the payment of charitable contributions. The Telemarketing Act, as 
originally enacted, specifically identified as appropriate for rule 
coverage ``acts or practices of entities or individuals that assist or 
facilitate deceptive telemarketing, including credit card laundering.'' 
15 U.S.C. 6102(a)(2). Neither the text nor the underlying rationale of 
section 1011 of the USA PATRIOT Act suggest that this provision should 
not be extended to reach instances where credit card laundering occurs 
in connection with charitable solicitations.

Section 310.3(d)--Prohibited Deceptive Acts or Practices in the 
Solicitation of Charitable Contributions, Donations, or Gifts

    Section 1011(b)(1) of the USA PATRIOT Act mandates that the 
Commission include ``fraudulent charitable solicitations'' in the 
deceptive practices prohibited by the TSR. Accordingly, the Commission 
proposes a new section, 310.3(d), prohibiting specific material 
misrepresentations that have been alleged in Commission enforcement 
actions or those brought by FTC counterparts on the state level, or 
that have been prohibited by statute in one or more states. The new 
provision would prohibit misrepresentations of the following:
     The nature, purpose, or mission of any entity on behalf of 
which a charitable contribution is being requested;\163\
---------------------------------------------------------------------------

    \163\ See, e.g., FTC v. Baylis Co., Inc., No. 94-0017-S-LmB 
(D.C. Idaho filed Jan. 19, 1994) (misrepresented non-profit status); 
FTC v. Marketing Twenty-One, No. CV-S-94-00624-LDG (LRL) (D.C. Nev. 
filed July 13, 1994) (misrepresented purpose as soliciting 
contributions for non-existent entity named ``For the Children''); 
FTC v. Voices for Freedom, No. 92-1542-A (E.D. Va.. filed Oct. 21, 
1991) (falsely obtained IRC 501(c)(3) status and misrepresented 
mission as assisting soldiers in Operation Desert Storm). See also 
Fla. Stat. ch. 496.415(7) (2000); Ariz. Rev. Stat. Sec. 6561(3) 
(2001).

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

[[Page 4510]]

     That any charitable contribution is tax deductible in 
whole or in part;\164\
---------------------------------------------------------------------------

    \164\ See, e.g., FTC v. Thadow, Inc., No. CV-S-95-75-HDM (LRL) 
(D.C. Nev. filed Jan. 25, 1995); FTC v. United Holdings Group, Inc., 
No. CV-S-94-331-LDG (RLH) (D.C. Nev., filed April 5, 1994); 
Marketing Twenty-One, No. CV-S-94-00624-LDG (LRL). See also Minn 
Stat. Ann. Sec. 309.556(1)(b) (West 2000).
---------------------------------------------------------------------------

     The purpose for which any charitable contribution will be 
used; \165\
---------------------------------------------------------------------------

    \165\ The Commission intends that term ``purpose'' be 
interpreted broadly to include, among other things, whether the 
charitable contribution would benefit any particular individual, 
group, or locality, as well the way in which these entities would be 
helped, such as by the provision of food, shelter, etc. See, e.g., 
FTC v. Gold, No. CV 99-2895 CBM (RZx) (C.D. Calif. filed Nov. 9, 
1998) (misrepresenting that contributions would inter alia, support 
local firefighters, buy wheelchairs for veterans or fund parties for 
hospitalized children); FTC v. Image Sales & Consultants, Inc. No. 
1:97 DV 0131 (N.D. Inc., filed Apr. 7, 1997); FTC v. Saja, No. CIV-
97-0666 PHX sm (D.C. Ariz. filed Mar. 31, 1997) (misrepresenting 
that contributions would buy necessary equipment or fund death 
benefits for firefighters or law enforcement officers in the donors' 
local communities); See also Ariz. Rev. Stat. Sec. 4406561(4), (5) 
(2001); Fla. Stat. ch. 496.415(3),(4) (2000); Md. Code. Ann. 
Business Regulations Sec. 6-609, 611 (2000). See also, California v. 
Jewish Educ. Ctr., No. 987396 (Super. Ct. Cal. filed Nov. 14, 1997) 
(misrepresenting that funds raised through car donations would 
support needy immigrant families). See also Ariz. Rev. Stat. 
Sec. 6561(3) (2001); Ind. Code Ann. Sec. 23-7-8-7 (Michie 2001); Md. 
Code Ann., Business Regulations Sec. 6-610 (2000); N.M. Stat. Ann. 
Sec. 57-22-6.3 (Michie 2001); N.Y. Exec. Law Sec. \\172-d (Consol. 
2001).
---------------------------------------------------------------------------

     The percentage or amount of any charitable contribution 
that will go to a charitable organization or to any particular 
charitable program after any administrative or fundraising expenses are 
deducted; \166\
---------------------------------------------------------------------------

    \166\ See, e.g., Voices for Freedom, No. 92-1542-A; Gold, No. 
SACV 98-968 LHM (EEx); Baylis, No. 94-0017-S-LmB; Marketing Twenty-
One. See also California v. Jewish Educ. Ctr. See also Fla. Stat. 
ch. 496.415(8); N.Y. Exec. Law Sec. 172-d(4) (Consol. 2001); Pa. 
Stat. Ann. tit. 10 Sec. 162.15(A)(9) (West 2000).
---------------------------------------------------------------------------

     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 charitable contribution is required to 
win a prize or to participate in a prize promotion;\167\
---------------------------------------------------------------------------

    \167\ See, e.g., United Holdings Group, Inc., No. CV-S-94-331; 
Marketing Twenty-One (misrepresented value of prizes being offered 
in exchange for contributions of $700 to $1500); FTC v. NCH, Inc., 
No. CV-S-94-00138-LDG (LRL) (D.C. Nev. filed July 13, 1994) 
(misrepresented that donors would receive a specific prize in return 
for their contribution); FTC v. International Charity Consultants, 
Inc., No. CV-S-94-00195-DWH (LRL) (D.C. Nev. filed Mar. 1, 1994) 
(misrepresented odds of winning valuable prizes purportedly offered 
in exchange for contributions).
---------------------------------------------------------------------------

     In connection with the sale of advertising, the purpose 
for which the proceeds from the sale of advertising will be used; that 
a purchase of advertising has been authorized or approved by any donor; 
that any donor owes payment for advertising; or the geographic area in 
which the advertising will be distributed; \168\ or
---------------------------------------------------------------------------

    \168\ See, e.g., FTC v. Southwest Mktg. Concepts, No. H-97-1070 
(S.D. Texas filed Apr. 1, 1997); Saja; FTC v. Dean Thomas Corp., No. 
1:97 CV 0129 (N.D. Ind. filed Apr. 7, 1997); FTC v. The Century 
Corp., No. 1:97 CV 0130 (N.D. Ind. filed Apr. 7, 1997); Image Sales 
& Consultants, No. 1:97 CV 0131; FTC v. Omni Advertising, No. 1:98 
CV 0301 (N.D. Ind. filed Oct. 5, 1998); FTC v. T.E.M.M. Mktg., Inc., 
No. 1:98 CV 0300 (N.D. Ind. filed Oct. 5, 1998); FTC v. Tristate 
Advertising Unlimited, Inc., No. 1:98 CV 302 (N.D. Ind, filed Oct 5, 
1998); Gold; Eight Point Communications, No. 98-74855 (D.C. Mich. 
filed Nov. 10, 1998). See also Pa. Stat. Ann. tit. 10 
Sec. 162.15(A)(11) (West 2000).
---------------------------------------------------------------------------

     A seller's or telemarketer's affiliation with, or 
endorsement or sponsorship by, any person or government.\169\
---------------------------------------------------------------------------

    \169\ See, e.g. FTC v. Eight Point Communications (telemarketers 
misrepresented affiliation with local police and fire departments); 
FTC v. Gold, No. SACV 98-968 LHM (EEx) (C.D. Calif. filed Nov. 9, 
1998) (telemarketers falsely identified selves as members of local 
law enforcement); Saja (telemarketers falsely claimed to be 
firefighters or police officers). See also Commonwealth v. Ranick 
Enters., Inc., No. 1997-06464-E (Super. Ct. Ma., filed June 26, 
2001) (telemarketers misrepresented affiliation with local police 
and fire departments).
---------------------------------------------------------------------------

    Each of these misrepresentations is an appropriate addition to the 
list of defined deceptive telemarketing practices prohibited in 
Sec. 310.3 of the TSR, and inclusion of each in the TSR is necessary to 
prevent consumers solicited for charitable contributions from being 
deceived. Deception occurs if there is a representation, omission, or 
practice that is likely to mislead consumers acting reasonably under 
the circumstances and the representation, omission, or practice is 
material.\170\ Where fundraising telemarketers falsely represent any of 
the matters enumerated in the proposed provision, donors are likely to 
be misled. False representations of material facts are likely to 
mislead.\171\ This is so in the context of purchases of goods or 
services or other commercial transactions, and there is no material 
distinction that would render this principle any less valid in the 
context of charitable solicitations. Moreover, it is reasonable to 
interpret a fundraising telemarketer's representations about any of 
these matters to mean what they seem on their face to mean. Finally, in 
the Commission's enforcement experience, often such representations are 
express, and therefore presumptively material.\172\ Even where the 
misrepresentations are implied, they would still likely influence a 
prospective donor's decision whether to make a contribution. Thus, 
misrepresentation of any of these seven categories of material 
information is deceptive, in violation of section 5 of the FTC Act.
---------------------------------------------------------------------------

    \170\ Cliffdale Assocs., 103 F.T.C. at 165.
    \171\ Thompson Medical Co., 104 F.T.C. 648, 818 (1984), aff'd, 
791 F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987).
    \172\ Cliffdale Assocs., 103 F.T.C. at 182.

---------------------------------------------------------------------------
D. Section 310.4--Abusive Telemarketing Acts or Practices

    The Telemarketing Act authorizes the Commission to prescribe rules 
``prohibiting deceptive telemarketing acts or practices and other 
abusive telemarketing acts or practices.''15 U.S.C. 6102 
(a)(1)(emphasis added). The Act does not define the term ``abusive 
telemarketing act or practice.'' It directs the Commission to include 
in the TSR provisions addressing three specific ``abusive'' 
telemarketing practices, namely, for any telemarketer to: (1) 
``Undertake a pattern of unsolicited telephone calls which the 
reasonable consumer would consider coercive or abusive of such 
consumer's right to privacy;'' (2) make unsolicited phone calls to 
consumers during certain hours of the day or night; and (3) fail to 
``promptly and clearly disclose to the person receiving the call that 
the purpose of the call is to sell goods or services and make such 
other disclosures as the Commission deems appropriate, including the 
nature and price of the goods and services.'' 15 U.S.C. 6102(a)(3). The 
Act does not limit the Commission's authority to address abusive 
practices beyond these three practices legislatively determined to be 
abusive.\173\ Accordingly, the Commission adopted a rule that addresses 
the three specific practices mentioned in the statute, and, 
additionally, five other practices that the Commission determined to be 
abusive under the Act.
---------------------------------------------------------------------------

    \173\ See Kenneth Culp Davis & Richard J. Pierce, Jr., 
Administrative Law Treatise Section 3.2 (3rd ed. 1994) (noting that 
agencies have the power to ``fill any gaps'' that Congress either 
expressly or implicitly left to the agency to decide pursuant to the 
decision in Chevron v. Natural Resources Defense Council, 467 U.S. 
837 (1984)). It is, therefore, permissible for agencies to engage in 
statutory construction to resolve ambiguities in laws directing them 
to act, and courts must defer to this administrative policy 
decision.
---------------------------------------------------------------------------

    Each of the three abusive practices enumerated in the Act 
implicates consumers' privacy. In fact, with respect to the first of 
these practices, the explicit language of the statute directs the FTC 
to regulate ``calls which the reasonable consumer would consider 
coercive or abusive of such consumer's right to privacy.'' 15 U.S.C.

[[Page 4511]]

6102(a)(3)(A) (emphasis added). Similarly, by directing that the 
Commission regulate the times when telemarketers could make unsolicited 
calls to consumers in the second enumerated item, 15 U.S.C. 
6102(a)(3)(B), Congress recognized that telemarketers' right to free 
speech is in tension with and encroaches upon consumers' right to 
privacy within the sanctity of their homes; the calling times 
limitation protects consumers from telemarketing intrusions during the 
late night and early morning, when the toll on their privacy from such 
calls would likely be greatest. The third enumerated practice, 15 
U.S.C. 6102(a)(3)(C), also bears a relation to privacy, in that it 
requires the consumer be given information promptly that will enable 
him or her to decide whether to allow the infringement on his or her 
time and privacy to go beyond the initial invasion. Congress provided 
authority for the Commission to curtail these practices that impinge on 
consumers' right to privacy but are not likely deceptive under FTC 
jurisprudence. This recognition by Congress that even non-deceptive 
telemarketing business practices can seriously impair consumers' right 
to be free from harassment and abuse and its directive to the 
Commission to reign in these tactics, lie at the heart of Sec. 310.4 of 
the TSR.
    The practices not specified as abusive in the Act, but determined 
by the Commission to be abusive and prohibited in the original 
rulemaking are: (1) Threatening or intimidating a consumer, or using 
profane or obscene language; (2) ``causing any telephone to ring, or 
engaging any person in telephone conversation, repeatedly or 
continuously with intent to annoy, abuse, or harass any person;'' (3) 
requesting or receiving payment for credit repair services prior to 
delivery and proof that such services have been rendered; (4) 
requesting or receiving payment for recovery services prior to delivery 
and proof that such services have been rendered; and (5) ``requesting 
or receiving payment for an advance fee loan when a seller or 
telemarketer has guaranteed or represented a high likelihood of success 
in obtaining or arranging a loan or other extension of credit.''
    The first two of these are directly consistent with the Act's 
emphasis on privacy protection, and with the intent, made explicit in 
the legislative history, that the TSR address these particular 
practices.\174\ In the Statement of Basis and Purpose for the Rule, the 
Commission stated, with respect to the prohibition on threats, 
intimidation, profane and obscene language, that these tactics ``are 
clearly abusive in telemarketing transactions.'' 60 FR 30415. The 
Commission also noted that the commenters supported this view, and 
specifically cited the fact that ``threats are a means of perpetrating 
a fraud on vulnerable victims, and that many older people can be 
particularly vulnerable * * *'' Id.
---------------------------------------------------------------------------

    \174\ ``With respect to the bill's reference to `other abusive 
telemarketing activities' * * * the Committee intends that the 
Commission's rulemaking will include proscriptions on such 
inappropriate practices as threats or intimidation, obscene or 
profane language, refusal to identify the calling party, continuous 
or repeated ringing of the telephone, or engagement of the called 
party in conversation with an intent to annoy, harass, or oppress 
any person at the called number. The Committee also intends that the 
FTC will identify other such abusive practices that would be 
considered by the reasonable consumer to be abusive and thus violate 
such consumer's right to privacy.'' H.R. Rep. No. 20, 103rd 
Congress, 1st Sess. (1993) at 8.
---------------------------------------------------------------------------

    The remaining three abusive practices identified in the Rule--
relating to credit repair services, recovery services, and advance fee 
loan services--were included in the rule under the Telemarketing Act's 
grant of authority for the Commission to prescribe rules prohibiting 
other unspecified abusive telemarketing acts or practices. The Act 
gives the Commission broad authority to identify and prohibit 
additional abusive telemarketing practices beyond the specified 
practices that implicate privacy concerns,\175\ and gives the 
Commission discretion in exercising this authority.\176\
---------------------------------------------------------------------------

    \175\ 15 U.S.C. 6102(a)(1).
    \176\ The ordinary meaning of ``abusive'' is (1) ``wrongly used; 
perverted; misapplied; catachrestic;'' (2) ``given to or tending to 
abuse,'' (which is in turn defined as ``improper treatment or use; 
application to a wrong or bad purpose''). Webster's International 
Dictionary, Unabridged 1949.
---------------------------------------------------------------------------

    As noted above, some of the practices previously prohibited as 
abusive under the Act flow directly from the Telemarketing Act's 
emphasis on protecting consumers' privacy. When the Commission seeks to 
identify practices as abusive that are less distinctly within that 
parameter, the Commission now thinks it appropriate and prudent to do 
so within the purview of its traditional unfairness analysis as 
developed in Commission jurisprudence \177\ and codified in the FTC 
Act.\178\ This approach constitutes a reasonable exercise of authority 
under the Telemarketing Act, and provides an appropriate framework for 
several provisions of the original rule as well as for the proposed 
prohibition on the transfer of preacquired billing information, as 
discussed below. Whether privacy-related intrusions or concerns might 
independently give rise to a Section 5 violation outside of the 
Telemarketing Act's purview is not addressed or affected by this 
analysis.
---------------------------------------------------------------------------

    \177\ See Letter from the FTC to Hon. Wendell Ford and Hon. John 
Danforth, Committee on Commerce, Science and Transportation, United 
States Senate, Commission Statement of Policy on the Scope of 
Consumer Unfairness Jurisdiction, appended to International 
Harvester Co., 104 F.T.C. 949, 1064 (1984); Letter from the FTC to 
Hon. Bob Packwood and Hon. Bob Kasten, Committee on Commerce, 
Science and Transportation, United States Senate, reprinted in FTC 
Antitrust & Trade Reg. Rep. (BNA) No. 1055, at 568-70 (Mar. 5, 
1982); Orkin Exterminating Company, Inc. v. FTC, 849 F.2d 1354, 
1363-68, reh'g denied, 859 F.2d 928 (11th Cir. 1988), cert. denied, 
488 U.S. 1041 (1989).
    \178\ 15 U.S.C. 45(n).
---------------------------------------------------------------------------

    The abusive practices relating to credit repair services, recovery 
services, and advance fee loan services each meet the criteria for 
unfairness. An act or practice is unfair under Section 5 of the FTC Act 
if it causes substantial injury to consumers, if the harm is not 
outweighed by any countervailing benefits, and if the harm is not 
reasonably avoidable.\179\ An important characteristic common to credit 
repair services, recovery services, and advance fee loan services is 
that in each case the offered service is fundamentally bogus. It is the 
essence of these schemes to take consumers' money for services that the 
seller has no intention of providing and in fact does not provide. Each 
of these schemes had been the subject of large numbers of consumer 
complaints and enforcement actions. Thus, each caused substantial 
injury to consumers. Amounting to nothing more than outright theft, 
these practices conferred no potentially countervailing benefits. 
Finally, having no way to know these offered services were illusory, 
consumers had no reasonable means to avoid the harm that resulted from 
accepting the offer. Thus, these practices meet the statutory criteria 
for unfairness, and accordingly, the remedy imposed by the Rule to 
correct them is to prohibit requesting or receiving payment for these 
services until after performance of the services is completed.
---------------------------------------------------------------------------

    \179\ Id.
---------------------------------------------------------------------------

Section 310.4(a)--Abusive Conduct Generally

    Section 310.4(a) of the Rule sets forth specific conduct that is 
considered to be an ``abusive telemarketing act or practice'' under the 
Rule. MPA was the only commenter to address Sec. 310.4 specifically, 
expressing its support for this section as a whole and noting that the 
practices listed as ``abusive'' clearly fall outside the practices of 
legitimate

[[Page 4512]]

companies.\180\ None of the comments recommended that changes be made 
to the current wording of Sec. 310.4(a)(1)-(3); nor has the 
Commission's enforcement experience revealed any difficulty with these 
provisions that would warrant amendment. Therefore, the language in 
these provisions remains unchanged in the proposed Rule.\181\
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    \180\ See MPA at 9.
    \181\ Section 310.4(a)(1) prohibits as an abusive practice 
``threats, intimidation, or the use of profane or obscene 
language.'' Section 310.4(a)(2) prohibits requesting advance payment 
for so-called ``credit repair'' services. NCL noted that the level 
of complaints about such bogus credit repair services, relative to 
other products and services, has remained relatively low since the 
Rule was promulgated, annually ranking 23rd or 24th on the list of 
the most frequent complaints since 1995. NCL at 11. Section 
310.4(a)(3) prohibits requesting advance payment for the recovery of 
money lost by a consumer in a previous telemarketing transaction. 
NCL reported that the number of complaints about such fraudulent 
``recovery'' services declined dramatically after the Rule was 
promulgated, from ranking 3rd in 1995 to 25th in 1997. Id.
---------------------------------------------------------------------------

    It is important to note, however, that Rule amendments mandated by 
the USA PATRIOT Act expand the reach of Sec. 310.4(a) to encompass the 
solicitation of charitable contributions. The section begins with the 
statement ``It is an abusive telemarketing act or practice and a 
violation of this Rule for any seller, or any telemarketer to engage in 
[the conduct specified in subsections (1) through (6) of this provision 
of the Rule.]'' Because the proposed Rule modifies the definitions of 
``telemarketing'' and ``telemarketer'' to encompass the solicitation of 
charitable contributions, Sec. 310.4(a) now applies to telemarketers 
engaged in the solicitation of charitable contributions, and each of 
the prohibitions in Sec. 310.4(a) will therefore now apply to those 
telemarketers soliciting on behalf of either sellers or charitable 
organizations. It is unlikely that Secs. 310.4(a)(1)-(4) will have any 
significant impact on telemarketers engaged in the solicitation of 
charitable contributions, since those sections all deal with practices 
that are commercial in nature and not associated with charitable 
solicitations. Section 310.4(a)(5) & (6) however, address practices 
that are not necessarily confined to telemarketing to induce purchases 
of goods or services, and therefore may have an impact upon 
telemarketers engaged in the solicitation of charitable contributions.
    Commenters did suggest changes to Sec. 310.4(a)(4) (which addresses 
telemarketing of advance fee loans) and identified other telemarketing 
practices that should be declared ``abusive telemarketing acts or 
practices.'' \182\ Each of those suggestions, and the Commission's 
reasoning in accepting or rejecting it, will be discussed in more 
detail below.
---------------------------------------------------------------------------

    \182\ See, e.g., AARP at 5 (ban use of courier pickups); Jordan, 
generally (ban use of prisoners as telemarketers); NAAG at 19-20 
(ban targeting vulnerable groups and ban sale of lists of victims); 
NCL at 12 (ban advance fees for credit cards).
---------------------------------------------------------------------------

Section 310.4(a)(4)--Advance Fee Loans

    Section 310.4(a)(4) prohibits requesting advance payment for 
obtaining a loan or other extension of credit when the seller or 
telemarketer has represented a high likelihood that the consumer will 
receive the loan or credit. NCL reported that the number of complaints 
it received about such advance fee loan schemes has risen steeply in 
the five years since the Rule was promulgated.\183\ In 1995, advance 
fee loan complaints ranked 15th in volume; in 1997, they had risen to 
number two.\184\ NCL speculates that one reason for the increased 
number of complaints about fraudulent advance fee loans is that 
consumers may be confused about whether and under what circumstances 
fees are legitimately required for different types of loans, and thus 
may have an increased vulnerability to fraudulent advance fee loan 
schemes.\185\
---------------------------------------------------------------------------

    \183\ FTC complaint data mirrors that provided by NCL, with 
advance fee loan complaints rising during the period from 1995 to 
2000.
    \184\ NCL at 11.
    \185\ See NCL at 11; Rule Tr. at 378-380.
---------------------------------------------------------------------------

    As a primary example of such consumer confusion, NCL reports that 
it receives numerous complaints about advance fee credit cards.\186\ 
NCL states that, unlike the deposits requested for legitimate secured 
credit cards, these offers request an advance fee for ``processing'' or 
for an ``annual fee'' for a ``guaranteed'' credit card. Moreover, NCL's 
complaints show that consumers either do not receive the cards at all 
or receive a card that is good only for purchasing items from the card-
issuer's catalog.\187\ NCL suggested that consumers often do not 
understand that legitimate credit card companies do not require a fee 
from a consumer in advance of providing a non-secured credit card.\188\ 
NCL recommended that Sec. 310.4(a)(4) of the Rule be modified 
specifically to prohibit advance fees for credit cards, suggesting that 
such a ban would make it easier for consumers to distinguish between 
legitimate and fraudulent credit card offers.\189\
---------------------------------------------------------------------------

    \186\ NCL at 12; Rule Tr. at 297-298, 376.
    \187\ NCL at 12; Rule Tr. at 297-298, 377.
    \188\ Rule Tr. at 377-378.
    \189\ NCL at 12; Rule Tr. at 297-299, 376-380.
---------------------------------------------------------------------------

    The Commission believes that the language of Sec. 310.4(a)(4) 
already prohibits such advance fee credit card offers via 
telemarketing.\190\ In fact, both the Commission and the State 
Attorneys General have brought cases challenging advance fee credit 
card offers as violations of the Rule.\191\ Therefore, the provision's 
language remains unchanged in the proposed Rule.
---------------------------------------------------------------------------

    \190\ See Rule Tr. at 297-299, 377-380. Even where the advance 
fee credit card offers described by NCL do not make promises about a 
``high likelihood of success'' in obtaining the card, thus falling 
outside the parameters of Sec. 310.4(a)(4), the offers, in most 
cases, would still violate the Rule because they fail to make the 
disclosures of material information required by Sec. 310.3(a)(1), 
make one or more misrepresentations in violation of 
Sec. 310.4(a)(2), and/or make false or misleading statements to 
induce payment in violation of Sec. 310.4(a)(4). Of course, these 
provisions apply only to credit card offers made by individuals or 
entities not exempt from coverage under the FTC Act, and so would 
not apply to advance fee credit cards marketed by a financial 
institution that is exempt from the Commission's jurisdiction under 
Section 5 of the FTC Act. 15 U.S.C. 45(a)(2).
    \191\ Rule Tr. at 378. To date, the Commission and the State 
Attorneys General have launched five law enforcement ``sweeps'' 
targeting corporations and individuals that promise loans or credit 
cards for an advance fee, but never deliver them. A recent sweep was 
announced June 20, 2000, and involved five cases filed by the FTC, 
13 actions taken by State officials, and three cases filed by 
Canadian law enforcement authorities. See, ``FTC, States and 
Canadian Provinces Launch Crackdown on Outfits Falsely Promising 
Credit Cards and Loans for an Advance Fee,'' FTC press release dated 
June 20, 2000. Among the most recent FTC cases targeting advance fee 
loans, four involved advance fee credit card schemes: FTC v. 
Financial Svcs. of North America, No. 00-792 (GEB) (D.N.J. filed 
June 9, 2000); FTC v. Home Life Credit, No. CV00-06154 CM (Ex) (C.D. 
Cal. filed June 8, 2000); FTC v. First Credit Alliance, No. 300 CV 
1049 (D. Conn. filed June 8, 2000); and FTC v. Credit Approval Svc, 
No. G-00-324 (S.D. Tex. filed June 7, 2000). In addition, another 
case against a fraudulent credit card loss protection seller also 
included elements of illegal advance fee credit card fees. FTC v. 
First Capital Consumer Membership Svcs, Inc., Civil No. 00-CV-
0905C(F) (W.D.N.Y. filed Oct. 23, 2000).
---------------------------------------------------------------------------

Section 310.4(a)(5)--Preacquired Account Telemarketing

    A major concern identified by many commenters was ``preacquired 
account telemarketing,'' a phrase coined to describe those instances 
when a telemarketer already possesses information necessary to bill 
charges to a consumer at the time a telemarketing call is initiated. 
Typically, the preacquired billing information is a credit card number 
(and related information),\192\ acquired from a

[[Page 4513]]

financial institution or some other third party. However, sellers and 
telemarketers also obtain other types of billing information in advance 
of initiating a telemarketing campaign, including debit card account 
numbers, checking account numbers, mortgage account numbers and the 
like.\193\ Usually, the acquisition of preacquired billing information 
occurs through a joint marketing agreement or other arrangement in 
which, for example, Seller A provides access to its customer billing 
information to Seller B for the purposes of marketing Seller B's goods 
or services, in exchange for a percentage of each sale.\194\ 
Telemarketers and sellers increasingly rely on such affinity 
relationships to up-sell goods and services to the customers of 
companies with which they have developed a business relationship, often 
transferring billing information as well as contact information.\195\ 
There are, however, a variety of scenarios in which preacquired account 
telemarketing may occur. Enhanced database technology has also made it 
practical for sellers to retain and reuse the billing information of 
customers with whom they have an ongoing business relationship, 
yielding yet another source of preacquired billing information--the 
seller's own files.\196\
---------------------------------------------------------------------------

    \192\ See Rule Tr. at 100-101, which cites a press release 
issued by the Minnesota Attorney General on the lawsuit that 
Minnesota brought against U.S. Bancorp for selling customer 
information. In that case, Minnesota alleged that U.S. Bancorp 
transferred large amounts of sensitive customer information to 
Memberworks, Inc., a telemarketing firm, for $4 million, plus 
commissions on any completed sales. The customer information 
transferred from U.S. Bancorp to Memberworks included, in addition 
to account number, the customer's medical status, homeowner status, 
occupation, Social Security number, date of birth, and payment 
history data, among other things. See also, Lornet Turnbull, 
``Credit-card Issuer Settles Charges of Violating Consumer Privacy 
Laws,'' The Columbus Dispatch, (Sept. 26, 2000), p. 1E.
    \193\ Consumers have reported to various law enforcement 
agencies, including the Commission, that unauthorized charges due to 
preacquired account telemarketing have appeared on mortgage 
statements, checking accounts, and telephone bills. See, e.g., LSAP 
at 2; NAAG at 10.
    \194\ Rule Tr. at 89-90; AARP at 4.
    \195\ See Rule Tr. at 95-96, 176.
    \196\ For example, a customer who places quarterly orders for 
contact lenses by calling a particular lens retailer may provide her 
billing information in an initial call, with the understanding and 
intention that the telemarketer will retain it so that, in any 
subsequent call, the retailer has access to this billing 
information. As was observed by participants in the July Forum, 
there may be certain benefits that accrue to consumers from the 
retention of their billing information by retailers with whom they 
have a continuing relationship, provided that customers understand 
the nature of their relationship with the particular seller, as well 
as the nature of any transaction for which their billing information 
may be used by that seller. During the July Forum, one commenter 
gave a non-telemarketing example of the possible benefits that might 
be enjoyed by a consumer who uses a website such as Priceline.com, 
to which she provides her credit card number and related 
information, with the intention that it be retained as a convenience 
to her in her ongoing business relationship with the company. Rule 
Tr. at 91-92. As another commenter pointed out, the key to this 
transaction is the fact that the consumer makes the decision to 
supply the billing information to the seller, and understands and 
expects that the information will be retained and that the account 
may be charged in the future, should the consumer authorize another 
purchase. Id. at 102.
---------------------------------------------------------------------------

    The issue of the use in telemarketing of preacquired billing 
information was addressed by a number of commenters, and also was the 
subject of extensive discussion at the July Forum.\197\ Record evidence 
presented by businesses and industry representatives indicates that the 
use of preacquired billing information is quite common,\198\ and that 
it allegedly saves time during telemarketing calls,\199\ presumably 
saving money as well. In the context of up-selling and affinity 
marketing, which were noted as increasingly common forms of marketing 
at the July Forum, the use of preacquired billing information is 
universal and ``very important'' to telemarketers.\200\
---------------------------------------------------------------------------

    \197\ See generally Hollingsworth at 1; LSAP at 1-4; NAAG at 10-
13; Texas at 1-2; Rule Tr. at 87-129, 311.
    \198\ See Id. at 88, 95-96.
    \199\ See Id. at 90.
    \200\ MPA stated that the use of preacquired account information 
is ``very important'' in affinity marketing campaigns. Rule Tr. at 
176-177.
---------------------------------------------------------------------------

    Comments from law enforcement representatives, consumer advocacy 
groups, and consumers criticized the use of preacquired billing 
information by telemarketers for two specific reasons. First, NAAG 
suggested that the practice ``presents inherent opportunities for abuse 
and deception,'' including the billing of unauthorized charges to the 
customer's account.\201\ According to NAAG, this practice ``generates a 
significant number of vehement consumer complaints about unauthorized 
account charges,'' \202\ a position with which NCL concurred at the 
July Forum.\203\ LSAP echoed these concerns in its comments, observing 
that, ``(a)s a result of (the) ability to preacquire such accounts, 
(the State of) Minnesota is seeing * * * telemarketers charge 
customers' accounts with questionable or complete lack of consumer 
authorization.''\204\
---------------------------------------------------------------------------

    \201\ NAAG at 10.
    \202\ Id. at 11.
    \203\ Rule Tr. at 91 (``The National Consumers League is really 
concerned about what we see as the growing use of preacquired 
account information, and it's not only credit card accounts. It's 
bank accounts. This pops up in complaints that we receive about 
buyer's clubs, about credit card loss protection plans and certain 
other telemarketing fraud categories.''), 113-114.
    \204\ LSAP at 2.
---------------------------------------------------------------------------

    These commenters noted the particular dangers for consumers that 
arise when preacquired billing information is used in combination with 
free trial offers and/or negative option plans. NAAG cited club 
membership programs sold on a free trial basis as an example of why 
this combination is troubling. Often consumers consent to having 
additional information about an offered club membership mailed for 
their review, incorrectly assuming that since they have not provided 
their billing information, they will not be charged unless they 
affirmatively take some action to accept the offer.\205\ Many consumers 
who complain about such free trial club membership programs claim to 
have been told neither that they would be charged, nor that the 
telemarketer already had their billing information.\206\ When they find 
they have been charged, many consumers are shocked and mystified, 
wondering how the telemarketer obtained their billing information.\207\
---------------------------------------------------------------------------

    \205\ See NAAG at 11-12.
    \206\ See Hollingsworth at 1; Rule Tr. at 113-114.
    \207\ Id.
---------------------------------------------------------------------------

    The second criticism of the use in telemarketing of preacquired 
billing information that commenters identified is that when the seller 
avoids the necessity of persuading the consumer to demonstrate her 
consent by divulging her billing information, the usual sales dynamic 
of offer and acceptance is inverted.\208\ One commenter suggested that 
``(a) typical telemarketing sale not involving preacquired accounts 
requires that the consumer provide his or her credit card or other 
account number to the telemarketer, or that the consumer send a check 
or sign a contract in a later transaction. * * * (By contrast, t)he 
pre-acquired account telemarketer not only establishes the method by 
which the consumer will provide consent, but also decides whether the 
consumer actually consented.'' \209\ Thus, the most fundamental tool 
consumers have for controlling commercial transactions--withholding the 
information necessary to effect payment unless and until they have 
consented to buy--is ceded, without the consumers' knowledge, to the 
seller before the sales pitch ever begins.\210\
---------------------------------------------------------------------------

    \208\ See NAAG at 10.
    \209\ Id. at 10-11.
    \210\ Id. at 10 (``Other than a cash purchase, providing a 
signature or an account number is a readily recognizable means for a 
consumer to signal assent to a deal. Preacquired account 
telemarketing removes these short-hand methods for the consumer to 
control when he or she has agreed to a purchase.'').
---------------------------------------------------------------------------

    In their comments, various law enforcement representatives and 
consumer advocacy groups offered potential solutions to the deception 
they view as resulting from the use of preacquired billing information. 
NAAG suggested that the Rule require telemarketers to obtain written 
consent from any customer before charging a preacquired account.\211\ 
LSAP recommended expanding the express verifiable authorization 
provision of Sec. 310.3(a)(3) to credit card purchases, and requiring 
that where preacquired account telemarketing occurs, express

[[Page 4514]]

authorization be obtained in the form of an oral or written statement 
from the account holder disclosing the last four digits of the account 
number to be charged.\212\ Texas opined that the Rule should require 
telemarketers to disclose: (a) That the telemarketer is already in 
possession of the consumer's billing information; (b) the anticipated 
billing date; and (c) the total amount that the consumer is agreeing to 
pay.\213\
---------------------------------------------------------------------------

    \211\ Id. at 13.
    \212\ LSAP at 4.
    \213\ Texas at 1-2. The suggested disclosure that the 
telemarketer already possesses the customer's billing information 
was echoed by some of the industry participants during the July 
Forum. See Rule Tr. at 177.
---------------------------------------------------------------------------

    Third-party sharing of preacquired billing information is an 
abusive practice. The TSR, as originally adopted, implicitly condemned 
the then-unknown practice of using preacquired billing information in 
telemarketing, and the Statement of Basis and Purpose expressly so 
stated.\214\ Nevertheless, the record developed in this proceeding 
indicates that the problematic trafficking in and use of consumers' 
billing information has become prevalent in the marketplace. Therefore, 
the Commission believes the Rule must address this in a more explicit 
and straightforward fashion.
---------------------------------------------------------------------------

    \214\ ``(A) telemarketer or seller who fails to provide the 
(Sec. 310.3(a)(1)) disclosures until the consumer's payment 
information is in hand violates the Rule.'' 60 FR 43846 (Aug. 23, 
1995).
---------------------------------------------------------------------------

    The Commission is persuaded from the record evidence and its own 
law enforcement experience that receiving from any person other than 
the consumer for use in telemarketing any consumer's billing 
information, or disclosing any consumer's billing information to any 
person for use in telemarketing constitutes an abusive practice within 
the meaning of the Telemarketing Act. The practice meets the 
Commission's traditional criteria for unfairness, in accordance with 
the Commission's view, set forth above, that the authority under the 
Telemarketing Act to prohibit ``abusive'' practices not focusing on 
consumers'' privacy should be exercised within the framework of that 
more rigorous legal standard. The Commission believes that the sharing 
of consumers' preacquired billing information causes or is likely to 
cause substantial injury to consumers which is not reasonably avoidable 
by consumers themselves and not outweighed by countervailing benefits 
to consumers or to competition. 15 U.S.C. 45(n).
    In particular, the Commission questions whether benefits to 
consumers or to competition could accrue from preacquired account 
telemarketing sufficient to outweigh the injury that the practice 
causes or is likely to cause. Although some industry members have 
claimed that preacquired account information generates efficiencies, 
the Commission has no data that identify or quantify specific 
efficiency gains. Moreover, other industry members have maintained that 
there is no legitimate reason for sharing account information.
    Finally, consumers are powerless to avoid the injury that can 
result from third party sharing of preacquired billing information, 
since making a specific purchase requires divulging one's account 
information; there is nothing in such a transaction to suggest that the 
seller or telemarketer will pass it along to third parties or use it 
for any purpose other than to bill charges for that particular 
transaction.\215\
---------------------------------------------------------------------------

    \215\ See Hollingsworth at 1; NAAG at 10-11, 20; Texas at 1-2; 
Rule Tr. at 102-107.
---------------------------------------------------------------------------

    Accordingly, the Commission proposes, in Sec. 310.4(a)(5), to 
prohibit receiving from any person other than the consumer or donor for 
use in telemarketing any consumer's or donor's billing information, or 
disclosing any consumer's or donor's billing information to any person 
for use in telemarketing. During the comment period that occurred prior 
to enactment of the USA PATRIOT Act, evidence of abuse of donors' 
billing information was neither specifically sought, nor received. 
Nevertheless, pursuant to that Act, the Commission proposes to include 
the term ``donor'' in this provision to make it clear that 
telemarketers engaged in the solicitation of charitable contributions 
must comply. Nothing in the text or legislative history of the USA 
PATRIOT Act suggests that Congress intended to exclude telemarketers 
engaged in the solicitation of charitable contributions from provisions 
like this that target abusive telemarketing practices. The Commission 
believes that the harm to donors would be no less than the harm to 
consumers were a telemarketer to receive from or disclose to third 
parties the billing information of donors.

Section 310.4(a)(6)--Blocking Caller Identification Service (``Caller 
ID'') Information

    Proposed Sec. 310.4(a)(5) would prohibit blocking, circumventing, 
or altering the transmission of, or directing another person to block, 
circumvent or alter the transmission of, the name and telephone number 
of the calling party for purposes of caller identification service 
(``Caller ID'') purposes. The Commission believes this proposed 
provision is necessary to protect consumers' privacy under the 
Telemarketing Act. The proposed provision would include a proviso that 
it is not a violation to substitute, for the phone number used in 
making the call, the actual name of the seller or charitable 
organization, and the seller's or charitable organization's customer or 
donor service telephone number, which is answered during regular 
business hours.\216\ The scope of this provision extends to cover the 
solicitation by telemarketers of charitable contributions, pursuant to 
section 1011 of the USA PATRIOT Act. The Commission believes there to 
be no meaningful distinction between telemarketers calling on behalf of 
sellers and telemarketers calling on behalf of charitable organizations 
that would merit excluding the latter from this provision of the Rule. 
In fact, the record evidence amassed during the review of the Rule 
fully supports the proposition that consumers using caller 
identification technology to screen telemarketers want to know who is 
calling them, regardless of whether the caller is soliciting them to 
purchase goods or services or to make a charitable contribution. 
Moreover, the mandate of the Telemarketing Act regarding the right to 
privacy of those called by telemarketers, which is in no way altered by 
the USA PATRIOT Act, supports coverage of the solicitation of 
charitable contributions under this provision of the Rule.
---------------------------------------------------------------------------

    \216\ For a discussion of the Rule's definition of ``caller 
identification service,'' see the explanation of Sec. 310.2(d), 
above.
---------------------------------------------------------------------------

    The Commission received numerous comments from consumers and others 
about the fact that Caller ID routinely fails to display the names and 
numbers of telemarketers. These commenters noted that the consumer's 
Caller ID device often displays only a message that the identity of the 
caller is ``unavailable,'' the caller is ``out of the area,'' or some 
similar phrase, depending on the service or device the consumer uses to 
receive this Caller ID information.\217\ The record also contains 
extensive discussion of the disparate views as to why Caller ID 
equipment often does not display the telemarketer's identity and about 
the technological and economic feasibility of transmitting that 
information.\218\ Although some commenters argue that some 
telemarketers deliberately block the

[[Page 4515]]

transmission of Caller ID information,\219\ there is record evidence 
indicating that it is technically impossible for many telemarketers to 
transmit Caller ID information because of the type of telephone system 
they use.\220\ Many telemarketers use a large ``trunk side'' connection 
(also known as a trunk or T-1 line), which is cost-effective for making 
many calls, but cannot transmit Caller ID information.\221\ Calls from 
these lines will display a term like ``unavailable'' on a Caller ID 
device, as described above.
---------------------------------------------------------------------------

    \217\ See, e.g., Baressi at 1; Bell Atlantic at 8; Blake at 1; 
Collison at 1; Lee at 1; LeQuang at 1; Mack at 1; Sanford at 1.
    \218\ See, e.g., Bell Atlantic at 8; Lesher at 1; DNC Tr. at 46-
47, 106-123, 263; Rule Tr. at 19-49.
    \219\ Bell Atlantic at 8; Lesher at 1; DNC Tr. at 46-47.
    \220\ Bell Atlantic at 8; DNC Tr. 109-110, 112-118, 263.
    \221\ Bell Atlantic at 8; Rule Tr. at 20-47. Bell Atlantic also 
states, however, that some telemarketers are using ``line side'' 
connections that are capable of transmitting Caller ID information, 
but choose to block its transmission. Bell Atlantic recommends that 
to the extent that is occurring, the Commission should prohibit 
telemarketers from blocking Caller ID. Bell Atlantic at 8. In this 
regard, the FCC has found that some PBX equipment has the capability 
of transmitting Caller ID information and also has the ability to 
suppress that information. See Rules and Policies Regarding Calling 
Number Identification Service--Caller ID, Third Report and Order, 
Memorandum Opinion and Order on Further Reconsideration, and 
Memorandum Opinion and Order on Reconsideration, FCC 97-103, CC 
Docket 91-281, 12 FCC Rcd 3867, 3882-84 (1997) (``Third Report and 
Order''). Among other issues, the Third Report and Order establishes 
new rules to govern PBX and related systems, requiring them to 
provide users (i.e., calling parties) with some type of blocking and 
unblocking capabilities. Since the agency began its rulemaking in 
1991, a major focus of the FCC proceeding has been to ensure the 
privacy of calling parties by providing the ability to block and 
unblock the transmission of calling party information.
---------------------------------------------------------------------------

    Comments from representatives of the telemarketing industry state 
that, even if it were possible to transmit a name and telephone number, 
the information would be of little use to the consumer because the 
number shown most likely would be the number of the telemarketer's 
central switchboard or trunk exchange rather than a useful number, such 
as a customer service number, where the consumer could ask to be placed 
on a ``do-not-call'' list.\222\
---------------------------------------------------------------------------

    \222\ DNC Tr. at 113-114; Rule Tr. at 41-42.
---------------------------------------------------------------------------

    Caller ID is an important tool for consumers, not only because it 
allows consumers to screen out unwanted callers, but also because it 
allows consumers to identify companies to contact to request to be 
placed on the company's ``do-not-call'' list.\223\ If the telemarketer 
subverts the transmission of its name and telephone number for Caller 
ID purposes, the telemarketer denies the consumer the means to identify 
who and where the telemarketer is, and to whom the consumer can assert 
her ``do-not-call'' rights.\224\ In order to enhance the usefulness of 
this tool, and to protect consumers' privacy and their right to be 
placed on a ``do-not-call'' list, a number of States have passed or are 
considering legislation regarding transmission of Caller ID 
information. One State legislative approach requires the seller or 
telemarketer to disclose its name and telephone number to any Caller ID 
device.\225\ A second approach prohibits the deliberate blocking of 
Caller ID information.\226\ Congress also has examined this issue; the 
most recent Congressional proposals have taken the same approaches as 
the States.\227\
---------------------------------------------------------------------------

    \223\ According to a Bell Atlantic survey of residential 
customers, three out of four customers buy Caller ID to help stop 
abusive telephone calls. Laurie Itkin, ``Caller ID Privacy Issues,'' 
1 NCSL LegisBriefs (Nov. 1, 1993). Although Caller ID began as a 
local service, the advent of new switching technology (Signaling 
System Seven or ``SS7'' switching technology) has made it possible 
for Caller ID information to be transmitted with out-of-state calls. 
See Report and Order and Further Notice of Proposed Rulemaking, FCC 
94-59, CC Docket 91-281, 9 FCC Rcd 1764 (1994) (``Report and 
Order'').
    \224\ LeQuang at 1.
    \225\ See, e.g., New Hampshire (ch. 14, effective Jan.1, 1999) 
and Texas (Tex. Utilities Code Ann. Sec. 55.1065), which require 
that, if a marketer leaves a message on an answering machine or uses 
an automatic dialing device (ADAD), the Caller ID display must 
include a telephone number at which the marketer may receive calls.
    \226\ See, e.g., Alabama (Ala. Code Sec. 8-19C-5(b)); Arizona 
(Ariz. Rev. Stat. Sec. 44-1278 subsection B, paragraph 1); Georgia 
(Ga. Code Ann. Sec. 46-5-27); Kansas (Kan. Stat. Ann. Sec. 50-
670(c)); Kentucky (Ky. Rev. Stat. Ann. Sec. 367.46955(9); Michigan 
(Mich. Comp. Laws Sec. 484.125, section 25(2)(b)); New Hampshire 
(N.H. Rev. Stat. Ann. Sec. 359-E:5a); New York (NY General Business 
Law Sec. 399-p); Tennessee (Tenn. Code Ann. Sec. 65-4-403); Texas 
(Tex. Utilities Code Ann. Sec. 55.1065); Utah (Utah Code Ann. 
Sec. 13-25a-103(6)).
    \227\ H.R. 90 (the ``Know Your Caller Act of 2001'') (introduced 
by Rep. Frelinghuysen Jan. 3, 2001 and passed by the House on Dec. 4 
2001) would prohibit telemarketers from interfering with or 
circumventing the consumer's Caller ID service. It also would 
require that the telemarketer display on the Caller ID equipment the 
name of the seller on whose behalf the call is being made and a 
valid, working telephone number the consumer may call to be placed 
on a ``do-not-call'' list. (These requirements would be implemented 
through FCC regulations.) A piece of proposed legislation in the 
previous Congress, H.R. 3180 (a bill to amend the Telemarketing Act) 
(introduced by Rep. Salmon) would have prohibited telemarketers from 
blocking their telephone number to evade a Caller ID device. Similar 
legislation was introduced in 2001: H.R. 232 (``Telemarketing 
Victims Protection Act'') (introduced by Rep. King); and S. 722 
(``Telemarketer Identification Act of 2001'') (introduced by Sen. 
Frist).
---------------------------------------------------------------------------

    Based on the record to date, it appears that the current state of 
technology may limit the ability of some telemarketers to transmit 
Caller ID information because of the type of phone line they use. 
However, the Commission recognizes that technology advances at a rapid 
pace in the telecommunications industry; what is impossible today may 
be commonplace in the future. Further, if additional legislation is 
passed requiring telemarketers to provide full, unmodified Caller ID 
information, the industry (including PBX vendors, call center solution 
providers, and other technology suppliers) may be forced to develop the 
appropriate technology to meet these regulatory mandates. Therefore, in 
Section IX of this Notice, the Commission requests comment on the 
following:
     Trends in telecommunications that might permit the 
transmission of full Caller ID information when the caller is using a 
trunk line or PBX system;
     How firms currently are meeting the regulatory 
requirements in those States that have passed such legislation; and
     The costs and benefits of complying with these 
requirements and with the Commission's proposed Rule provision.
    Although current technological limitations may restrict 
transmission of Caller ID information along some types of phone lines, 
the Commission believes that there is no reason that a legitimate 
seller, charitable organization, or telemarketer would choose to 
subvert the display of information sent or transmitted to consumers' 
Caller ID equipment.\228\
---------------------------------------------------------------------------

    \228\ The FCC requires common carriers to provide a mechanism by 
which a line subscriber can block the display of his or her name and 
telephone number on a Caller ID device. Rule Tr. at 39-40; 47 CFR 
64.1601(b). See Rules and Policies Regarding Calling Number 
Identification Service--Caller ID, Memorandum Opinion and Order on 
Reconsideration, Second Report and Order and Third Notice of 
Proposed Rulemaking, FCC 95-187, CC Docket No. 91-281, 10 FCC Rcd 
11700, 11708 (1995) (``Second Report and Order''). However, such a 
blocking mechanism is intended to ensure the privacy of individual 
line subscribers, such as those with unlisted numbers, undercover 
law enforcement investigators, or those calling from battered 
women's shelters, whose safety might be jeopardized if Caller ID 
information were displayed when they made outgoing calls. No such 
privacy concerns pertain when sellers or telemarketers are 
initiating outbound sales solicitation calls. See Itkin, ``Caller ID 
Privacy Issues.''
---------------------------------------------------------------------------

    Therefore, the Commission proposes in Sec. 310.4(a)(5) to specify 
that it is an abusive telemarketing act or practice for a seller, 
charitable organization, or telemarketer to deliberately block, 
circumvent, or interfere with the information displayed on Caller ID 
equipment. The proposed provision states that it is not a violation to 
substitute the actual name of the seller or charitable organization, 
and the seller's or telemarketer's customer or donor service number, 
which is answered during regular business hours, for the phone number 
used in making the call.
    As noted, subverting the transmission of the name or telephone 
number of the calling party for caller identification service purposes 
denies the person

[[Page 4516]]

called the means to know who and where the telemarketer is, and to whom 
a ``do-not-call'' demand should be directed. It is beyond cavil that 
this is the very type of practice Congress had in mind in directing 
that the Commission should ``identify other such abusive practices that 
would be considered by the reasonable consumer to be abusive and thus 
violate such consumer's right to privacy.'' \229\ As such, the proposed 
prohibition directly advances the Telemarketing Acts' goal to protect 
consumers' privacy. Thus, the practice is abusive under the 
Telemarketing Act, 15 U.S.C. 6102(a)(1).
---------------------------------------------------------------------------

    \229\ H.R. Rep. No. 20, 103rd Congress, 1st Sess. (1993) at 8.
---------------------------------------------------------------------------

Section 310.4(b)--Pattern of Calls

    Section 310.4(b)(1)(i) specifies that it is an abusive 
telemarketing practice to cause any telephone to ring, or to engage any 
person in telephone conversation, repeatedly or continuously, with 
intent to annoy, abuse, or harass any person at the called number. None 
of the comments recommended that changes be made to the current wording 
of Sec. 310.4(b)(1)(i). Therefore, the language in that provision 
remains unchanged in the proposed Rule.\230\ However, the expansion in 
scope of the TSR effectuated by the USA PATRIOT Act brings within the 
ambit of this provision telemarketers soliciting charitable 
contributions, as well as sellers and telemarketers making calls to 
induce the purchase of goods and services.
---------------------------------------------------------------------------

    \230\ Section 310.4(b)(1)(i) prohibits as an abusive practice 
``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.'' NASAA stated 
that this provision strikes directly at one of the manipulative 
techniques used in high-pressure sales tactics to coerce consumers 
into purchasing a product and noted that it advises consumers that 
one of the ``warning signs of trouble'' is the ``three-call'' 
technique used by fraudulent sellers of securities. NASAA at 2.
---------------------------------------------------------------------------

    Commenters did suggest changes to Sec. 310.4(b)(1)(ii) (the ``do-
not-call'' provision) and to Sec. 310.4(b)(2) (the ``safe harbor'' 
provision). Those suggestions and the Commission's reasoning in 
accepting or rejecting the recommendations are discussed in detail 
below.

Section 310.4(b)(1)(ii)--Denying or Interfering With Rights

    Proposed Sec. 310.4(b)(1)(ii) would prohibit a telemarketer from 
denying or interfering in any way with a person's right to be placed on 
a ``do-not-call'' list, including hanging up the telephone when a 
consumer initiates a request that he or she be placed on the seller's 
list of consumers who do not wish to receive calls made by or on behalf 
of that seller. The Commission received numerous comments from 
individual consumers who recounted experiences in which they had been 
hung up on when they requested to be placed on a ``do-not-call'' list. 
The telemarketers hung up on them without taking their requests, or 
used other means to hamper or impede these consumers' attempts to be 
placed on a ``do-not-call'' list.\231\ These comments were echoed by 
participants in both the ``Do-Not-Call'' Forum and the July Forum.\232\
---------------------------------------------------------------------------

    \231\ See, e.g., Conn at 1; Gilchrist at 1; Gindin at 1; Heagy 
at 1; Kelly at 1; LeQuang at 1; Mack at 1; Runnels at 1.
    \232\ See, e.g., DNC Tr. 67-68; Rule Tr. at 423-427.
---------------------------------------------------------------------------

    Pursuant to section 1011 of the USA PATRIOT Act, the Commission 
proposes to extend the reach of this provision of the Rule to encompass 
telemarketers soliciting charitable contributions. Nothing in the text 
or legislative history of that Act indicates an intention to exclude 
telemarketers soliciting charitable contributions from Rule provisions 
that, like this one, are designed to protect consumers' privacy rights. 
Moreover, the review of the Rule yielded evidence that, in some 
instances, telemarketers soliciting charitable contributions are 
unwilling to honor donors' do-not-call requests, even when threatened 
with withdrawal of future support.\233\ For the reasons set forth 
below, the Commission, therefore, proposes to extend the coverage of 
this section of the Rule to include telemarketers soliciting charitable 
contributions or purchases of goods or services.
---------------------------------------------------------------------------

    \233\ See Peters at 1.
---------------------------------------------------------------------------

    A seller or telemarketer has an affirmative duty under the Rule to 
accept a do-not-call request, and to process that request. Failure to 
do so by impeding, denying, or otherwise interfering with an attempt to 
make such a request clearly would defeat the purpose of the ``do-not-
call'' provision, and would frustrate the intent of the Telemarketing 
Act to curtail telemarketers from undertaking unsolicited telephone 
calls which the reasonable consumer would consider coercive or abusive 
of the consumer's right to privacy. 15 U.S.C. 6102(a)(3)(A).
    Therefore, the Commission proposes to specify that it is an abusive 
telemarketing act or practice to deny or interfere in any way with a 
person's right to be placed on a ``do-not-call'' list, including 
hanging up on the individual when he or she initiates such a request. 
Proposed Sec. 310.4(b)(1)(ii) would prohibit this practice, and would 
also prohibit anyone from directing another person to deny or interfere 
with a person's right to be placed on a ``do-not-call'' list. This 
aspect of the provision is proposed to ensure that sellers who use 
third party telemarketers cannot shield themselves from liability under 
this provision by suggesting that the violation was a single act by a 
``rogue'' telemarketer, where there is evidence that the seller caused 
the telemarketer to deny or defeat ``do-not-call'' requests.\234\
---------------------------------------------------------------------------

    \234\ The USA PATRIOT Act amendments retain the exclusion of 
non-profit organizations from coverage. Therefore, this language is 
not intended to reach non-profit charitable organizations.
---------------------------------------------------------------------------

Section 310.4(b)(1)(iii)--``Do-Not-Call''

    Section 310.4(b)(1)(ii) in the original Rule prohibits a seller or 
telemarketer from calling a person who has previously asked not to be 
called by or on behalf of the seller whose goods or services were being 
offered. This provision, as originally promulgated pursuant to the 
Telemarketing Act before the USA PATRIOT Act amendments, did not reach 
calls from telemarketers soliciting charitable contributions.
    The ``do-not-call'' provision of the original Rule is company-
specific: After a consumer requests not to receive calls from a 
particular company, that company may not call that consumer. Other 
companies, however, may lawfully call that same consumer until he or 
she requests each of them not to call. The effect of this provision is 
to permit consumers to choose those companies, if any, from which they 
do not wish to receive telemarketing calls. Each company must maintain 
its own ``do-not-call'' list of consumers who have stated that they do 
not wish to receive telephone calls by or on behalf of that seller. 
This seller-specific approach tracks the approach that the FCC adopted 
pursuant to its mandate under the TCPA.\235\
---------------------------------------------------------------------------

    \235\ P.L. 102-243, 105 Stat. 2394, codified at 47 U.S.C. 227. 
The FCC's regulations are set out at 47 CFR 64.1200.
---------------------------------------------------------------------------

    The Commission proposes to modify the original Rule to effectuate 
the USA PATRIOT Act amendments, and to provide consumers with an 
alternative to reduce the number of telemarketing calls they receive, 
i.e., to place themselves on a national ``do-not-call'' registry, 
maintained by the Commission. The proposed modification of the Rule's 
treatment of the ``do-not-call'' issue would enable consumers to 
contact one centralized registry to effectuate their desire not to 
receive telemarketing calls. Telemarketers would be required to 
``scrub'' their lists, removing all consumers who have placed 
themselves on the FTC's centralized registry. This

[[Page 4517]]

proposal directly advances the Telemarketing Acts' goal to protect 
consumers' privacy.
    In addition, the Commission proposes that consumers who have placed 
themselves on the FTC's national ``do-not-call'' registry could allow 
telemarketing calls from or on behalf of specific sellers, or on behalf 
of specific charitable organizations, by providing express verifiable 
authorization to the seller, or telemarketer making calls for or on 
behalf of a seller or charitable organization, that the consumer agrees 
to accept calls from that seller or telemarketer.\236\ The proposed 
Rule will provide consumers with a wider range of choices than the 
current Rule provides: They could opt to use the FTC's centralized 
registry to eliminate all telemarketing calls from all sellers and 
telemarketers covered by the TSR; they could eliminate all 
telemarketing calls from all sellers and telemarketers covered by the 
TSR by placing themselves on the central registry, but subsequently 
agree to accept telemarketing calls only from or on behalf of specific 
sellers, or on behalf of specific charitable organizations, with 
respect to which they have provided express verifiable authorization; 
or they could opt to eliminate telemarketing calls only from specific 
sellers, or telemarketers on behalf of those sellers, or on behalf of 
charitable organizations, by using the company-specific approach in the 
current rule provision and the current FCC regulations.\237\ The 
Commission proposes to set up this centralized registry for a two-year 
trial period, after which the Commission will review the registry's 
operation to obtain information about the costs and benefits of the 
central registry, as well as its regulatory and economic impact in 
order to determine whether to modify or terminate its operation.
---------------------------------------------------------------------------

    \236\ The proposed Rule lists two specific means of obtaining 
the express verifiable authorization of a consumer to receive 
telemarketing calls despite their inclusion on the national ``do-
not-call'' list: written authorization including the consumer's 
signature; and oral authorization that is recorded and authenticated 
by the telemarketer as being made from the telephone number to which 
the consumer is authorizing access. The Commission expects that 
written authorization will be necessary in most instances because 
once on the national ``do-not-call'' list, a consumer could not be 
contacted by an outbound call to request oral authorization of 
future calls. Oral authorization could be obtained, however, if the 
consumer were to place an inbound call, and was asked by the 
telemarketing sales representative during that call whether he or 
she would consent to further telemarketing solicitations from the 
party called.
    \237\ Even if the Commission were to delete the company-specific 
``do-not-call'' requirement of the original Rule, sellers and 
telemarketers would still be required to comply with the very 
similar requirements promulgated by the FCC under the TCPA.
---------------------------------------------------------------------------

    Background. Consumer frustration over unwanted telephone 
solicitations is not a new phenomenon. State and federal legislators 
and regulators have been examining the issue since the 1960's.\238\ 
What is new is the strength of the response to that frustration, as 
evidenced by, among other things, the number of States that have passed 
or are considering legislation to establish statewide ``do-not-call'' 
lists.\239\ Another indication of the intensity of consumer discontent 
on this issue is the number of people who have placed themselves on 
``do-not-call'' lists.\240\ In June, 2001, the DMA reported that the 
number of names registered with the DMA's Telephone Preference Service 
(``TPS'') has grown to 4 million, up 1 million since June of 2000.\241\ 
States report that consumers are responding in such overwhelming 
numbers to the State ``do-not-call'' statutes that some States'' 
telephone systems have crashed.\242\
---------------------------------------------------------------------------

    \238\ As early as 1965, the California Public Utilities 
Commission investigated the question of unsolicited telephone calls, 
rejecting the idea of a telephone directory symbol which would 
indicate whether the subscriber wished to receive commercial and 
charitable solicitations. McDaniel v. Pacific Telephone and 
Telegraph Co., 60 PUR 3d 47 (1965). Federal legislators also began 
to examine the ``do-not-call'' issue a number of years ago, with 
proposals such as the ``Telephone Privacy Act'' (H.R. 2338), which 
was introduced in 1973. The FCC first examined the issue of 
unsolicited telephone calls in 1978, but concluded that, at that 
time, it was not in the public interest to subject telephone 
solicitation to federal regulation. Memorandum and Order, FCC 80-
235, cc Docket No. 78-100, 77 FCC 2d 1023 (May 22, 1980). The FCC's 
action in this regard subsequently was superceded by Congress' 
enactment of the TCPA.
    \239\ DNC Tr. at 16, 137, 157-158. As of January, 2002, twenty 
(20) States had passed ``do-not-call'' statutes. Florida established 
the first State ``do-not-call'' list in 1987. (Fla. Stat. Ann. 
Sec. 501.059.) Oregon and Alaska followed with ``do-not-call'' 
statutes in 1989, although, instead of a central registry, they 
opted to require telephone companies to place a black dot by the 
names of consumers who do not wish to receive telemarketing calls. 
(1999 Ore. Laws 564; Alaska Stat. Ann. Sec. 45.50.475) In 1999, 
Oregon replaced its ``black dot'' law with a ``no-call'' central 
registry program. (Or. Rev. Stat. Sec. 464.567) See also, article 
regarding Oregon law in 78 BNA Antitrust & Trade Reg. Report 97 
(Feb. 4, 2000). After those three States adopted their statutes, 
there was little activity at the State level for about a decade. 
Then, in 1999, a new burst of legislation occurred as five more 
States passed ``do-not-call'' legislation--Alabama (Ala. Code 
Sec. 8-19C); Arkansas (Ark. Code Ann. Sec. 4-99-401); Georgia (Ga. 
Code Ann. Sec. 46-5-17; see also, rules at Ga. Comp. R & Regs. r. 
515-14-1); Kentucky (Ky. Rev. Stat. Ann. Sec. 367.46955(15); and 
Tennessee (Tenn. Code Ann. Sec. 65-4-401; see also, rules at Tenn. 
Comp. R & Regs. Chap. 1220-4-11). During 2000, six more States 
enacted ``do-not-call'' statutes--Connecticut (Conn. Gen. Stat. Ann. 
Sec. 42-288a); Idaho (Idaho Code Sec. 48-1003); Maine (Me. Rev. 
Stat. Sec. 4690-A); Missouri (Mo. Rev. Stat. Sec. 407.1098); New 
York (NY General Business Law Sec. 399-z; see also, rules at NY 
Comp. R. & Regs. tit. 12 Sec. 4602); and Wyoming (Wyo. Stat. Ann. 
Sec. 40-12-301). As of January, 2002, another six States had joined 
the ranks--California (S.B. 771, to be codified at Cal. Bus. & Prof. 
Code Sec. 17590); Colorado (H.B. 1405, to be codified at Col. Rev. 
Stat. Sec. 6-1-901); Indiana (H.B. 1222, to be codified at Ind. Code 
Ann. Sec. 24.4.7); Louisiana (H.B. 175, to be codified at La. Rev. 
Stat. 45:844.11); Texas (H.B. 472, to be codified at Tex. Bus. & 
Com. Code Ann. Sec. 43.001); and Wisconsin (2001 S.B. 55, to be 
codified at Wis. Stat.Sec. 100.52). In addition, numerous States are 
considering laws that would create State-run ``do-not-call'' lists, 
including Maryland, New Jersey, South Carolina, South Dakota, Utah, 
Vermont, and Washington. William Raney, Proactive Stance May Affect 
Pivotal Bills, DM News (Feb. 21, 2000), p. 50; Sara Marsh, Residents 
Want No-call List to Stop Telemarketers, The Capital (Annapolis, MD) 
(Sept. 24, 1999), p. B1; and Mark Hamstra, New York Senate, Assembly 
Pass Telemarketing Bills, DM News (June 19, 2000) (www.dmnews.com/articles/2000-06-19/8937.html). The ``do-not-call'' issue has also 
drawn the attention of federal legislators, who have introduced 
several bills aimed at addressing consumers' concerns. For example, 
in the 106th Congress, H.R. 3180 (introduced by Rep. Salmon) would 
have required telemarketers to tell consumers that they have a right 
to be placed on either the DMA's ``do-not-call'' list or on their 
State's ``do-not-call'' list. This proposal also would have required 
all telemarketers to obtain and reconcile the DMA and State ``do-
not-call'' lists with their call lists. Similar legislation was 
introduced in the 107th Congress by Rep. King (H.R. 232, 
``Telemarketing Victim Protection Act''). In addition, on Dec. 20, 
2001, Sen. Dodd introduced S.1881, the ``Telemarketing Intrusive 
Practices Act of 2001,'' which would require the FTC to establish a 
national ``do-not-call'' registry.
    \240\ See, e.g., Letter dated Jan. 21, 2000, from James Bradford 
Ramsay, NARUC, to Carole Danielson, FTC, and attached News Release 
(``More than 40,000 Vermont households are now enrolled in the 
national telemarketing ``do-not-call'' registry as a result of a 
statewide public awareness effort
. . ., a more than five-fold increase over pre-campaign levels.'') 
See also, DNC Tr. at 57-58, 87-89, 94-95 (Florida's list contains 
112,568 names; Kentucky has 50,000 people enrolled; Georgia has 
signed up more than 180,000 people; Oregon has 74,000 names on its 
list). Telemarketing representatives report that about 2-5% of the 
consumers they call ask to be placed on a ``do-not-call'' list. DNC 
Tr. at 57-58, 87. Connecticut reports that almost half of its 
households are on a ``do-not-call'' list. DM News (June 4, 2001). 
More than 332,000 phone lines were listed on Missouri's ``do-not-
call'' list within a short time of its passage. St. Louis Post 
Dispatch, p. 8 (April 9, 2001). New York reports more than 1 million 
households had signed up for its ``do-not-call'' list by the time it 
took effect on April 1, 2001. NY Times (Metropolitan Section), 
Section 1, p. 31 (April 1, 2001).
    \241\ Scott Hovanyetz, DMA: Telemarketing Still Tops, but 
Problems Loom, DM News (June 29, 2001) (wysiwyg://5/http://www.dmnews.com/cgi-bin/artprevbot.cgi?article_id=15954) Rule Tr. at 
409. The TPS is a list of consumers who do not wish to receive 
outbound telemarketing calls. Although not advertised, it was 
established in 1985 and has been administered by DMA, which 
subsidizes the cost. DMA does not charge a fee to consumers to place 
their names on the TPS. DMA requires consumers to submit their 
request in writing and, at this time, does not permit consumers to 
submit their names by telephone or by electronic mail. DMA requires 
its members to adhere to the list; the penalty for non-compliance is 
expulsion from the association. Sellers and telemarketers that are 
not members of DMA may purchase the TPS for a fee.
    \242\ DNC Tr. at 88-89. A representative from the Kentucky 
Attorney General's Office reported: ``There has been nothing in the 
200 years-plus of Kentucky's history that the Attorney General's 
Office has ever seen that equaled the public response to the no-call 
list . . . It literally--and I mean literally--fried our telephone 
systems. It knocked our telephone line out . . . [Tennessee's] 
telephone lines have been broken down because of the overwhelming 
response, and their list is not even ready . . . to be implemented . 
. . [Georgia] had exactly the same response, that there was truly a 
tidal wave of people who were seeking to be on the list. When told 
this . . . isn't going to stop everybody from calling, people will 
almost inevitably say, ``If it keeps one person from calling me, I'm 
better off.''

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[[Page 4518]]

    Consumer commenters unanimously expressed their strong dislike of 
telemarketing and their desire to be free of telemarketing calls, 
citing the intrusiveness and inconvenience of those calls.\243\ Not a 
single consumer comment championed telemarketing.\244\ Several 
consumers noted that telemarketing has caused many people to change 
their living habits (e.g., by screening calls) in order to avoid 
telemarketing calls.\245\ Studies also have shown that consumers feel 
angry about the number of telemarketing calls they receive. NCL 
reported that in a survey conducted in 1999, 49% of consumers who 
responded rated telemarketing at the top of the scale of activities 
that bothered them.\246\ A 1999 poll conducted by the State of Kentucky 
showed 80% of respondents found telemarketing calls to be annoying and 
intrusive, and only 10% found them to be helpful and informative.\247\ 
Similarly, a 1999 survey by the Vermont Department of Public Service 
concerning telemarketing found only 2.7% of respondents had no 
objection to receiving telemarketing calls, whereas almost 88% stated 
that they would like all telemarketing calls to stop.\248\
---------------------------------------------------------------------------

    \243\ See, e.g., Bennett at 1; Card at 1; Conway at 1; Dawson at 
1; Gilchrist at 1; Gindin at 1; Heagy at 1; Hickman at 1; Johnson at 
3; Kelly at 1; Lee at 1; Mack at 1; Manz at 1; McCurdy at 1; Nova53 
at 1; Reynolds at 1; Runnels at 1; Schmied at 1; Ver Steegt at 1.
    \244\ Only two consumer comments even approached acceptance of 
the notion that consumers might value telemarketing calls or wish to 
preserve telemarketer access to their home telephone--provided 
telemarketers changed their practices. Johnson at 1 (Could be 
effective and accepted if telemarketers were not verbally abusive, 
did not argue when listener said not interested, and did not lie.) 
See also, Runnels at 1 (``Up until past year or two, we were always 
willing to answer calls from telemarketers, and asked them to put on 
DNC list. . . . [We] typically received polite response. . . . [But] 
in the past 2 years, we have received calls from telemarketers 
unlike anything previous.'')
    \245\ See, e.g., Bennett at 1; Runnels at 1 (``We miss the days 
before telemarketers when we could invite calls from the public; we 
feel that the rise of telemarketing has thus had a negative impact 
on our relations with the community at large.'').
    \246\ Letter dated Jan. 20, 2000, from Susan Grant, NCL, to 
Carole Danielson, FTC. (``[C]onsumers were asked to rate seven 
everyday experiences on a scale from 1 to 10 in terms of what 
bothered them the most. A designation of 1 meant ``not bothered at 
all'; 10 indicated ``completely fed up.'' Telemarketing came in 
third, with 49% of the respondents giving it a top score of 10.'') 
The tabulation attached to NCL's letter also shows that only 14% of 
the respondents gave telemarketing a rating of less than 5. Id. The 
other everyday experiences rated and the percentage rated as a 10 by 
respondents were: Junk mail (59%); dialing a company and being 
answered with ``press 1 for . . .'' (54%); fine print and codes 
making bills difficult to understand (41%); credit card fees (40%); 
bank fees and ATM charges (34%); and intrusiveness of advertising 
and commercialism (30%). Id.
    \247\ 1999 Kentucky Spring Poll, submitted to FTC by Kentucky 
Office of Attorney General, Feb. 4, 2000.
    \248\ Letter dated Jan. 21, 2000, from James Bradford Ramsay, 
NARUC, to Carole Danielson, FTC, attaching Vermont survey.
---------------------------------------------------------------------------

    Efficacy of the ``do-not-call'' provision. Industry generally 
supported the Rule's current company-specific approach, stating that it 
provides consumer choice and satisfies the consumer protection mandate 
of the Telemarketing Act while not imposing an undue burden on 
industry.\249\ Several consumer commenters also stated that the current 
scheme works most of the time, although it does not work in every 
case.\250\
---------------------------------------------------------------------------

    \249\ ARDA at 2; ATA at 8-10; Bell Atlantic at 4; DMA at 2; ERA 
at 6; MPA at 16; NAA at 2; NASAA at 4; PLP at 1; see also, DNC Tr. 
at 132-180.
    \250\ See, e.g., Bennett at 1; Brass at 1; Hickman at 1; Runnels 
at 1.
---------------------------------------------------------------------------

    The vast majority of individual commenters, however, joined by 
consumer advocates and State law enforcement, claimed that the TSR's 
company-specific ``do-not-call'' provision is inadequate to prevent 
unwanted telemarketing calls.\251\ They cited several problems with the 
current ``do-not-call'' scheme as set out in the FTC and FCC 
regulations: the company-specific approach is extremely burdensome to 
consumers, who must repeat their ``do-not-call'' request with every 
telemarketer that calls;\252\ consumers'' repeated requests to be 
placed on a ``do-not-call'' list are ignored;\253\ consumers have no 
way to verify that their names have been taken off a company's 
list;\254\ consumers find that using the TCPA's private right of action 
\255\ is a very complex and time-consuming process, which places an 
evidentiary burden on the consumer who must keep detailed lists of who 
called and when; \256\ and finally, even if the consumer wins a lawsuit 
against a company, it is difficult for the consumer to enforce the 
judgment.\257\
    Some of the criticisms of the efficacy of the current ``do-not-
call'' scheme will be addressed by other proposed amendments to the 
Rule. For example, many commenters complained that they cannot exercise 
their private right of action because telemarketers do not identify 
themselves and hang up when consumers try to assert their ``do-not-
call'' rights.\258\ This problem is addressed through the proposed new 
prohibition in Sec. 310.4(b)(1)(ii) against denying or interfering in 
any way with consumers' right to be placed on a ``do-not-call'' 
list.\259\
---------------------------------------------------------------------------

    \251\ See, e.g., Anderson at 1; Bennett at 1; Card at 1; Conway 
at 1; Garbin at 1; A. Gardner at 1; Gilchrist at 1; Gindin at 1; 
Harper at 1; Heagy at 1; Johnson at 1; McCurdy at 1; Menefee at 1; 
Mey generally; Mitchelp at 1; Nova53 at 1; Peters at 1; Rothman at 
1; Vanderburg at 1; Ver Steegt at 1; Worsham at 1; NAAG at 17-19; 
NCL at 13-14. See also, DNC Tr. at 132-180.
    \252\ See Garbin at 1; NAAG at 17; Ver Steeg at 1.
    \253\ See Harper at 1; Heagy at 1; Holloway at 1; Johnson at 1; 
Menefee at 1; Mey generally; Nova53 at 1; Nurik at 1; Peters at 1; 
Rothman at 1; Runnels at 1; Schiber at 1; Schmied at 1; Vanderburg 
at 1.
    \254\ See McCurdy at 1; Schiber at 1.
    \255\ The TCPA permits a person who receives more than one 
telephone call in violation of the FCC's ``do-not-call'' rules to 
bring an action in an appropriate State court to enjoin the 
practice, to receive money damages, or both. The consumer may 
recover actual monetary loss from the violation or receive $500 in 
damages for each violation, whichever is greater. If the court finds 
that a company willfully or knowingly violated the FCC's ``do-not-
call'' rules, it can award treble damages. 47 U.S.C. 227(b)(3).
    \256\ See Kelly at 1; NAAG at 17-19; NACAA at 2; NCL at 13-14.
    \257\ See Kelly at 1.
    \258\ See, e.g., Gindin at 1; Haines at 1; Heagy at 1; Hecht at 
1; Holloway at 1; Kelly at 1; LeQuang at 1; Mack at 1; Manz at 1; 
Merritt at 1; Runnels at 1; Sanford at 1; Schiber at 1; Thai at 1; 
see also Rule Tr. at 422-427. Some hang-ups occur when the consumer 
answers the telephone only to hear a ``click'' as the phone 
disconnects. These hang-ups are due to the use of predictive 
dialers, a problem that is discussed in greater detail in connection 
with the oral disclosures required by Sec. 310.4(d).
    \259\ Other consumers complained that many companies require the 
consumer to use ``magic words'' in asserting their ``do-not-call'' 
rights. See, e.g., Gilchrist at 1 (company said it did not keep a 
``do-not-call'' list, but only a ``no contact'' list and would not 
accept consumer's request unless consumer asked to be placed on ``no 
contact'' list); Weltha at 1. The Commission was very clear in the 
Statement of Basis of Purpose that any form of ``do-not-call'' 
request is sufficient, and no ``magic words'' are necessary to 
provide notice: ``Any form of request that the consumer does not 
wish to receive calls from a seller will suffice. An oral statement 
as simple as ``Do not call again'' is effective notice.'' 60 FR at 
43855.
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    Proposed ``do-not-call'' provision. The Commission is mindful of 
the criticism that the company-specific approach in the current Rule's 
``do-not-call'' provision is cumbersome and burdensome for those 
consumers who do not wish to receive any telemarketing calls at all. 
The Commission believes that the current approach is inadequate to 
fulfill the mandate in the Telemarketing Act that the Commission should 
prohibit telemarketers from undertaking ``a pattern of unsolicited 
telephone calls which the reasonable consumer would consider coercive 
or abusive of such consumer's right to privacy.'' \260\ As such, the 
proposed modification of the Rule promotes the

[[Page 4519]]

Act's privacy protections. These consumers would benefit from a 
national registry they could contact to request to receive no 
telemarketing calls from or on behalf of any seller, or on behalf of 
any charitable organization, whatsoever. In fact, many commenters 
supported the concept of a national ``do-not-call'' database.\261\ 
Consumers and State law enforcement representatives stated that a 
national ``do-not-call'' list would provide a ``one-stop'' method of 
allowing consumers to reach many telemarketers quickly and would 
enhance consumers' ability to assert their ``do-not-call'' rights.\262\
---------------------------------------------------------------------------

    \260\ 15 U.S.C. 6102(a)(3)(A).
    \261\ See, e.g., ARDA at 4; Bennett at 1; Card at 1; Collison at 
1; Conway at 1; Dawson at 1; A. Gardner at 1; Gibb at 1; Gilchrist 
at 1; Gindin at 1; McCurdy at 1; Mey at 2; NAAG at 18; NACAA at 2; 
NCL at 14; NFN at 2-3; Schmied at 1.
    \262\ See, e.g., Bennett at 1; Card at 1; Collison at 1; Conway 
at 1; Dawson at 1; A. Gardner at 1; Gibb at 1; Gilchrist at 1; 
Gindin at 1; McCurdy at 1; NAAG at 17-19; NACAA at 2; NCL at 14; 
Schmied at 1.
---------------------------------------------------------------------------

    Some industry representatives also supported a national ``do-not-
call'' list, stating that it would be preferable to a patchwork of 50 
different State ``do-not-call'' laws.\263\ Industry representatives 
generally expressed concern about the proliferation of State 
telemarketing laws, including ``do-not-call'' statutes, indicating that 
complying with myriad State laws imposes significant economic costs to 
business.\264\ The Commission recognizes that this is very important, 
and requests comment on the interplay between the national registry and 
State ``do-not-call'' schemes and poses a number of questions in 
Section IX of this Notice specifically designed to elicit information 
on this issue.
---------------------------------------------------------------------------

    \263\ See, e.g., ARDA at 4; NFN at 2-3.
    \264\ See, e.g., ARDA at 2-4; ATA at 6-8; Bell Atlantic at 4-7; 
DMA at 6-7; Gannett at 1; KTW at 3-4; MPA at 11, 16; NFN at 2; Reese 
at 3, 11-12; Verizon at 2-3.
---------------------------------------------------------------------------

    A national registry would eliminate many of the burdens to 
consumers of the company-specific approach. They would only have to 
register once in order to make their preferences known to all 
telemarketers under the FTC's jurisdiction, instead of having to make 
the same request to many companies. Moreover, this proposed revision 
addresses industry's suggestion that consumers may not desire an all-
or-nothing approach to telemarketing calls. Consumers who wish to 
receive telemarketing calls only from specific companies could place 
themselves on the national registry, but provide express verifiable 
written authorization to specific sellers in which they agree to accept 
telemarketing calls from those sellers. Alternatively, consumers who do 
not object to telemarketing calls generally but do not want such calls 
from or on behalf of specific sellers or on behalf of specific 
charitable organizations would still be able to choose to use the 
company-specific approach set up by the FCC, also embodied in 
Sec. 310.4(b)(1)(iii)(A) of the proposed Rule.
    Industry representatives expressed skepticism about the need to 
strengthen the ``do-not-call'' provisions of the Rule. In this regard, 
they advanced two arguments. First, they asserted that sellers and 
telemarketers covered by the Rule generally comply with the ``do-not-
call'' provisions, and that non-covered entities--e.g., banks, non-
profit organizations, and companies engaged in common carrier 
activity--are the primary source of consumer complaints about ``do-not-
call'' requests being ignored.\265\ The extension of TSR coverage, 
pursuant to the USA PATRIOT Act amendments, to encompass telemarketing 
calls to solicit charitable contributions will increase the range of 
covered calls and presumably decrease complaints about do-not-call 
compliance. Industry's second argument is that although many consumers 
may broadly express the view that they would prefer not to receive any 
telemarketing calls, when it comes down to particulars, their true 
wishes may be somewhat different.\266\ The same consumers who say they 
would like to stop receiving telemarketing calls may actually welcome 
certain types of telemarketing calls--for example, special sale price 
offers from companies with which they have previously transacted 
business. The proposed Rule addresses this concern because consumers 
could selectively agree to receive calls from specific companies, or 
from telemarketers on behalf of specific charitable organizations, or 
could still choose the company-specific approach set up by the FCC's 
regulations.
---------------------------------------------------------------------------

    \265\ DMA at 4-5; ERA at 4; DNC Tr. 96-99, 132-133. The 
Commission notes that, although certain entities such as non-profit 
organizations, companies engaged in common carrier activity, and 
banks may be exempt from the FTC Act, any third-party telemarketer 
hired by an exempt entity to conduct its telemarketing activities 
would be covered by the TSR. See 60 FR at 43843.
    \266\ See, e.g., DNC Tr. 108, 164.
---------------------------------------------------------------------------

    Taking all the record evidence into account, the Commission 
proposes to amend the Rule to provide consumers with the option to 
contact a national registry maintained by the Commission to indicate 
that they do not wish to receive any telemarketing calls, and, in 
addition, to provide express verifiable written authorization to a 
seller or charitable organization in which they agree to accept 
telemarketing calls from or on behalf of that seller or on behalf of 
that charitable organization.
    Relationship to FCC regulations. The Commission's proposed 
amendment to its ``do-not-call'' provision is consistent with the FCC's 
regulations. Companies can comply with both regulations. The Commission 
intends that its proposed ``do-not-call'' provision not be construed to 
permit any conduct that is precluded or limited by FCC regulations. For 
example, the FTC does not intend that anything in the TSR or this 
Notice provide any basis to argue that the FCC is precluded from 
requiring that a ``do-not-call'' list be maintained for a specific 
period of time, or for a period of time that may be greater than may be 
required under the FTC's Rule. Similarly, nothing in the TSR or this 
Notice provides any support for an assertion that the FCC cannot 
require a company's written ``do-not-call'' policy be provided to 
consumers upon request.
    In this respect, several industry commenters pointed out that the 
FCC has issued an interpretation stating that the TCPA does not require 
companies to accept ``do-not-call'' lists from third-party 
organizations.\267\ These commenters asked the Commission to clarify 
whether the TSR requires them to accept ``do-not-call'' lists from 
third parties. The Commission believes that its proposed national 
registry will obviate industry members' uncertainty about whether to 
accept ``do-not-call'' lists from third parties. The Commission 
believes that the proposed ``do-not-call'' provision is sufficiently 
simple and accessible for consumers that they are unlikely to turn to 
third-party alternatives.
---------------------------------------------------------------------------

    \267\ See DMA at 7-8; NAA at 4; and Letter dated Aug. 19, 1998, 
from Geraldine A. Matise, FCC to James T. Bruce, Wiley, Rein & 
Fielding.
---------------------------------------------------------------------------

    Related to this issue is the question of whether the national 
registry might be presented with consumer ``do-not-call'' requests 
compiled by third parties. The Commission recognizes that third-party 
lists, if presented, may not provide either the level of accuracy or 
consumer choice of call preferences available through the national 
registry. Moreover, to ensure that only the consumers who actually wish 
to be on the ``do-not-call'' registry are placed there, it is 
anticipated that enrollment on the national registry will be required 
to be made by the individual consumer from the consumer's home 
telephone. The Commission, therefore, requests comment on what the 
costs and/or benefits might be to the incorporation or refusal of 
third-party consumer lists by certified registries. In addition, the

[[Page 4520]]

Commission requests comment on whether verification should occur and, 
if so, what form the verification should take.
    Finally, several industry representatives asked the Commission to 
set a single national standard for how long a company may take to place 
a consumer on its ``do-not-call'' list.\268\ With regard to company-
specific lists, the Commission declines to second-guess the FCC's 
ruling. There is insufficient evidence in the record to justify such 
action that would introduce the specter of inconsistency between the 
two sets of regulations. With regard to the national registry, under 
proposed Sec. 310.4(b)(2)(iii), a seller or telemarketer will not be 
held liable for violating the ``do-not-call'' requirements of 
Secs. 310.4(b)(1)(ii) and (iii) if, among other things, it obtains and 
reconciles on no less than a monthly basis the names and/or telephone 
numbers of those persons who have been placed on the national registry.
---------------------------------------------------------------------------

    \268\ See DMA at 5-6; KTW at 5; NFN at 1-2.
---------------------------------------------------------------------------

Section 310.4(b)(3)--Commission Review

    Proposed Sec. 310.4(b)(3) sets out the Commission's intention to 
review the operation of its national registry after two years. During 
that review, the Commission will obtain information about the costs and 
benefits of the central registry, as well as its regulatory and 
economic impact. Based on the information received, the Commission will 
determine whether to modify aspects of the registry's operation or 
whether to terminate the registry's operation.

Section 310.4(b)(2)--``Do-Not-Call Safe Harbor''

    Section 310.4(b)(2) provides sellers and telemarketers with a 
limited safe harbor from liability for violating the ``do-not-call'' 
provision found in proposed Sec. 310.4(b)(1)(iii). During the original 
rulemaking, the Commission determined that sellers and telemarketers 
should not be held liable for calling a person who previously asked not 
to be called if they had made a good faith effort to comply with the 
Rule's ``do-not-call'' provision and the call was the result of error. 
The Rule established four requirements that a seller or telemarketer 
must meet in order to avail itself of the safe harbor: (1) It must 
establish and implement written procedures to comply with the ``do-not-
call'' provision; (2) it must train its personnel in those procedures; 
(3) it must maintain and record lists of persons who may not be 
contacted; and (4) any subsequent call must be the result of error.
    These criteria tracked the FCC's regulations, which set forth the 
minimum standards that companies must follow to comply with the TCPA's 
``do-not-call'' provision.\269\ Proposed Sec. 310.4(b)(2) contains 
three additional requirements that must be met before sellers or 
telemarketers may avail themselves of the ``safe harbor'': (1) Sellers 
and telemarketers must obtain and reconcile on not less than a monthly 
basis the names and/or telephone numbers of persons who have been 
placed on the Commission's national registry; (2) for those consumers 
whose telephone numbers are in the national registry but who have 
agreed to accept telemarketing calls from or on behalf of the seller, 
or on behalf of a specific charitable organization, the seller and 
telemarketer must maintain the consumers' express verifiable 
authorizations to call; and (3) sellers and telemarketers must monitor 
compliance and take disciplinary action for non-compliance. Although 
these criteria are not among the minimum standards contained in the 
FCC's regulations for the TCPA company-specific ``do-not-call'' regime, 
the additional criteria in the proposed Rule do not conflict with the 
FCC regulations. As discussed above, the FCC regulations are silent as 
to any requirement to reconcile names or numbers from a national 
registry because the FCC regulations relate only to company-specific 
lists.\270\ Therefore, any FTC requirement about obtaining and 
reconciling telephone numbers placed in a national registry would not 
conflict with the FCC's regulations. Similarly, the FCC regulations are 
silent as to the requirement to monitor compliance and take action to 
correct any non-compliance, or to maintain evidence of express 
verifiable written authorization to accept telemarketing calls. Thus, 
the proposed Rule would not conflict with the FCC's regulations. As 
discussed more fully below, the Commission believes that it is 
necessary for the proposed Rule to diverge from the FCC regulations by 
imposing a monitoring requirement in the ``safe harbor'' provision in 
order to clarify the applicability of the safe harbor.
---------------------------------------------------------------------------

    \269\ 47 CFR 64.1200(e)(2).
    \270\ The FCC regulations require companies to reconcile ``do-
not-call'' requests for company-specific lists on a continuing or 
ongoing basis. Specifically, 47 CFR 64.1200(e)(2)(iii) requires the 
seller or telemarketer to record the consumer's ``do-not-call'' 
request and place the consumer's name and telephone number on the 
company's ``do-not-call'' list at the time the request is made. The 
TSR is silent as to how frequently a company must reconcile ``do-
not-call'' requests for company-specific lists.
---------------------------------------------------------------------------

    Commenters generally supported the safe harbor, stating that strict 
liability is inappropriate where a company has made a good faith effort 
to comply with the Rule's requirements and has implemented reasonable 
procedures to do so.\271\ NASAA noted that it was good public policy to 
reward firms that have been proactive in attempting to comply with the 
Rule, and that such a safe harbor provides guidelines for industry 
``best practices.'' \272\ The same rationale applies with equal force 
to allowing telemarketers that solicit charitable contributions to 
avail themselves of the safe harbor.
---------------------------------------------------------------------------

    \271\ See ARDA at 4; ERA at 6; NASAA at 3.
    \272\ NASAA at 3.
---------------------------------------------------------------------------

    The Commission continues to believe that the Rule should contain a 
safe harbor provision for violations of its ``do-not-call'' provision. 
Sellers or telemarketers who have made a good faith effort to provide 
consumers or donors with an opportunity to exercise their ``do-not-
call'' rights should not be liable for violations that result from 
error.\273\ The Commission believes the same rationale applies to 
potential violations of proposed Sec. 310.4(b)(1)(ii), and therefore 
proposes to modify the introductory sentence of Sec. 310.4(b)(2) to 
provide a safe harbor for violations of both proposed 
Secs. 310.4(b)(1)(ii) and (iii). Section 310.4(b)(1)(ii) prohibits a 
seller or telemarketer from denying or interfering with a person's 
right to be placed on a ``do-not-call'' list, whereas 
Sec. 310.4(b)(1)(iii) prohibits calling a person who has previously 
requested to be placed on such a list. The original Rule provided safe 
harbor protection only for violations of the ``do-not-call'' provision. 
The proposed Rule would expand that safe harbor protection to 
violations of the provision that prohibits denying or interfering with 
the consumer's or donor's right to be placed on a ``do-not-call'' list.
---------------------------------------------------------------------------

    \273\ The Commission recognizes that the implementation of 
proposed national ``do-not-call'' list will present logistical 
challenges such as a viable means of purging from the list telephone 
numbers which have been, subsequent to their inclusion on the 
national ``do-not-call'' list, reassigned to new customers. The 
Commission has included, in Section IX of this Notice, questions 
about how best to accomplish this, as well as whether to include in 
the Rule safe harbor provisions addressing calls made to such 
numbers.
---------------------------------------------------------------------------

    However, while expanding the scope of the safe harbor provision, 
the Commission also proposes to tighten it by requiring sellers and 
telemarketers to monitor compliance and take disciplinary action for 
non-compliance in order to be eligible for the safe harbor. Proposed 
Sec. 310.4(b)(2)(vi)

[[Page 4521]]

requires the seller or telemarketer to monitor and enforce compliance 
with the procedures established in Sec. 310.4(b)(2)(i).
    Numerous commenters described the problems they had encountered in 
attempting to assert their ``do-not-call'' rights and with companies 
that continued to call after the consumer asked not to be called.\274\ 
This anecdotal evidence indicates that some entities may not be 
enforcing employee compliance with their ``do-not-call'' policies. In 
fact, one consumer reported that telemarketers for two different 
companies told her that it was not necessary that a company's ``do-not-
call'' policy be effective, only that such a policy exist.\275\
---------------------------------------------------------------------------

    \274\ See, e.g., Bennett at 1; A. Gardner at 1; Gilchrist at 1; 
Gindin at 1; Harper at 1; Heagy at 1; Johnson at 3; McCurdy at 1; 
Menefee at 1; Mey, generally; Nova53 at 1; Peters at 1; Runnels at 
1.
    \275\ Mey at 2.
---------------------------------------------------------------------------

    To clarify this apparent misconception about the Rule's 
requirements, proposed Sec. 310.4(b)(2)(iii) would require that, in 
order to avail themselves of the safe harbor provision, sellers and 
telemarketers must be able to demonstrate that, in the ordinary course 
of business, they monitor and enforce compliance with the written 
procedures required by Sec. 310.4(b)(2)(i). For example, it is not 
enough that a seller or telemarketer has written procedures in place; 
the company must be able to show that those procedures have been and 
are implemented in the regular course of business. Thus, a seller or 
telemarketer cannot take advantage of the safe harbor exemption in 
Sec. 310.4(b)(2) unless it can demonstrate that it actually trains 
employees in implementing its ``do-not-call'' policy, and enforces that 
policy.

Section 310.4(c)--Calling Time Restrictions

    Section 310.4(c) prohibits telemarketing calls before 8:00 a.m. and 
after 9:00 p.m. local time at the called person's location. Several 
commenters suggested that the Commission change the calling time 
restrictions in Sec. 310.4(c), stating that unwanted telemarketing 
calls are particularly abusive when received during the hours around 
dinner time.\276\ One commenter suggested that only the consumer should 
be allowed to determine what are convenient calling times, while others 
suggested other restrictions, such as permitting calls only between 9 
a.m. and 5 p.m.\277\ The Commission believes the current calling time 
restrictions provide reasonable protections for the consumer's privacy 
while not unduly burdening industry. Moreover, the current provision is 
consistent with the FCC's regulations under the TCPA.\278\ As the 
Commission discussed in the Rule's Statement of Basis and Purpose, by 
altering the permitted calling hours under the Rule, the Commission 
would introduce a conflict in the federal regulations governing 
telemarketers.\279\ The record on this issue has not provided any new 
evidence that would warrant a change that would produce such a result. 
However, the Commission has posed questions in Section IX of this 
Notice asking whether it might be workable to allow consumers to select 
to receive telemarketing calls only on certain days or during certain 
hours. The Commission poses the questions about the costs and benefits 
of selective day and time opt out to provide similar flexibility for 
consumers and telemarketers in developing a schedule for telemarketing 
that would be mutually agreeable.
---------------------------------------------------------------------------

    \276\ See, e.g., Conway at 1; Garbin at 1; Hickman at 1; McCurdy 
at 1; Nurik at 1. NASAA indicated that it supports this provision, 
which has also been adopted by the National Association of 
Securities Dealers (``NASD'') in their Telemarketing Conduct Rule 
2211(a), because it prevents and limits abusive and high-pressure 
sales tactics. NASAA at 2.
    \277\ See Conway at 1; Hickman at 1; Garbin at 1; McCurdy at 1.
    \278\ 47 CFR 64.1200(e)(1): ``No person or entity shall initiate 
any telephone solicitation to a residential telephone subscriber 
before the hour of 8:00 a.m. or after 9:00 p.m. (local time at the 
called party's location).''
    \279\ 60 FR at 43855.
---------------------------------------------------------------------------

    Pursuant to Section 1011 of the USA PATRIOT Act, the Commission 
proposes to expand the coverage of this prohibition to encompass calls 
made by telemarketers, whether on behalf of sellers or charitable 
organizations, that are made outside the permissible hours set forth in 
this provision.

Section 310.4(d)--Required Oral Disclosures To Induce Purchases of 
Goods or Services

    Section 310.4(d) sets out certain oral disclosures that 
telemarketers must promptly make in any outbound telephone call made to 
induce the purchase of goods or services. Commenters generally 
supported this provision, but suggested several modifications or 
clarifications. Those suggestions and the Commission's reasoning in 
accepting or rejecting them are discussed in detail below. In summary, 
the Commission has determined to retain the wording of Sec. 310.4(d) 
with two relatively minor modifications. First, the Commission proposes 
to insert, after the phrase ``in an outbound telephone call,'' the 
phrase `` to induce the purchase of goods or services.'' This will 
clarify that Sec. 310.4(d) applies only to telemarketing calls made to 
induce sales of goods or services (in contrast to proposed new 
Sec. 310.4(e), which contains an analogous phrase clarifying that 
Sec. 310.4(e) will apply to calls made ``to induce a charitable 
contribution''). Second, the Commission proposes to modify 
Sec. 310.4(d)(4) to require that the telemarketer disclose that a 
purchase will not enhance a customer's chances of winning a prize or 
sweepstakes.

Section 310.4(d)(4)--Sweepstakes Disclosure

    The Telemarketing Act directed the Commission to include in the TSR 
provisions addressing specific ``abusive'' telemarketing practices, 
including the failure to ``promptly and clearly disclose to the person 
receiving the call that the purpose of the call is to sell goods or 
services and make such other disclosures as the Commission deems 
appropriate, including the nature and price of the goods and 
services.'' \280\ Section 310.4(d)(4) requires that a telemarketer 
promptly disclose that no purchase or payment is necessary to be 
eligible to win a prize or participate in a prize promotion if a prize 
promotion is offered. In the original rulemaking, the Commission 
determined, based on its extensive law enforcement experience, that 
fraudulent telemarketers had frequently used sweepstakes promotions to 
disguise the fact that the purpose of the call is to sell goods or 
services.\281\
---------------------------------------------------------------------------

    \280\ 15 U.S.C. 6102(a)(3)(C).
    \281\ 60 FR 43857.
---------------------------------------------------------------------------

    NCL recommended that this provision be modified to require the 
telemarketer to disclose that making a purchase will not improve a 
customer's chances of winning.\282\ NCL noted that this disclosure 
would be consistent with the requirements for direct mail solicitations 
under the DMPEA.\283\
---------------------------------------------------------------------------

    \282\ See NCL at 9.
    \283\ Id. 39 U.S.C. 3001(k)(3)(A)(II).
---------------------------------------------------------------------------

    Since the original rulemaking, law enforcement experience and the 
legislative history of the DMPEA strongly suggest that many consumers, 
particularly the elderly, get the impression, based on the overall 
presentation of a prize promotion, that purchasing something enhances 
their chances of winning.\284\ Creating such an impression undermines 
one of the protections the Telemarketing Act intended to provide: 
keeping the purpose of a telemarketing call--to sell goods or 
services--clearly in the

[[Page 4522]]

forefront from the start of the call.\285\ Therefore, the Commission 
proposes that Sec. 310.4(d)(4) be amended to require that a 
telemarketer in an outbound call disclose promptly and in a clear and 
conspicuous manner to the customer receiving the call that making a 
purchase will not improve the customer's chances of winning. This 
disclosure would clarify for consumers that any sweepstakes or prize 
promotion is separate from the sale of the product and thus is 
consistent with the Act's mandate to prohibit telemarketers from 
failing to disclose the purpose of the call, as well as the nature and 
price of the goods and services to be sold.
---------------------------------------------------------------------------

    \284\ See discussion above regarding proposed changes to 
Sec. 310.3(a)(1)(iv).
    \285\ 15 U.S.C. 6102(a)(3)(C).
---------------------------------------------------------------------------

Section 310.4(e)--Required Oral Disclosures To Induce Charitable 
Contributions

    Section 1011(b)(2)(D) of the USA PATRIOT Act mandates that the 
Commission include in the TSR provisions that address abusive 
practices:

a requirement that any person engaged in telemarketing for the 
solicitation of charitable contributions, donations, or gifts of 
money or any other thing of value, shall promptly and clearly 
disclose to the person receiving the call that the purpose of the 
call is to solicit charitable contributions, donations, or gifts, 
and make such other disclosures as the Commission considers 
appropriate, including the name and mailing address of the 
charitable organization on behalf of which the solicitation is made.

Accordingly, the Commission proposes to add new section 310.4(e), 
specifying that ``it is an abusive telemarketing act or practice and a 
violation of this Rule for a telemarketer, in an outbound telephone 
call to induce a charitable contribution, to fail to disclose 
truthfully, promptly, and in a clear and conspicuous manner to the 
person receiving the call * * * (1) the identity of the charitable 
organization on behalf of which the request is being made; and (2) that 
the purpose of the call is to solicit a charitable contribution.''
    A TSR provision requiring disclosure of the purpose of the call is 
mandated by section 1011(b)(2)(D). Proposed TSR Sec. 310.4(e)(2) 
therefore, requires that disclosure. In addition, pursuant to the 
discretionary authority under Sec. 1011(b)(2)(D) to require other 
prompt and clear disclosures (including the charitable organization's 
name), proposed TSR Sec. 310.4(3)(2) would also require disclosure of 
the identity of the charitable organization. Prompt disclosure of this 
information is the minimum necessary for a prospective donor to know 
whether he or she wishes to allow the solicitation to continue--and 
ultimately, whether he or she wishes to donate.\286\
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    \286\ The Commission is mindful that under Riley v. Nat'l Fed. 
of the Blind, 487 U.S. 781 (1988), the range of affirmative 
disclosures that can be required, consistent with strong First 
Amendment protection of charitable fundraising, is strictly 
constrained. However, the Commission believes such a narrowly 
tailored disclosure is permitted by the First Amendment. See id. at 
799 n.11.
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    As noted, the statute specifically mentions a charitable 
organization's mailing address as another disclosure within the 
Commission's discretion to require. The statute, however, does not 
require the Commission to adopt such a requirement, and accordingly, 
the Commission does not propose to do so. Such a requirement may impose 
costs on charities and telemarketers but produce few if any benefits--
although possibly considerable annoyance--on the part of individuals 
interested only in abbreviating the call. In Section IX of this notice 
the Commission therefore has included questions on this issue 
specifically designed to elicit information as to whether such a 
disclosure would be appropriate or necessary. For example, the 
Commission asks whether the purposes of the USA PATRIOT Act could best 
be served by requiring prompt disclosure of this information only when 
the donor is interested enough to ask for it. In such a case, non-
disclosure could possibly result in consumer harm, since absent a TSR 
requirement to disclose this information, consumers would likely have 
little alternative means to obtain it as a starting point in verifying 
the bona fides of a purported charitable organization requesting a 
donation. The Commission specifically seeks additional comment and 
information on this issue.
Other Recommendations by Commenters Regarding Allegedly Abusive 
Practices
    Commenters raised additional issues related to abusive practices, 
urging the Commission to add to the list of practices prohibited by the 
TSR as abusive. These commenters were concerned about several 
practices: The use of predictive dialers; prison-based telemarketing; 
telemarketers' use of courier services to pick up payments from 
consumers; telemarketers' targeting of vulnerable groups; and the sale 
of victim lists. In addition, several commenters asked the Commission 
to define the word ``promptly'' in Sec. 310.4(d). A number of 
commenters also asked the Commission to clarify when the disclosures 
required by that provision should be given in the case of multiple 
purpose calls and recommended that Sec. 310.4(d) be amended to address 
multiple purpose calls by requiring that telemarketers promptly 
disclose the cost of the product or service before mentioning any 
sweepstakes or other purpose of the call. Finally, one commenter 
recommended that the Commission amend Sec. 310.4(d) to require that 
telemarketers disclose the address and telephone number of the 
telemarketer. Each of these recommendations, and the reasoning behind 
the Commission's response to them, are discussed in detail below.
    Predictive Dialers. A predictive dialer is an automatic dialing 
software program that, through a complex set of algorithms, 
automatically dials consumers' telephone numbers in a predetermined 
manner and at a predetermined time such that the consumer will answer 
the phone at the same time that a telemarketer is free to take the 
call.\287\ These software programs are set up to predict when a 
telemarketer will be free to take the next call, in order to minimize 
the amount of downtime for the telemarketer.\288\ In some instances, 
however, when a consumer answers the phone, there is no telemarketer 
free to take the call. In those instances, the predictive dialer 
disconnects the call and the consumer either hears nothing (``dead 
air'') or hears a click as the dialer hangs up.\289\
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    \287\ See DNC Tr. at 34, 46.
    \288\ See DNC Tr. at 34.
    \289\ Another cause of dead air is slow connect times that 
create a delay between the consumer saying ``hello'' and the agent 
getting a tone in his or her ear. The agent does not hear the 
initial ``hello.'' The consumer who hears only dead air after saying 
``hello'' generally hangs up the phone after a few seconds. Clifford 
G. Hurst, Will We Kill the Goose? 11 Teleprofessional, Nov. 1998, at 
70.
---------------------------------------------------------------------------

    A major theme throughout the comments has been consumer frustration 
with the ``hang-ups'' and dead air associated with the industry's use 
of predictive dialers.\290\ In fact, a representative from one 
Washington, DC area consumer protection agency reported that the 
problem of dead air calls due to the use of predictive dialers is the 
single largest complaint his organization receives regarding 
telemarketing.\291\
---------------------------------------------------------------------------

    \290\ See, e.g., Bishop at 1; Braddick at 1; Croushore at 1; 
Dawson at 1; Haines at 1; Hecht at 1; Mack at 1; Manz at 1; McCurdy 
at 1; Merritt at 1; Nova53 at 1; Sanford at 1; Strang at 1. See also 
DNC Tr. at 21, 39-40; Rule Tr. at 10, 52-55, 61-62.
    \291\ See Rule Tr. at 55-56 (``During the last two or three 
years, we've conducted numerous seminars * * * for senior citizens, 
and the single biggest complaint in all of those seminars without 
fail has been [what is referred to as] dead ringers, senior citizens 
who go and answer the phone, there's nobody there. They either think 
they're being stalked or they * * * may think [a relative who is 
ill] tried to call them, and they actually place calls to emergency 
personnel saying, ``Can you go check on my sister or my aunt or 
uncle'' because of the fact that there's nobody there on the 
line.'').

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

[[Page 4523]]

    Consumer commenters expressed extreme frustration and anger at 
having to drop whatever they may be doing and race to the telephone 
only to be met with dead air.\292\ This inconvenience can be 
particularly troublesome for the elderly or infirm who must struggle 
just to get to the telephone, only to find no one on the line when they 
answer. These consumers often feel frightened, threatened, or harassed 
over these experiences, since there is no way for the consumer to tell 
whether such calls are placed by a telemarketer or by some sinister 
caller, such as a stalker, or a burglar to determine if someone is 
home.\293\ In addition, when the predictive dialer disconnects the 
call, the consumer often has no effective way to determine from whom 
the call originated and thus to whom he or she should direct a ``do-
not-call'' request; or, if the consumer has placed his or her name or 
number on a ``do-not-call'' list or registry, the consumer often has no 
effective way to determine which company is ignoring the consumer's 
``do-not-call'' request.\294\ Thus, predictive dialers can thwart 
consumers'' attempts to protect their rights to privacy by placing 
themselves on a ``do-not-call'' list.
---------------------------------------------------------------------------

    \292\ See, e.g., Bishop at 1; Braddick at 1; Croushore at 1; 
Dawson at 1; Haines at 1; Hecht at 1; Mack at 1; Manz at 1; McCurdy 
at 1; Merritt at 1; Nova53 at 1; Sanford at 1; Strang at 1; DNC Tr. 
at 21, 39-40; Rule Tr. at 10, 52-55. See also, Martha McKay, 
``Nuisance Calls Hit New High: Now Telemarketers Hang Up,'' Bergen 
(Co. NJ) Record (Jan. 30, 2000), at A1.
    \293\ See, e.g., Bishop at 1; Haines at 1; Hecht at 1; Manz at 
1; McCurdy at 1; Rule Tr. at 52-56, 61-62. Private Citizen related 
an incident involving one consumer who had 400 abandoned calls in a 
one-year period and, thinking it was a stalker, put an alarm system 
on her house and quit her job to watch her children. The abandoned 
calls turned out to have come from a telemarketer using a predictive 
dialer. Rule Tr. at 52-53. See also, Mark Hamstra, DMA to Explore 
Predictive Dialer Abandon Rates, DM News (Feb. 21, 2000), at 1 (DMA 
reports some consumers saying they thought they were being stalked 
or harassed.).
    \294\ As discussed earlier with regard to blocking of caller 
identification information, many telemarketers use lines that cannot 
transmit caller identification. Thus, consumers have no way of 
knowing who called because the consumer's Caller ID device displays 
only a message that the identity of the caller is ``unavailable'' or 
some similar phrase.
---------------------------------------------------------------------------

    Predictive dialers are not a new phenomenon. The telemarketing 
industry has used these devices for many years.\295\ However, their use 
has increased dramatically in the past decade.\296\ Predictive dialers 
have become prevalent in the telemarketing industry because a dialer 
reputedly can significantly increase a telemarketer's productivity as 
measured by the amount of downtime between calls.\297\ Each 
telemarketing company can set its predictive dialer software for a 
predetermined abandonment rate, i.e., the percentage of hang-up calls 
the system will allow--the higher the abandonment rate, the higher the 
number of hang-up calls. High abandonment rates can ensure that each 
telemarketing sales representative will spend the maximum possible 
number of minutes per hour talking with customers. However, the more 
rapidly the dialer places calls, the more probable it is that the 
telemarketers will still be on previously placed calls and not be 
available when the consumer picks up the phone. When no telemarketer is 
available, the predictive dialer disconnects the call.\298\
---------------------------------------------------------------------------

    \295\ By the mid-1980's, call center technology was fairly 
simple, with only a few software applications and predictive dialer 
manufacturers to choose from. Rich Tehrani, ``Oh, What Changes Time 
Hath Wrought,'' 6 Call Ctr. Solutions, Dec. 1, 1999 at 18.
    \296\ Hurst, Will We Kill the Goose? at 70 (``In just eight 
years, predictive dialers have come to dominate outbound 
telemarketing.'').
    \297\ Predictive dialer manufacturers claim that dialers can 
triple the time a telemarketer spends talking on the telephone and 
increase productivity by 200 to 300 percent. See McKay, ``Nuisance 
Calls, at A1. According to one manufacturer's representative, 
``[w]hen people dial manually, they can talk for maybe 15 minutes 
out of an hour; a predictive dialer can increase talk time up to 45 
minutes per hour. Id. (quoting Rosanne Desmone, spokeswoman for 
Virginia-based EIS International Inc., a maker of predictive dialing 
systems). See also, Hamstra, DMA to Explore Predictive Dialer 
Abandon Rates, at 1 (stating that telemarketing agents can be twice 
as productive in a predictive dialer call center, spending an 
average of 45 minutes of each hour talking with customers compared 
to 22 minutes or less in a center that uses manual dialing).
    \298\ McKay, Nuisance Calls, at A1; Hamstra, DMA to Explore 
Predictive Dialer Abandon Rates at 1. See also, Rule Tr. at 50-
51;57-58.
---------------------------------------------------------------------------

    The industry acknowledges the validity of consumer objections to 
the negative effects of predictive dialers and has attempted to be 
responsive to the increasing consumer frustration over the ``hang-ups'' 
and dead air calls. In January 1999, the DMA established guidelines for 
its members which recommend an abandonment rate as close to zero as 
possible, with a maximum acceptable abandonment rate of no greater than 
5 percent of answered calls per day in any campaign.\299\ The DMA 
guidelines also limit the number of times a marketer can abandon a 
consumer's telephone number in one month. According to the DMA 
guidelines, if a marketer has abandoned a call to a particular number 
twice in one month, the marketer should not call that person again 
unless the call is placed manually by a sales representative.\300\ 
However, these guidelines are voluntary and some critics of the 
telemarketing industry claim that some companies have abandonment rates 
that are substantially higher than the recommended 5 percent.\301\
---------------------------------------------------------------------------

    \299\ See DMA, ``The DMA Guidelines for Ethical Business 
Practice,'' revised August, 1999, available at: www.the-dma.org/library/guidelines/ethics/guidelines.shtml#6 (Article #38, Use of 
Predictive Auto Dialing Equipment); Rule Tr. at 60. See also, 
Hamstra, DMA to Explore Predictive Dialer Abandon Rates at 1.
    \300\ See ``The DMA Guidelines for Ethical Business Practice,'' 
Article #38. See also Rule Tr. at 60-61.
    \301\ McKay, Nuisance Calls, at A1 (quoting Robert Bulmash of 
Private Citizen, who estimates that some telemarketers set the 
abandonment rate as high as 40 percent). See also, Hamstra, DMA to 
Explore Predictive Dialer Abandon Rates at 1 (explaining that DMA's 
Ethics Committee meets with members who fail to abide by the 
guidelines, and a member who continues to be noncompliant may have 
its membership terminated).
---------------------------------------------------------------------------

    As a result of increased consumer outrage over the number of 
abandoned calls, the DMA is considering reducing the maximum 
recommended abandonment rate from 5 percent to some lower number.\302\ 
Theoretically, the dialer could be set to a zero abandonment rate, 
where a telemarketer would be available for each call answered by a 
consumer. Industry members claim, however, that a zero abandonment rate 
would lose any efficiencies that are gained by the use of a predictive 
dialer.\303\ They argue that at a zero abandonment rate, they might as 
well have telemarketers manually dialing telephone numbers.\304\
---------------------------------------------------------------------------

    \302\ See Hamstra, DMA to Explore Predictive Dialer Abandon 
Rates at 1. See also Rule Tr. at 61. State legislators also have 
taken note of consumer dissatisfaction with abandoned calls. 
Although several States, including California, Maryland, Minnesota 
and Kansas, have considered legislation prohibiting or restricting 
the use of predictive dialers, only Kansas and California have 
passed such legislation. The Kansas bill, which was possibly the 
first to address the dead air issue, took effect June 1, 2000, and 
requires that either a ``live'' operator or a recorded message be 
available within 5 seconds of the call's connection with a Kansas 
consumer. Technically, this statute prohibits abandoned calls. See 
Kan. Stat. Ann. Sec. 50-670(b)(6) (1999 Supp.) The California bill, 
which was signed on October 10, 2001, prohibits making a telephone 
connection for which no person is available for the person called. 
The bill directs the California Public Utilities Commission to 
establish an acceptable error rate, if any, before July 1, 2002. 
See, A.B. 870 (to be codified at Cal. Pub. Utilities Code 
Sec. 2875.5). See also, C. Tyler Prochnow, Keeping an Eye on 
Outbound Calling, DM News, Sept. 18, 2000, p. 48; and Telemarketer 
Fight a Real Call to Arms,'' LA Times, Part A, Part 1, page 1 
(September 9, 2001). See also, Hamstra, DMA to Explore Predictive 
Dialer Abandon Rates at 1.
    \303\ See Rule Tr. at 56-57.
    \304\ Rule Tr. at 50-51, 56-58, 60-61. See also, Hamstra, DMA to 
Explore Predictive Dialer Abandon Rates at 1.
---------------------------------------------------------------------------

    The Commission in no way condones a practice that enables industry 
to shift some of its operational costs to

[[Page 4524]]

consumers, who receive in return little, if any, benefit. The 
Commission, however, recognizes the tension between consumer privacy on 
the one hand and industry productivity on the other. In general, the 
Commission seeks to avoid unnecessary burdens on industry while 
maximizing consumer protections. In this instance, however, regardless 
of the increased productivity that predictive dialers provide to the 
telemarking industry, the harm to consumers is very real and falls 
squarely within the areas of abuse that the Telemarketing Act 
explicitly aimed to address. Using predictive dialers in a way that 
produces many abandoned calls is a practice that clearly ``the 
reasonable consumer would consider coercive or abusive of such 
consumer's right to privacy.'' \305\ In this regard, moreover, one fact 
is clear: Telemarketers who abandon calls are violating Sec. 310.4(d) 
of the Telemarketing Sales Rule. Section 310.4(d) requires that a 
telemarketer promptly and clearly dispose specified information to the 
person receiving the call. The Commission intends for the phase 
``receiving the call'' to mean when the consumer answers the telephone. 
Once the consumer answers the telephone, the consumer has ``received 
the call'' for purposes of the Rule; the required disclosures must then 
be made. Once the consumer has answered the telephone, the telemarketer 
violates Sec. 310.4(d) if the telemarketer disconnects the call without 
providing the required disclosures.
---------------------------------------------------------------------------

    \305\ 15 U.S.C. 6102(a)(3)(A).
---------------------------------------------------------------------------

    Section 310.4(d) rests on an essential balancing of the interests 
of telemarketers and those of consumers. In exchange for permitting 
what is in effect the seller's unsolicited intrusion upon a consumer's 
privacy and an encroachment on her time, the Rule requires only that 
the seller expeditiously provide the consumer with information she 
needs to efficiently and quickly reach a decision as to whether she 
will extend the conversation and allow a greater imposition on her time 
and her privacy, based on her interest in the offer. This balance goes 
seriously awry when telemarketers, in their own self-interest, employ a 
practice that provides consumers with only dead air yet imposes the 
same, if not greater, costs on consumers as does a call that actually 
allows them to learn who is offering to sell them something, and what 
is being offered. Abandoned calls rob consumers of the benefit of 
actually being able to consider an offer that might have made 
worthwhile the intrusion on their privacy and the encroachment on their 
time. The balance is further distorted by the fact that an abandoned 
call provides no opportunity for the consumer to assert a ``do-not-
call'' request; and, thus, no opportunity to exercise any sovereignty 
whatsoever over future such intrusions on her privacy and encroachments 
on her valuable time.
    The Commission seeks recommendations regarding alternative 
approaches to the use of predictive dialers. For example, should the 
Commission mandate a maximum setting for abandoned calls, and, if so, 
what should that setting be? Would it be feasible to limit the use of 
predictive dialers to only those telemarketers who are able to transmit 
Caller ID information, including a meaningful number that the consumer 
could use to return the call? Would providing consumers with this 
information alleviate the injury consumers are now sustaining as a 
result of predictive dialer practices? Section IX sets out questions to 
elicit suggestions for regulatory alternatives to the Commission's 
proposed action regarding predictive dialers.
    Use of prisoners as telemarketers. The Commission received several 
comments describing the problems that can occur when sellers or 
telemarketers use prison inmates to telemarket goods or services, and 
recommending that the Commission ban the use of prisoners as 
telemarketers or, in the alternative, tightly regulate the use of such 
labor, including requiring that inmates disclose their status as 
prisoners when they make calls to, or receive calls from, the 
public.\306\ In addition, this issue received considerable attention 
during the July Forum.\307\
---------------------------------------------------------------------------

    \306\ See generally Jordan, S. Gardner, Budro, and Warren.
    \307\ See Rule Tr. at 220-245, 367-375, 443-447.
---------------------------------------------------------------------------

    Prison inmates often are used by federal and State governments, as 
well as private firms, to handle inbound calls to call centers or to 
make outbound telemarketing calls.\308\ About 72,000 prisoners 
nationwide are employed in inmate work programs, including about 2,500 
prisoners who work for private subcontractors in 38 States.\309\ 
Supporters maintain that the programs provide a variety of benefits: to 
inmates, by providing job training; to the prison system, because a 
portion of the wages goes to offset the costs of incarceration; to 
taxpayers, because inexpensive labor is used to handle certain 
government jobs (e.g., handling tourist bureau calls); and to private 
companies, because they gain a supply of inexpensive labor.\310\
---------------------------------------------------------------------------

    \308\ For example, TWA uses prisoners to make airline 
reservations. See Julie Light, ``Look for that Prison Label: Inmate 
work programs raise human rights concerns,'' 64 The Progressive 21 
(June 1, 2000). In Wisconsin, inmates have been used to solicit 
pledges for the Leukemia Society, to answer State lottery calls, and 
to give advice on avoiding highway construction zones. See Sam 
Martino, ``Using inmates to staff phones rekindles debate,'' 
Milwaukee Journal Sentinel, (Apr. 12, 1998), p. 5. Although these 
examples involve activities that fall outside the coverage of the 
FTC Act, other prison-based telemarketing can involve products and 
services that are within the Commission's jurisdiction. See, e.g., 
Jordan (use of prisoners to telemarket family films).
    \309\ See Light, ``Look for that Prison Label'' at 21. Since the 
Prison Industry Enhancement Act was passed in 1979 (P.L. 96-157, 
Sec. 827, 93 Stat 1215), State prison systems may contract with 
private firms to provide prison labor as long as the prison systems 
are authorized to do so by State law and the program is certified by 
the U.S. Department of Justice's Bureau of Justice Assistance.
    \310\ See Brian Hauck, ``RECENT LEGISLATION: Prison Labor,'' 37 
Harvard Journal on Legislation, 279 (Win. 2000). See also, Gordon 
Lafer, ``America's Prisoners as Corporate Workforce,'' The American 
Prospect (Sept.-Oct. 1999), p. 66.
---------------------------------------------------------------------------

    There have been a number of publicized incidents in recent years in 
which inmates have abused the data and resources to which they had 
access through these programs to make improper, invasive, and illegal 
contact with members of the public.\311\ These events have raised 
public concern about the type of personal information available to 
inmates who do data entry and telemarketing.\312\ The commenters point 
out that while working as telemarketers, inmates inevitably gain access 
to personal information about individuals, including minors, that may 
endanger the lives and safety of those they call.\313\
---------------------------------------------------------------------------

    \311\ For example, in its 1997 report to Congress on the privacy 
implications of individual reference services, the FTC cited an 
example where a prison inmate (and convicted rapist), who was 
employed as a data processor, used his access to a database 
containing personal information to compose and send a threatening 
letter to an Ohio grandmother. See FTC, Individual Reference 
Services: A Report to Congress (Dec. 1997), at p. 16.
    \312\ Several States, including Wisconsin, Nevada, and 
Massachusetts, have considered legislation that would require their 
Departments of Correction to restrict prisoners' access to personal 
information about persons who are not prisoners and/or to require 
prisoners conducting telephone solicitations or answering inbound 
calls to identify themselves as prisoners. The Utah State Prison 
stopped using inmates as telemarketers after conceding that they 
could not ensure that prisoners would not misuse personal 
information they obtain. See ``Prison to End Telemarketing By 
Inmates,'' Salt Lake Tribune (June 1, 2000) p. B1. In addition, DMA 
noted that it had supported legislation banning the use of inmates 
in remote sales situations because these sales require the 
telemarketer to get personal information from the consumer. See Rule 
Tr. at 371-372.
    \313\ See generally Jordan, Gardner, Warren, and Budro.
---------------------------------------------------------------------------

    In her written comment and in her testimony at the July Forum on 
the TSR, April Jordan described how an inmate working as a telemarketer 
selling family

[[Page 4525]]

films engaged in an improper conversation with her minor daughter and 
was able to manipulate the youngster into revealing a great deal of 
personal information, including her address and physical 
description.\314\ In addition, Attachment VI of Ms. Jordan's comment 
includes newspaper and television reports describing other instances 
where inmates misused personal information they had received while 
doing data entry or working as telemarketers.
---------------------------------------------------------------------------

    \314\ See generally Jordan and Rule Tr. at 220-245, 443-447.
---------------------------------------------------------------------------

    The Commission is extremely concerned about the misuse of the 
access to consumers that prisoners have when they work as 
telemarketers, and in the potential misuse of personal information and 
abusive telemarketing activity that has occurred in connection with 
prison-based telemarketing. Nevertheless, the Commission believes that 
some public benefit may be provided by inmate work programs that entail 
telemarketing. The record complied to date contains insufficient 
information upon which to base a proposal regarding prisoner-
telemarketing or to assess the costs and benefits of such a proposal.
    Possible regulatory approaches under consideration to address 
prison-based telemarketing abuses. The Commission could propose 
disclosure requirements or screening and monitoring requirements to 
govern prisoner-based telemarketing. It is not clear, however, that 
such requirements are workable, or if workable, whether they would 
adequately protect consumers from misuse of personal information in 
this context. The Commission notes that even the most stringent 
screening and monitoring procedures instituted by those using inmate 
work programs have not prevented prisoners from misusing the personal 
information to which they have access. Telemarketing, by its very 
nature, is an interactive medium in which the prisoner will be talking 
directly with a potential customer. Even if prisoners are given scripts 
to use during the solicitation, nothing short of 100% monitoring can 
ensure that they adhere to the script and do not digress into 
``personal'' conversations with consumers.\315\ Moreover, even a list 
containing only the names and telephone numbers of consumers can 
provide valuable personal information about consumers that can be 
abused. Sellers and telemarketers frequently use lists that target 
particular types of consumers for their solicitations. Thus, a 
telemarketer may be able to deduce important personal information about 
a particular consumer simply by virtue of the fact that the consumer's 
name and telephone number appear on a list for a particular sales 
campaign. For example, a campaign to sell children's videos presumably 
would target households with young children. The Commission is not now 
convinced that any approach short of banning prison-based telemarketing 
as an abusive practice would ensure sufficient protection for consumers 
against misuse of their personal information, or other abuses 
associated with this form of telemarketing.
---------------------------------------------------------------------------

    \315\ In the case involving the Utah prisoner who engaged in 
inapropriate conversations with minors, there were numerous 
safeguards to protect against abuse. First, once the main computer 
system dialed a number and someone answered, the call would be 
transferred to an inmate telemarketer. The only information the 
inmate saw was the name the phone number was listed under and the 
name of the person who gave the referral. If the consumer expresed 
interest in the product, the call was switched to a civilian 
representative who worked outside the prison; that representative 
gathered additional information in connection with the transaction. 
Second, two separate systems had been set up to randomly monitor the 
prisoners' conversations with consumers, including built-in 
``alerts'' that notified the security personnel if a call lasted 
over 15 minutes. Abuses occurred despite all of these precautions. 
See Jordan, Attachment III.
---------------------------------------------------------------------------

    Therefore, the Commission is considering whether prison-based 
telemarketing ought to be banned as an abusive practice. Clearly the 
consumer privacy concerns that in no small measure prompted Congress to 
enact the Telemarketing Act are implicated by this activity. Although 
it seems clear that prison-based telemarketing may cause significant 
unavoidable consumer injury, similar risks may occur from telemarketing 
employees who are not in prison (e.g., former convicts). Prison-based 
telemarketing is presumably employed because it is less costly than 
alternatives, which constitutes a countervailing benefit to consumers 
or to competition that might outweigh the harm. Moreover, a ban on 
prisoner telemarketing would only affect sellers and telemarketers that 
are subject to the Rule. Individuals and entities outside the scope of 
the FTC Act would not be affected in their telemarketing activities. 
Therefore, in this notice, the Commission seeks more information from 
commenters, particularly on the costs to consumers and the measurable 
benefits to consumers or to competition of prison-based telemarketing, 
to enable it to determine the most appropriate Commission action with 
regard to this activity.
    Courier pickups. AARP recommended that the Commission ban the use 
of couriers to pick up payments unless the consumer has an opportunity 
to inspect any goods before payment is collected.\316\ AARP noted that, 
in the initial TSR rulemaking in 1995, both the Commission and State 
law enforcement agencies recognized that courier pickups were 
disproportionately associated with fraudulent telemarketing.\317\ AARP 
pointed out that courier pickups are commonly used in fraudulent prize 
and sweepstakes promotions because the courier collects the payment 
before the consumer has had a chance to change his or her mind, and 
because the contest seems more ``official'' if a ``bonded courier'' 
comes to pick up the payment.\318\ AARP also stated that fraudulent 
businesses that target low-income consumers also often use courier 
pickups.\319\
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    \316\ See AARP at 5; Rule Tr. at 382-383.
    \317\ AARP at 5 (citing ``Comments of the Federal Trade 
Commission, Public Hearing on Telemarketing Sales Rule, Chicago, 
Illinois, April 1995'' and ``Comments and Recommendations of the 
Telemarketing Fraud Task Force of the Consumer Protection Committee 
of the National Association of Attorneys General in the Matter of 
the Proposed Telemarketing Sales Rule. FTC File No. R411001 (1995), 
pp. 18-19'').
    \318\ AARP at 5; Rule Tr. at 382-383.
    \319\ Id.
---------------------------------------------------------------------------

    In its 1995 rulemaking to promulgate the TSR, the Commission 
initially proposed prohibiting any seller or telemarketer from 
providing for or directing a courier to pick up payment from a 
customer.\320\ However, the Commission deleted that ban from the 
subsequent revised proposed Rule and, ultimately, from its final Rule 
after determining that such a ban was unworkable.\321\ In this regard, 
the Commission stated:

    \320\ Initially proposed Rule Sec. 310.4(a)(2). 60 FR at 8330.
    \321\ 60 FR at 30415.
---------------------------------------------------------------------------

    There is nothing inherently deceptive about the use of couriers 
by legitimate business, and * * * legitimate businesses use them. 
While fraudulent telemarketers often use couriers to obtain quickly 
the spoils of their deceit, such telemarketers engage in other acts 
or practices that clearly are deceptive or abusive, and that are 
prohibited by this Rule. Thus, the prohibition of courier use is 
unnecessary * * *\322\

    \322\ Id.
---------------------------------------------------------------------------

    Based on the comments it had received, Commission staff raised the 
issue of banning courier pickups at the July Forum.\323\ However, the 
discussion did not provide any evidence indicating that the conclusion 
the Commission drew in 1995 is now invalid. Absent record evidence to 
the contrary, the Commission declines to modify the TSR to prohibit the 
use of courier pickups for payments.
---------------------------------------------------------------------------

    \323\ See Rule Tr. at 382-383.
---------------------------------------------------------------------------

    Sale of victim lists. NAAG recommended that the Commission ban

[[Page 4526]]

as an abusive act or practice the sale of ``sucker'' lists (lists of 
known victims of telemarketing scams); its recommendation was echoed by 
several participants at the July Forum.\324\
---------------------------------------------------------------------------

    \324\ See NAAG at 19. See also Rule Tr. at 354-363.
---------------------------------------------------------------------------

    In its 1995 rulemaking to promulgate the TSR, the Commission 
initially proposed prohibiting any person from selling, renting, 
publishing, or distributing any list of customer contacts when that 
person is subject to a federal court order for violations of certain 
provisions of the TSR.\325\ However, the Commission deleted that ban 
from the subsequent revised proposed Rule and, ultimately, from its 
final Rule after determining that such a ban was best left to the 
discretion of law enforcement agencies to seek in individual law 
enforcement actions before the courts.\326\
---------------------------------------------------------------------------

    \325\ Initially proposed Rule Sec. 310.4(f); 60 FR at 8332.
    \326\ 60 FR at 30420.
---------------------------------------------------------------------------

    Based on the comments it had received, Commission staff raised the 
issue of banning the sale of victim lists at the July Forum.\327\ 
During the discussion at the forum, participants raised many of the 
same arguments for and against the prohibition that were raised during 
the initial rulemaking. Although participants agreed that the sale of 
``sucker'' lists was a pernicious practice that should be stopped, they 
also agreed that it was extremely difficult to define ``victim.'' 
Participants also noted the danger of overbreadth in such a provision, 
and infringement on a consumer's sovereignty in the matter of which 
telemarketing calls he or she might wish to receive, simply because the 
consumer had once been defrauded.\328\ The discussion did not provide 
any evidence that the conclusion the Commission drew in 1995 was 
incorrect. Moreover, the Commission believes it is highly likely that 
any telemarketer attempting to defraud those who have previously been 
victimized by telemarketing fraud will violate one or more existing 
provisions of the Rule, and thus be subject to liability without a 
provision addressing sucker lists. Therefore, the Commission declines 
to amend the TSR to prohibit the sale of lists of known telemarketing 
victims.
---------------------------------------------------------------------------

    \327\ See Rule Tr. at 354-367.
    \328\ See Rule Tr. at 355-356, 360-361, 366-367.
---------------------------------------------------------------------------

    Targeting vulnerable groups. NAAG recommended that the Commission 
amend the TSR to prohibit the targeting of vulnerable groups (such as 
the elderly) in telemarketing schemes that contain any 
misrepresentation of material fact.\329\ This issue was raised at the 
July Forum.\330\ The results of that discussion have led the Commission 
to conclude that prohibiting this practice would raise issues similar 
to those encountered in attempting to prohibit the sale of victim 
lists, as discussed above. There is nothing inherently harmful about 
directing sales efforts to a particular segment of the population--even 
``vulnerable'' ones--provided the efforts do not entail unfair or 
deceptive practices. It is these practices, not ``targeting'' per se, 
that gives rise to injury. Moreover, these practices independently 
violate the Rule. Adding targeting as a Rule violation would, at best, 
provide ``makeweight'' allegations that serve little purpose. Such a 
violation, standing alone, would not likely provide a basis for law 
enforcement action. Moreover, it would be very difficult to define what 
constitutes a ``vulnerable'' group without infringing on consumers'' 
prerogatives to receive offers and information that may be valuable to 
them, or without unduly hindering legitimate telemarketers from 
focusing their marketing campaigns.\331\ As with the sale of victim 
lists, the Commission believes that combating the practice of targeting 
vulnerable groups is a challenge best left to the discretion of law 
enforcement agencies who may seek injunctions and other penalties on a 
case by case basis in individual law enforcement actions.
---------------------------------------------------------------------------

    \329\ NAAG at 20.
    \330\ See Rule Tr. at 380-382.
    \331\ See Rule Tr. at 380-382.
---------------------------------------------------------------------------

    Definition of ``promptly.'' Section 310.4(d) requires that a 
telemarketer in an outbound call promptly disclose certain information 
to the person being called.\332\ Several commenters urged the 
Commission to define the term ``promptly.''\333\ These commenters 
suggested that, by failing to define the term, the Rule gives too much 
latitude to the telemarketer as to when such disclosures should be 
made.\334\ Other commenters supported the current wording, believing 
the standard strikes the appropriate balance.\335\
---------------------------------------------------------------------------

    \332\ The Rule requires the telemarketer to disclose promptly 
the identity of the seller, that the purpose of the call is to sell 
goods or services, the nature of the goods or services, and that no 
purchase or payment is necessary to win a prize or participate in a 
prize promotion. 16 CFR 310.4(d).
    \333\ See LSAP at 2; NAAG at 14; NACAA at 2; Texas at 2.
    \334\ NAAG at 14.
    \335\ See ARDA at 2; Gannett at 1 (noting that many State laws 
contain different timing requirements for making the required 
disclosures to the detriment of the effectiveness of telemarketing); 
MPA at 9-10; NASAA at 3.
---------------------------------------------------------------------------

    The wording of this provision adopts the statutory language found 
in the Telemarketing Act.\336\ Furthermore, the Commission believes 
that its discussion of this term in the Statement of Basis and Purpose 
of the Rule is absolutely clear that, while industry is allowed some 
flexibility, the disclosures must occur at once or without delay, and 
before any substantive information about a prize, product, or service 
is conveyed to the consumer.\337\ Although commenters suggested other 
terms that might be used instead of the word ``promptly,``\338\ the 
Commission does not believe that those suggestions provide any greater 
precision than does the current wording. Therefore, the Commission has 
determined to retain the current wording of this provision.
---------------------------------------------------------------------------

    \336\ The Telemarketing Act requires the Commission to include 
in its Rule ``a requirement that any person engaged in telemarketing 
for the sale of goods or services shall promptly and clarly disclose 
to the person receiving the call that the purpose of the call is to 
sell goods or services and make other such disclosures as the 
Commission deems appropriate.'' 15 U.S.C. 6102(a)(3)(C).
    \337\ 60 FR at 43856, generally and at n.150.
    \338\ See LSAP at 2 (define as ``when a consumer answers an 
outbound telemarketing call''); NACAA at 2 (define as ``immediate 
and at commencement of the call''); NAAG at 14 (define as ``at the 
onset of the call''); Texas at 2 (define as ``prior to making the 
sales presentation'').
---------------------------------------------------------------------------

    Multiple purpose calls. Several commenters noted that there has 
been a problem with dual purpose calls--i.e., calls that combine 
selling with some other activity, such as conducting a prize promotion 
or survey, or assessing whether a customer is satisfied with a recent 
purchase.\339\ These commenters state that the problem has been 
particularly acute in the outbound sale of magazines, where a prize or 
sweepstakes offer is used to solicit the purchase of a magazine 
subscription.\340\ NAAG states that some telemarketers fail to make the 
required disclosures up front and, when challenged, contend that the 
primary purpose of the call is to solicit a sweepstakes entry, not to 
sell a magazine subscription.\341\ For this reason, NAAG and NACAA 
recommend that, instead of relying upon language in the Statement of 
Basis and Purpose (discussed below), the TSR should contain a provision 
that expressly deals with multiple purpose calls and that the provision 
should require telemarketers to make the required oral disclosures, 
including the cost disclosures required by Sec. 310.3(a)(1)(i), before 
soliciting the consumer to enter a sweepstakes or prize promotion or 
before mentioning any other purpose of the call.\342\
---------------------------------------------------------------------------

    \339\ NAAG at 6-8; NACAA at 2.
    \340\ NAAG at 6-7.
    \341\ Id. at 7.
    \342\ Id. at 8; NACAA at 2.

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

[[Page 4527]]

    The Commission does not believe that the cost disclosures required 
by Sec. 310.3(a)(1)(i) should be one of the required oral disclosures 
that must be given promptly at the beginning of the call. These cost 
disclosures are more meaningful to the consumer when made in 
conjunction with the remainder of the disclosures required by 
Sec. 310.3(a)(1). So long as the disclosures that are required by 
Sec. 310.4(d) are made promptly, consumers will be put on notice that, 
at some point during the call, they will be offered the chance to 
purchase a good or service. In addition, the prompt disclosures serve 
as an obstacle to those telemarketers who would seek to mischaracterize 
a sales transaction as something else (e.g., as a survey or as a 
contest).
    The Commission also believes that its position with respect to 
multiple purpose calls is clear. In the Rule's Statement of Basis and 
Purpose, the Commission stated:

    [T]he 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.\343\

    \343\ 60 FR at 43856.
---------------------------------------------------------------------------

    The Commission believes that this language leaves no room for doubt 
that the sale of goods or services does not have to be the primary 
purpose of the call; it only has to be one of the purposes in order to 
trigger the required oral disclosures. Thus, in any call in which one 
of the purposes is to sell goods or services, the required disclosures 
must be made ``promptly'' before any discussion of any sweepstakes, 
survey, or other non-sales purpose. Therefore, because the Commission 
made its intention so clear in the Statement of Basis and Purpose 
regarding when disclosures must be made in a multiple purpose call, it 
is unnecessary to amend the Rule to deal expressly with those types of 
calls.
    Number and address of telemarketer. NASAA recommended that the Rule 
be modified to track the language of the NASD Rule that requires the 
telemarketer to disclose the telephone number and address at which the 
telemarketer can be contacted.\344\ NASAA contends that this would 
expand the definition of ``identity of the seller'' and provide the 
consumer with important information that could be used to identify the 
telemarketer to the consumer or to regulatory agencies should the 
consumer have a complaint.\345\ The Commission agrees that the identity 
of the telemarketer is often helpful to law enforcement agencies when 
investigating fraudulent telemarketing activities. However, from the 
consumer's perspective, the identity of the seller continues to be the 
most vital piece of information that consumers must capture when a 
telemarketer calls, since it is the seller to which the consumer would 
direct complaints, requests for refund, as well as ``do-not-call'' 
requests under the Rule. In addition, the Commission believes that the 
initial oral disclosures should be succinct in order to avoid confusing 
consumers with an overload of information. Therefore, the Commission 
declines to adopt NASAA's recommendation.
---------------------------------------------------------------------------

    \344\ NASAA at 3.
    \345\ Id.

---------------------------------------------------------------------------
E. Section 310.5--Recordkeeping

    Section 310.5 of the Rule describes the types of records sellers or 
telemarketers must keep, and the time period for retention.\346\ 
Specifically, this provision requires that telemarketers must keep for 
a period of 24 months: all substantially different advertising, 
brochures, scripts, and promotional materials; information about prize 
recipients; information about customers, including what they purchased, 
when they made their purchase, and how much they paid for the goods or 
services they purchased; information about employees; and all 
verifiable authorizations required by Sec. 310.3(a)(3).
---------------------------------------------------------------------------

    \346\ The Telemarketing Act expressly authorizes the Commission 
to require recordkeeping in the TSR. 15 U.S.C. 6102(a).
---------------------------------------------------------------------------

    Commenters generally favored the recordkeeping provisions, noting 
that they have not been unduly burdensome \347\ and that they have 
provided necessary guidance to industry members about what records must 
be kept and for how long.\348\ In particular, MPA noted with approval 
the requirement in Sec. 310.5(a)(1) that only substantially different 
advertising materials need be retained under the Rule, which equitably 
balances the needs of businesses with those of consumers.\349\
---------------------------------------------------------------------------

    \347\ See ARDA at 4 (noting that, independent of State law 
requirements for recordkeeping, particularly for ``do-not-call'' 
requests, the TSR has not been burdensome on ARDA members).
    \348\ MPA at 10.
    \349\ Id.
---------------------------------------------------------------------------

    Reese was the only commenter who found the cost of recordkeeping 
burdensome,\350\ suggesting that the Commission could alleviate this 
burden either by allowing that such records be kept for a shorter time, 
such as 90 days from the time of sale, delivery, or presentment of 
charges in writing, or that the length of time for record retention 
vary depending on the value of the purchase made by telephone, with 
longer record storage requirements for more expensive sales.\351\ Bell 
Atlantic suggested that the record retention period be reduced to only 
12 months for companies that offer money back guarantees, which would 
reduce the burden on such companies and create an incentive in the 
marketplace to offer such guarantees.\352\
---------------------------------------------------------------------------

    \350\ Reese at 8 (stating that ``[i]ndustry practice is to store 
audiotapes of sales for 2-3 years to satisfy FTC record keeping and 
for future retrieval in the event of disputes' and that the cost of 
this adds 2% to operating costs).
    \351\ Id.
    \352\ Bell Atlantic at 7.
---------------------------------------------------------------------------

    The Commission declines to reduce the record retention period for 
telemarketing transactions. As the Commission noted in its discussion 
of the recordkeeping provision in the Rule's Statement of Basis and 
Purpose, the 24-month record retention period ``is necessary to provide 
adequate time for the Commission and State law enforcement agencies to 
complete investigations of noncompliance.''\353\ The Commission further 
noted that the burden on business in keeping records for 24 months was 
carefully balanced by designating that those records to be kept were 
those already routinely maintained by businesses in the ordinary course 
of business. Nothing in the Rule review record suggests that a shorter 
time period for retention would meet the needs of law enforcement, and 
the Commission finds no compelling evidence in the Rule review record 
that such a change is necessary to alleviate any undue burden on 
industry.
---------------------------------------------------------------------------

    \353\ 60 FR at 43857.
---------------------------------------------------------------------------

    The Commission also rejects the proposal to tie the duration of 
record retention to either the value of the goods or services sold or 
to the refund policy of the seller. As to the former, the Commission 
has numerous examples in its law enforcement experience of 
telemarketing frauds where large numbers of consumers have been bilked 
out of small amounts of money.\354\ While the injury per consumer may 
have been small in such cases, the cumulative injury was substantial. 
Consequently, the Commission believes that eliminating the 24-month 
retention requirement for transactions below a

[[Page 4528]]

certain dollar threshold would be detrimental to consumers. Similarly, 
the Commission rejects the proposal to shorten the record retention 
period for companies offering money back guarantees. Although a money 
back guarantee can be beneficial for consumers, the guarantee is only 
as good as the company that offers it. The Commission's law enforcement 
experience is replete with examples of companies engaging in fraud or 
deception, including misrepresentations regarding their money back 
guarantees.\355\ Law enforcement would still require a 24-month period 
of records in order to complete investigations of noncompliance.
---------------------------------------------------------------------------

    \354\ See, e.g., FTC v. Progressive Media, Inc., No. C96-1723WD 
(W.D. Wash. July 23, 1997) (employment opportunities, scholarships/ 
financial aid for $39.95 to $69.95); FTC v. Ed Boehlke, No. CIV96-
0482-E-BLW (D. Idaho, filed Nov. 4, 1996) (work-at-home kits for 
$38.95).
    \355\ See, e.g., FTC v. Telebrands Corp. et al., FTC Docket No. 
C-3699; and modified Order, 96-0827-R (Turk), (W.D. Va. Sept. 1, 
1999) (products via mail and telephone order); In the Matter of 
Gateway 2000, Inc., FTC Docket No. C-3844 (1998) (mail order 
computers); FTC v. Progressive Media, Inc., et al., C96-1723WD (W.D. 
Wash. July 23, 1997) (employment opportunities, scholarships/
financial aid); FTC v. Ed Boehlke, No. CIV96-0482-E-BLW; FTC v. 
Universal Credit Corp., 96-114-LHM(EEx) (C.D. Calif. Feb. 9, 1996) 
(credit repair); FTC v. Environmental Protection Servs., No. 89-1498 
(S.D. Fla. 1989).
---------------------------------------------------------------------------

    Finally, pursuant to section 1011 of the USA PATRIOT Act, the 
recordkeeping provisions of the Rule will now be applicable to 
telemarketers who solicit charitable contributions, as well as to those 
who attempt to induce the purchase of goods and services. Therefore, 
telemarketers now will be required to adhere to Sec. 310.5, regardless 
of whether they are attempting to induce the purchase of goods or 
services or a charitable contribution.\356\ The only explicit 
modification proposed to Sec. 310.5 is made to extend the provision's 
coverage to include charitable solicitations in a non-sales context. 
Specifically, in Sec. 310.5 (a)(4), the phrase ``employees directly 
involved in telephone sales'' is now directly followed by the phrase 
``or solicitations of charitable contributions.''
---------------------------------------------------------------------------

    \356\ When provisions within this section specifically 
contemplate recordkeeping by ``sellers'' or only require 
recordkeeping about ``customers,'' telemarketers soliciting 
charitable contributions will be exempt from compliance.

---------------------------------------------------------------------------
F. Section 310.6--Exemptions

    Section 310.6 exempts certain telemarketing activities from the 
Rule's coverage.\357\ The exemptions to the Rule were designed to 
ensure that legitimate businesses are not unduly burdened by the Rule, 
and each is justified by one of four factors: (1) Whether Congress 
intended a particular activity to be exempt from the Rule; (2) whether 
the conduct or business in question is already the subject of extensive 
federal or State regulation; (3) whether the conduct at issue lends 
itself easily to the forms of abuse or deception the Telemarketing Act 
was intended to address; and (4) whether the risk that fraudulent 
sellers or telemarketers would avail themselves of the exemption 
outweigh the burden to legitimate industry of compliance with the 
Rule.\358\
---------------------------------------------------------------------------

    \357\ Specifically, the Rule exempts: (1) Goods and services 
subject to the Commission's 900-Number Rule and Franchise Rule; (2) 
telemarketing sales consummated by face-to-face transactions; (3) 
inbound telephone calls that are not the result of any solicitation 
by the seller or telemarketer; (4) telephone calls in response to a 
general media advertisement (except those related to investment 
opportunities, credit repair, ``recovery'' or advance fee loan 
services); (5) inbound telephone calls in response to direct mail 
solicitations that truthfully disclose all material information 
(except solicitations relating to prize promotions, investment 
opportunities, credit repair, ``recovery'' or advance fee loan 
services); and (6) business-to-business telemarketing (except calls 
involving the retail sale of non-durable office or cleaning 
supplies).
    \358\ 60 FR at 43859.
---------------------------------------------------------------------------

    The exemptions to the Rule generated a significant number of 
written comments, and were also the subject of extensive discussion at 
the July Forum. Law enforcement and consumer groups generally favored 
limiting the exemptions,\359\ while the business community generally 
favored retaining the current exemptions.\360\
---------------------------------------------------------------------------

    \359\ See FAMSA at 2; NAAG at 16-17; NACAA at 2; NCL at 5.
    \360\ See ARDA at 5; DSA at 4; ERA at 4; ICFA at 1-2; MPA at 10; 
Reese at 12.
---------------------------------------------------------------------------

    No comments were received recommending changes to Sec. 310.6(d), 
which exempts ``calls initiated by a consumer that are not the result 
of any solicitation by a seller or telemarketer.'' The proposed Rule 
retains this provision unchanged, except for expanding the exemption to 
charitable solicitations that are not the result of any solicitation. 
Based on the record in this proceeding, and on its law enforcement 
experience, the Commission proposes several modifications to other 
subsections of Sec. 310.6.
    First, the Commission proposes modification to Secs. 310.6(a), 
310.6(b) and 310.6(c) in order to require telemarketers and sellers of 
pay-per-call services, franchises, and those whose sales involve a 
face-to-face meeting before consummation of the transaction to comply 
with the ``do-not-call'' and certain other provisions of Sec. 310.4.
    Second, the Commission proposes to modify the general media 
exemption to make it unavailable to telemarketers of credit card loss 
protection plans and business opportunities other than business 
arrangements covered by the Franchise Rule.
    Third, the Commission proposes modifying the exceptions to the 
direct mail exemption, Sec. 310.6(f). As in the case of the general 
media exemption, the direct mail exemption is unavailable to 
telemarketers of certain goods or services that are particularly 
susceptible to fraud. The Commission proposes to add to this list of 
problematic goods or services. Specifically, the direct mail exemption 
will no longer be available to telemarketers of credit card loss 
protection plans or business opportunities other than business 
arrangements covered by the Franchise Rule. In addition, the proposed 
Rule would make clear that email and facsimile messages are direct mail 
for purposes of the Rule.
    Fourth, pursuant to the USA PATRIOT Act amendment of the 
Telemarketing Act, the Commission also proposes to expand certain of 
the exemptions to include charitable solicitations. Thus, the proposed 
Rule would exempt: charitable solicitation calls that are followed by 
face-to-face payment, Sec. 310.6(c); prospective donors' inbound calls 
not prompted by a solicitation, Sec. 310.6(d); charitable solicitation 
calls placed in response to general media advertising, Sec. 310.6(e); 
and charitable solicitation calls placed in response to direct mail 
solicitations that comply with Sec. 310.3(a)(1). In addition, the 
Commission proposes to make the business-to-business exemption 
unavailable for charitable solicitation calls (along with calls for the 
sale of Internet services, Web services, or the retail sale of 
nondurable office of cleaning supplies), Sec. 310.6(g). The 
Commission's law enforcement experience demonstrates that fraudulent 
charitable solicitations directed at businesses are a widespread 
problem. Consequently, telemarketers that solicit charitable 
contributions from businesses should not be exempt from complying with 
the TSR.

Sections 310.6(a), (b) and (c)--Exemptions for Pay-Per-Call Services, 
Franchising, and Face-to-Face Transactions

    Section 310.6(a) of the original Rule exempts from the Rule's 
requirements those transactions that are subject to the Commission's 
Pay-Per-Call Rule.\361\ Similarly, Sec. 310.6(b) exempts transactions 
subject to the Commission's Franchise Rule.\362\ Section 310.6(c) 
exempts from the Rule's requirements

[[Page 4529]]

those transactions 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.\363\ The 
Commission proposes to retain the exemptions for pay-per-call services, 
franchising, and face-to-face transactions set out in Secs. 310.6(a)-
(c),\364\ but to require these telemarketers to comply with 
Sec. 310.4(a)(1) (prohibiting threats, intimidation or use of profane 
or obscene language), Sec. 310.4(a)(6) (blocking, circumventing, or 
altering the transmission of the name and/or telephone number of the 
calling party on Caller ID), Sec. 310.4(b) (prohibiting abusive pattern 
of calls, and requiring compliance with ``do-not-call'' provisions), 
and Sec. 310.4(c) (calling time restrictions).
---------------------------------------------------------------------------

    \361\ Trade Regulation Rule pursuant to the Telephone Disclosure 
and Dispute Resolution Act of 1992, 16 CFR part 308.
    \362\ Rule Regarding Disclosure Requirements and Prohibitions 
Concerning Franchising and Business Opportunity Ventures, 16 CFR 
part 436.
    \363\ Face-to-face transactions are also covered by the 
Commission's Rule Concerning Cooling-Off Period for Sales Made at 
Homes or at Certain Other Locations, 16 CFR part 429.
    \364\ No modifications to Secs. 310.6(a) & (b) are necessary to 
implement the USA PATRIOT Act amendments, because charitable 
solicitations are not likely to be combined with pay-per-call or 
franchise sales. Therefore, there is no need to expressly exempt 
such an unlikely scenario from TSR coverage. However, modification 
of Sec. 310.6(c) is proposed in order to exempt charitable 
solicitations that entail a face-to-face meeting before the donor 
pays.
---------------------------------------------------------------------------

    No comments were received regarding Secs. 310.6(a) or (b). 
Commenters generally favored Sec. 310.6(c), noting that it 
appropriately excludes from the Rule's coverage transactions in which 
the incidence of telemarketing fraud and abuse is lessened by a 
subsequent in-person meeting between a customer and a seller.\365\ The 
Commission continues to believe that the incidence of fraud may be 
lessened when a transaction is not completed, and payment is not made, 
until a face-to-face meeting occurs between the buyer and seller. Thus, 
the proposed Rule would continue to exempt face-to-face transactions 
from the provisions relating to deceptive practices. For the same 
reasons, the Commission proposes to expand the ``face-to-face'' 
exemption to those charitable solicitations where the donation or 
payment is made subsequently in a face-to-face setting. Similarly, the 
Commission continues to believe that the Pay-Per-Call Rule and the 
Franchise Rule provide protection against deceptive practices for 
consumers seeking to purchase those goods or services. Thus, the 
proposed Rule would continue to exempt transactions subject to the 
Commission's Pay-Per-Call Rule and Franchise Rule from the provisions 
relating to deceptive practices.
---------------------------------------------------------------------------

    \365\ See ARDA at 5; DSA at 3; ICFA at 2.
---------------------------------------------------------------------------

    On the other hand, the Rule review record makes clear that 
consumers are increasingly frustrated with unwanted telemarketing 
calls, including those soliciting for pay-per-call services or sales 
appointments.\366\ One consumer who spoke during the public 
participation portion of the ``Do-Not-Call'' Forum noted frustration 
about her inability to invoke her right not to be called again by a 
company that called her to solicit a sales appointment.\367\ A number 
of participants in the July Forum concurred that the ``do-not-call'' 
provision of the Rule should also be applicable to calls where a seller 
attempts to set up an in-person sales meeting at a later date.\368\
---------------------------------------------------------------------------

    \366\ See generally the text, above, discussing Sec. 310.4(b).
    \367\ See Mey generally; DNC Tr. at 241-246.
    \368\ See Rule Tr. at 291-296.
---------------------------------------------------------------------------

    The Telemarketing Act mandates that the Commission's Rule address 
abusive telemarketing practices and specifically mandates that the 
Commission's Rule include a prohibition on calls that a reasonable 
consumer would consider coercive or abusive to the consumer's right to 
privacy, as well as restrictions on calling times.\369\ The incidence 
of fraud may be diminished in face-to-face telemarketing transactions 
or when the transactions are subject to regulation by other Commission 
rules, but the Rulemaking record shows that these transactions are not 
less susceptible to the abusive practices prohibited in 
Sec. 310.4.\370\ For this reason, the Commission agrees that 
telemarketing calls to solicit a face-to-face presentation or to 
solicit the purchase of pay-per-call services should be subject to 
certain of the Rule's provisions designed to limit abusive practices. 
Because franchise sales generally involve a face-to-face meeting at 
some point, these transactions are simply another type of face-to-face 
transaction and thus the telemarketing of franchises should be held to 
the same standard.
---------------------------------------------------------------------------

    \369\ 15 U.S.C. 6102(a)(1) and (3)(A) and (B).
    \370\ See Gindin at 1; Mey generally; DNC Tr. at 241-246; Rule 
Tr. at 291-295.
---------------------------------------------------------------------------

    Therefore, the Commission proposes to retain the exemptions for 
pay-per-call services, franchising, and face-to-face transactions set 
out in Secs. 310.6(a)-(c), but to require that telemarketers making 
these types of calls comply with Secs. 310.4(a)(1) and (6), and 
Secs. 310.4(b) and (c). The proposed Rule would continue to exempt 
these calls from the requirements of Sec. 310.3 relating to deceptive 
practices and from the recordkeeping requirements set out in 
Sec. 310.5.\371\ These calls would also continue to be exempt from 
providing the oral disclosures required by Sec. 310.4(d). Similarly, 
telemarketers soliciting charitable donations would be exempt from 
Sec. 310.4(e) when the payment or donation is made subsequently in a 
face-to-face setting. However, the proposed Rule would require that, 
even when a call falls within these exemptions, a telemarketer may not 
engage in the following practices:
---------------------------------------------------------------------------

    \371\ Of course, a seller or telemarketer would have to keep 
documentation in order to successfully raise the ``safe harbor'' 
defense in Sec. 310.4(b)(2) regarding compliance with the proposed 
Rule's ``do-not-call'' requirements.
---------------------------------------------------------------------------

     Threatening or intimidating a customer, or using obscene 
language;
     Blocking Caller ID information;
     Causing any telephone to ring or engaging a person in 
conversation with intent to annoy, abuse, or harass the person called;
     Denying or interfering with a persons's right to be placed 
on a ``do-not-call'' registry;
     Calling persons who have placed themselves on the central 
``no-call'' registry list maintained by the Commission or calling 
persons who have placed their names on that seller's ``do-not-call'' 
list; and
     Calling outside the time periods allowed by the Rule.

Section 310.6(d)--Exemption for Calls a Customer or Donor That Do Not 
Result From a Solicitation

    As part of the implementation of the USA PATRIOT Act amendments, 
the Commission proposes to expand this exemption to prevent the Rule 
from covering calls initiated by a donor that do not result from any 
solicitation by a charitable organization or telemarketer. In exempting 
commercial calls that are not the result of any solicitation by a 
seller, the Commission stated in the Statement of Basis and Purpose for 
the original TSR, ``Such calls are not deemed to be part of a 
telemarketing ``plan, program, or campaign * *  * to induce the 
purchase of goods or services.'''' \372\ Similarly, calls placed 
without the prompting of a solicitation by a charitable organization or 
telemarketer are not deemed to be part of a ``plan, program, or 
campaign which is conducted to induce * * * a charitable contribution, 
donation, or gift of money or any other thing of value * * *'', by use 
of one or more telephones and which involves more than one interstate 
telephone call.
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    \372\ 60 F.R. 43860 (Aug. 23, 1995).
    \373\ USA PATRIOT Act, Pub. L. 107-56 (Oct. 25, 2001) 
Sec. 1011(d).

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[[Page 4530]]

Section 310.6(e)--General Media Advertising Exemption

    Section 310.6(e) of the Rule exempts calls initiated by a customer 
in response to general media advertisements, except for telemarketing 
calls offering credit repair services, ``recovery'' services, or 
advance fee loans. The proposed Rule adds credit card loss protection 
plans and business opportunities other than business arrangements 
covered by the Franchise Rule to the list of exceptions to the 
exemption for general media advertisements. In addition, pursuant to 
the USA PATRIOT Act amendments, the proposed Rule expands the exemption 
to exclude from the Rule's coverage calls initiated by a donor in 
response to general media advertisements.
    ERA and Reese recommended retaining the general media advertising 
exemption.\374\ ERA stated that inbound calls in response to most 
general media advertisements are appropriately excluded from the Rule's 
coverage because they are not traditionally subject to the abuses the 
Act addresses, and because fraudulent general media advertisements can 
be addressed under Section 5 of the FTC Act.\375\ These commenters 
argued that the current exemption is justified because it is less 
common to find fraudulent offers of products or services promoted via 
general media advertisements. In addition, they argued that consumers 
are less susceptible to believing dubious prize promotions when they 
are presented through general media than when presented as an offer for 
which they have been ``specially selected.'' \376\
---------------------------------------------------------------------------

    \374\ See ERA at 5; Reese at 12.
    \375\ ERA at 5.
    \376\ See ERA at 5; Rule Tr. at 276-281, 287-291.
---------------------------------------------------------------------------

    Other commenters disagreed with ERA and Reese, recommending that 
the general media advertising exemption be removed from the Rule 
entirely. These commenters argued that the general media exemption is 
inconsistent with the intent of the Telemarketing Act to cover all 
telemarketing calls except those in response to a catalog 
solicitation.\377\ Commenters also noted that there can be little 
justification for exempting telemarketers from the Rule's coverage 
simply because they avail themselves of advertising via television, 
newspaper, or the Internet, while regulating telemarketers who use 
direct mail solicitations, which is another form of general media 
advertising.\378\
---------------------------------------------------------------------------

    \377\ See NAAG at 16; NCL at 15.
    \378\ NAAG at 16. Most solicitations in response to direct mail 
are exempt from the Rule's coverage provided that the mailing 
clearly, conspicuously, and truthfully discloses all material 
information required by Sec. 310.3(a)(1). 16 CFR 310.6(f).
---------------------------------------------------------------------------

    These commenters further argued that the current general media 
advertising exemption provides insufficient protection for 
consumers,\379\ pointing out that consumer complaints about fraudulent 
telemarketing schemes are often the result of advertisements placed in 
general media sources.\380\ NCL noted that the exemption for such 
advertisements is especially troubling because the solicitations 
rarely, if ever, provide enough information for a consumer to make an 
informed purchasing decision, leaving the consumer to base his or her 
decision on unregulated representations made in the subsequent inbound 
telephone call.\381\ NCL recommended creating an exception to the 
general media advertising exemption that would subject calls in 
response to such advertisements to the Rule's requirements unless the 
initial advertisements contained full information about the offer.\382\
---------------------------------------------------------------------------

    \379\ NAAG at 16; NCL at 15.
    \380\ NCL at 15.
    \381\ Id.
    \382\ NCL at 15. This approach is similar to that adopted in the 
Rule for direct mail solicitations. See 16 CFR 310.6(f).
---------------------------------------------------------------------------

    When the original Rule was promulgated, the Commission decided to 
include narrowly-tailored exemptions in order to avoid unduly burdening 
legitimate businesses and sales transactions that Congress specifically 
intended not to be covered under the Rule.\383\ A review of the 
legislative history of the Telemarketing Act indicates that the 
implicit concern behind the Act was with deceptive solicitations that 
directly target an individual consumer or address (e.g., outbound 
telephone calls or direct mail solicitations that induce the consumer 
to call a telemarketer), not with calls prompted by deceptive 
advertisements in general media such as infomercials, television 
commercials, home shopping programs, or telephone Yellow Pages that are 
broadcast to the general public.\384\ Thus, the Commission believes 
that the general media exemption is consistent with the Congressional 
intent and that the exemption should not be removed from the Rule.
---------------------------------------------------------------------------

    \383\ 60 FR at 43859.
    \384\ See, e.g., H. Rep. 102-421, 102d Cong., 1st Sess. (1991) 
(describing the way in which telemarketing schemes work and 
detailing a wide variety of boiler room and direct mail schemes 
targeted at specific individuals).
---------------------------------------------------------------------------

    Similar reasoning leads the Commission to propose extending this 
exemption to calls placed by donors in response to general media 
advertising. Nothing in the Commission's enforcement experience, or in 
the text of section 1011 of the USA PATRIOT Act or its legislative 
history indicates that these kinds of calls have raised concerns that 
would warrant coverage by the TSR.
    Although general media was exempted from the Rule's requirements in 
the original rulemaking, the Commission noted that deceptive 
telemarketers of certain types of products or services did use mass 
media or general advertising to entice their victims to call. Those 
products and services included investment opportunities, credit repair 
offers, advance fee loan offers, and ``recovery'' services. Therefore, 
the Commission made this exemption unavailable to sellers and 
telemarketers of those specified products and services.
    In criticizing the general media exemption, NCL cited work-at-home 
schemes as an example of a scheme commonly promoted using 
advertisements in newspapers or magazines, noting that the number one 
complaint reported to the NFIC in 1999 was such scams.\385\ The 
Commission agrees with NCL that an increasing number of telemarketing 
fraud solicitations for work-at-home schemes and other job 
opportunities appear in general media advertising. Complaint data show 
that the single greatest per capita monetary loss category in 
complaints reported to the FTC is for business opportunities, including 
work-at-home schemes, and that many of these are advertised through 
general media.\386\ The Commission has devoted much of its resources to 
law enforcement involving business opportunity schemes in general, and 
work-at-home schemes in particular, over the last several years.\387\ 
Of course, the Commission's Franchise Rule addresses the activities of 
some business opportunity ventures; however, the Commission's law 
enforcement experience and the Rule review record confirm that there 
are ever-emerging permutations of these business arrangements that are 
not subject to the Franchise Rule, but that have proven to be popular 
avenues of fraud in the marketplace, and therefore merit treatment 
here.
---------------------------------------------------------------------------

    \385\ See NCL at 15. According to NCL, complaint data show that 
24 percent of work-at-home offers were initiated through print 
advertising, a figure more than double that for offers of other 
kinds, which originate in print advertising in only 11 percent of 
the cases.
    \386\ Rule Tr. at 282.
    \387\ See, e.g., FTC v. Advanced Public Communications Corp., 
00-00515 (S.D. Fla. filed Feb. 7, 2000); FTC v. MegaKing, No.00-
00513 (S.D. Fla. filed Feb. 7, 2000); and FTC v. Home Professions, 
Inc., SACV 00-111 AHS(EEx) (C.D. Cal. filed Feb. 1, 2000).
---------------------------------------------------------------------------

    In recognition of the fact that telemarketing fraud perpetrated by 
the

[[Page 4531]]

advertising of work-at-home and other business opportunity schemes in 
general media sources is a prevalent and growing phenomenon, the 
Commission proposes to make the general media advertising exemption 
unavailable to sellers and telemarketers of business opportunities 
other than business arrangements covered by the Franchise Rule or any 
subsequent Rule covering business opportunities the Commission may 
promulgate. The proposed Rule also makes this exemption unavailable for 
sellers and telemarketers of credit card loss protection plans.\388\ 
Otherwise, the Commission believes that the proposed Rule's focus on 
credit card loss protection plans, including new affirmative 
disclosures and prohibited misrepresentations, may create some 
incentive for unscrupulous sellers to market these programs via general 
media advertising specifically to ensure that their efforts are exempt 
from the Rule's coverage. Therefore, sellers and telemarketers who 
market these goods and services would be required to abide by the Rule 
regardless of the medium used to advertise their products and services.
---------------------------------------------------------------------------

    \388\ See also, the discussion above regarding proposed 
Sec. 310.3(a)(1)(vii), which would prohibit requesting a payment for 
a credit card loss protection program until after the seller or 
telemarketer has disclosed that federal law limits a cardholder's 
liability for unauthorized charges, and the discussion of proposed 
Sec. 310.3(A)(2)(viii), which prohibits misrepresentations in the 
sale of credit card loss protection programs.
---------------------------------------------------------------------------

Section 310.6(f)--Direct Mail Exemption

    Section 310.6(f) exempts from the Rule's requirements inbound 
telephone calls resulting from a direct mail solicitation that clearly, 
conspicuously, and truthfully discloses all material information 
required by Sec. 310.3(a)(1). The proposed Rule adds language 
clarifying that the Commission considers advertisements sent via 
facsimile machine or electronic mail to be forms of direct mail.
    In addition, the proposed Rule extends this exemption to inbound 
telephone calls resulting from direct mail charitable fundraising 
solicitations that comply with Sec. 310.3(a)(1), and which would 
otherwise be subject to the Rule pursuant to the modifications mandated 
by the USA PATRIOT Act amendments.
    Commenters suggested that advertisements sent by facsimile machine 
or electronic mail should be included as categories of direct mail, and 
therefore be exempt from the Rule's coverage as long as they make the 
required disclosures required by Sec. 310.3(a)(1) in a clear, 
conspicuous, and truthful manner.\389\ The Commission believes that 
facsimile and electronic mail advertisements are analogous to 
traditional direct mail sent through the United States Postal Service 
or private mail services, such as United Postal Service or Federal 
Express. Indeed, the Commission has brought law enforcement actions 
under the Rule against fraudulent telemarketers who used facsimiles or 
electronic mail to solicit inbound calls.\390\ Therefore, the 
Commission proposes to modify Sec. 310.6(f) to clarify that direct mail 
solicitations include ``solicitations via the U.S. Postal Service, 
facsimiles, electronic mail, and other similar methods'' of delivery 
which directly target potential customers or donors.
---------------------------------------------------------------------------

    \389\ ARDA at 5-6; NCL at 15-16.
    \390\ See, e.g., FTC v. Leisure Time Mktg, Inc., No. 6:00-Civ-
1057-ORL-19-B, (M.D. Fla. filed Aug. 14, 2000).
---------------------------------------------------------------------------

    The original Rule removed prize promotions, investment 
opportunities, credit repair services, ``recovery'' services, and 
advance fee loan offers from the direct mail exemption. In addition to 
these, the proposed Rule, for reasons similar to those cited with 
respect to the modification to the general media exemption, 
Sec. 310.6(e), also removes from the direct mail exemption both credit 
card loss protection plans as well as business opportunities other than 
business arrangements covered by the Franchise Rule or any subsequent 
Rule covering business opportunities the Commission may promulgate.

Section 310.6(g)--Business-to-Business Exemption

    Section 310.6(g) of the original Rule exempts most business-to-
business telemarketing from the Rule's requirements; only the sale of 
nondurable office and cleaning supplies are covered under the Rule. In 
addition to these, the proposed Rule also makes this exemption 
unavailable to telemarketers of Internet services or Web services, and 
telemarketers' solicitations for charitable contributions.
    ERA praised the business-to-business exemption, noting that in 
business-to-business transactions, telemarketers are selling to 
``uniquely sophisticated'' purchasers who are skilled in evaluating and 
negotiating competing offers.\391\ ERA also noted that business 
purchasers would ``find a seller's rote adherence to the requirements 
of the TSR annoying and disruptive to ordinary business 
negotiations.''\392\
---------------------------------------------------------------------------

    \391\ ERA at 5.
    \392\ Id.
---------------------------------------------------------------------------

    State and local law enforcement officials were less enthusiastic 
about this Rule exemption, particularly as it relates to small 
businesses.\393\ Participants at the July Forum also noted that small 
businesses are increasingly the targets of fraudulent telemarketing 
schemes.\394\ Some critics recommended abolishing the business-to-
business exemption, while others recommended removing additional 
products and services from the exemption.\395\
---------------------------------------------------------------------------

    \393\ See, e.g., NAAG at 16-17; NACAA at 2; Texas at 2-3.
    \394\ See generally Rule Tr. at 250-272.
    \395\ See NAAG at 17 (recommending that the exemption be 
eliminated when telemarketing calls are made to small businesses, 
or, in the alternative, that the exception be broadened to include 
the sale of Internet and Web services); NACAA at 2 (recommending 
that calls to small businesses be covered by the Rule); Texas at 2-
3.
---------------------------------------------------------------------------

    The Commission believes a business-to-business exemption continues 
to be appropriate. However, the Commission also is cognizant of the 
increasing emergence of fraudulent telemarketing scams that target 
businesses, particularly small businesses, for certain kinds of 
fraud.\396\ The Commission receives a high number of complaints about 
such business-to-business telemarketing frauds,\397\ and has brought 
numerous law enforcement actions against them, both under the Rule and 
section 5 of the FTC Act.\398\ Currently, the Rule makes the business-
to-business exemption unavailable to telemarketers of nondurable office 
or cleaning supplies. The sale of Internet and Web services to small 
businesses has emerged as one of the leading sources of complaints 
about fraud by small businesses.\399\ The proliferation of sellers of 
these services has increased dramatically as Internet use has 
skyrocketed over the past five years.\400\

[[Page 4532]]

Small businesses have proven eager to join the online revolution, but 
often are unable to distinguish between offers from legitimate sellers 
and those extended by fraud artists. Therefore, the proposed Rule also 
makes the business-to-business exemption unavailable to telemarketers 
of Internet services and Web services. The Commission believes that 
this will strengthen the tools available to law enforcement to stop 
these schemes from proliferating.
---------------------------------------------------------------------------

    \396\ Rule Tr. at 252-253 (NAAG noting that businesses are ``the 
consumers of choice for fraudulent telemarketers of the 21st 
century'').
    \397\ See E-Commerce Fraud Targeted at Small Business: Hearings 
on Web Site Cramming Before the Senate Comm. on Small Bus. (Oct. 25, 
1999) (statement of Jodie Bernstein, Director of the Bureau of 
Consumer Protection, FTC); FTC Cracks Down on Small Business Scams: 
Internet Cramming is Costing Companies Millions, FTC news release, 
June 17, 1999, available online at: www.ftc.gov/opa/1999/small9.htm.
    \398\ See, e.g., FTC v. Shared Network Svcs. LLC., Case No. S-
99-1087-WBS JFM, (E.D. Cal. filed June 12, 2000); FTC v. U.S. 
Republic Communications, Inc., Case No. H-99-3657, S.D. Tex. (Oct. 
21, 1999) (Stipulated Final Order for Permanent Injunction and Other 
Equitable Relief entered on Oct. 25, 1999); FTC v. WebViper LLC d/b/
a Yellow Web Services, Case No. 99-T-589-N, (M.D. Ala. June 9, 
1999); FTC v. Wazzu Corp., Case No. SA CV-99-762 AHS (ANx), (C.D. 
Cal. filed June 7, 1999).
    \399\ See NAAG at 16-17; Rule Tr. 250-253, 266, 269-270.
    \400\ See, e.g., www.media-awareness.ca/eng/issues/stats/
usenet.htm (``In 1997, electronic commerce transactions around the 
world totalled [sic] about $4 billion. By 2002, that figure is 
expected to jump to $400 billion.'') (``Over 83 million adults, or 
40 percent of the US population over 16 are accessing the Internet, 
up from 66 million in 1998.); www.thestandard.com/research/metrics/display/0,2799,10089,00.html.
---------------------------------------------------------------------------

    Similarly, the Commission's enforcement experience compels the 
conclusion that charity fraud targeting businesses is a widespread 
problem, and that small businesses in particular need the TSR's 
protection from charity fraud.\401\ The Commission believes it 
consistent with the plain language and the legislative history of the 
USA PATRIOT Act amendments that the TSR should reach this problem.
---------------------------------------------------------------------------

    \401\ See, e.g., Southwest Marketing Concepts; Saja; Dean Thomas 
Corp.; Century Corp.; Image Sales & Consultants; Omni Advertising: 
T.E.M.M. Mktg., Inc.; Tristate Advertising Unlimited, Inc.; Fold; 
Eight Point Communications. See also Pa. Stat. Ann. tit. 10 
Sec. 162.15(A)(11) (West 2000).
---------------------------------------------------------------------------

Other Recommendations by Commenters Regarding Exemptions
    Preneed Funeral Goods and Services. FAMSA recommended that the 
face-to-face exemption not be available to sellers and telemarketers of 
preneed funeral and cemetery sales. According to FAMSA, Rule coverage 
is appropriate here because abuses occur when aggressive telemarketing 
techniques are used to sell funeral goods and services to individuals 
who are particularly vulnerable because they are grieving the loss of a 
loved one.\402\ The Commission recognizes that these individuals are a 
particularly vulnerable group and are deserving of protection. However, 
the Commission believes that the sale of preneed funeral good and 
services would be more appropriately addressed in the Funeral Rule, 
which is currently under review by the Commission.\403\
---------------------------------------------------------------------------

    \402\ FAMSA at 2.
    \403\ FTC, Funeral Rule, 16 CFR 453. On May 5, 1999, the 
Commission published a request for comment in its review of the 
Funeral Rule. 64 FR 24249 (May 5, 1999). The review is still 
pending.
---------------------------------------------------------------------------

    Isolated transactions. DSA proposed modifying the definition of 
``telemarketing'' to state that it involves more than one telephone in 
order to emphasize the ``plan, program, or campaign'' element of the 
definition.\404\ DSA stated that most of the phone calls made by direct 
sellers are made using the seller's home telephone line to call someone 
known to the seller, someone referred to the seller by a current 
customer, or to invite potential guests to a direct selling party.\405\ 
DSA argued that these types of sellers should be distinguished from 
telemarketers who use boiler rooms to market their goods and services.
---------------------------------------------------------------------------

    \404\ DSA at 3.
    \405\ Id. at 3-4, 6. DSA represents approximately 200 companies 
that sell their products and services by personal presentation and 
demonstration, primarily in the home. DSA at 3.
---------------------------------------------------------------------------

    As explained, above, in the section discussing Sec. 310.2 of the 
Rule, the Rule's definition of ``telemarketing'' tracks the statutory 
definition in the Telemarketing Act.\406\ Thus, for purposes of the 
Rule, 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.''\407\ Fraudulent telemarketing practices are not limited to 
boiler room operations. A series of telephone calls by one seller to 
several consumers would constitute telemarketing if those telephone 
calls are to induce the purchase of goods or services. Such a situation 
is as susceptible to fraud as is a boiler room or call center 
situation. Altering the definition to exclude telemarketers who use 
only their own phone to solicit customers would unnecessarily limit the 
scope of the Rule, and provide a potential loophole for fraudulent 
telemarketers. Individual telemarketers or sellers can engage in fraud 
regardless of the number of telephones they may use.
---------------------------------------------------------------------------

    \406\ 15 U.S.C. 6106(4).
    \407\ 16 CFR 310.2(u) (emphasis added).
---------------------------------------------------------------------------

    DSA also recommended exempting telephone calls where ``the 
solicitation is an isolated transaction and not done in the course of 
pattern or repeated transactions of like nature.''\408\ An isolated 
transaction would not constitute ``a plan, program, or campaign'' and 
thus would not be subject to the Rule's provisions. The Rule already 
exempts isolated transactions through its definition of 
``telemarketing'' and, therefore, the Commission does not believe it is 
necessary to amend the Rule to clarify that exclusion.
---------------------------------------------------------------------------

    \408\ DSA at 3.
---------------------------------------------------------------------------

    Prior business or personal relationship. DSA also proposed 
exempting ``telephone calls made to any person with whom the caller has 
a prior or established business or personal relationship.'' In 
advocating for this exemption, DSA noted that most of the phone calls 
made by direct sellers are to call someone known to the seller, someone 
referred to the seller by a current customer, or to invite potential 
guests to a direct selling party.\409\ In the original rulemaking, the 
Commission declined to add an exemption for telephone calls made to a 
consumer with whom a business had a prior business relationship because 
it determined that such an exemption would be unworkable in the context 
of telemarketing fraud.\410\ A prior business relationship exemption 
would enable fraudulent telemarketers who were able to fraudulently 
make an initial sale to a customer to continue to exploit that customer 
without being subject to the Rule.\411\ The Commission continues to 
believe that such an exemption would work to the disadvantage of 
consumers, and thus declines to accept this recommendation.
---------------------------------------------------------------------------

    \409\ DSA at 3-4.
    \410\ 60 FR at 30423.
    \411\ Id.

---------------------------------------------------------------------------
G. Section 310.7--Actions by States and Private Persons

    The Telemarketing Act grants the States and private persons the 
authority to enforce the TSR.\412\ Section 310.7 details the procedures 
the States and private persons should follow in bringing actions under 
the Rule in order to maximize the impact of law enforcement actions by 
promoting consistency and coordination of effort. The language in this 
provision tracks the language of the sections of the Telemarketing Act 
that provide for enforcement of the TSR by the States and private 
persons. The Commission received no comments recommending changes to 
this section. Therefore, no change to Sec. 310.7 is proposed.
---------------------------------------------------------------------------

    \412\ 15 U.S.C. 6103 (States) and 6104 (private persons).
---------------------------------------------------------------------------

    Although there were no comments specifically on this section, 
representatives from industry, consumer groups, and State law 
enforcement praised the dual enforcement scheme that Congress set up in 
the Telemarketing Act. For example, MPA noted that fraudulent 
telemarketers' pattern of ``run(ning) from state to state to avoid 
prosecution'' has been stymied because under the Rule individual States 
can obtain nationwide injunctions.\413\ Other commenters also supported 
the Act's dual enforcement scheme, noting that one factor that has been 
particularly essential to the Rule's success in curbing telemarketing 
fraud is the increased enforcement made

[[Page 4533]]

possible by allowing States to initiate actions under the Rule.\414\
---------------------------------------------------------------------------

    \413\ MPA at 11.
    \414\ See, e.g., AARP at 2; ATA at 10; NACAA at 1; NCL at 3.
---------------------------------------------------------------------------

    State law enforcement officials also expressed strong approval for 
the Act's enforcement scheme, focusing on the efficiencies that the Act 
has created in the use of law enforcement resources. These commenters 
noted that the Act's enforcement scheme allows States to work together, 
and with the Commission, to jointly sue fraudulent telemarketers in a 
single action.\415\ The Commission's own experience confirms that the 
dual enforcement provision of the Act has been integral in attacking 
telemarketing fraud. Working together with States in ``sweeps'' 
targeted at specific types of telemarketing scams, such as those 
touting advance fee loans or travel promotions, the Commission and 
States have brought over one hundred fifty actions since the Rule took 
effect.\416\
---------------------------------------------------------------------------

    \415\ NAAG at 1; Texas at 1.
    \416\ The vast majority of these targeted sweeps have been 
accompanied by a media advisory and public education campaign, 
making them an important tool in raising public awareness of 
particular types of telemarketing fraud.
---------------------------------------------------------------------------

    In contrast, the Rule review record regarding the private right of 
action available under the Act for violations of the TSR indicates two 
sources of frustration: The $50,000 monetary harm threshold consumers 
must meet to be eligible to sue under the Act for violations of the 
TSR, and the difficulty in identifying those who violate the Rule, 
particularly when a consumer wishes to enforce those provisions of the 
Rule aimed not at fraud and deception, but at abusive practices.\417\
---------------------------------------------------------------------------

    \417\ See Kelly (1) at 1; DNC Tr. at 103, 106.
---------------------------------------------------------------------------

    As to the threshold amount of monetary harm, the Telemarketing Act 
prescribed that the amount in controversy required for a private person 
to bring an action under the Rule be $50,000.\418\ Congress, and not 
Commission, is vested with the authority to alter this amount. Any 
change in this amount would necessarily be made by Congress through an 
amendment to the Telemarketing Act.
---------------------------------------------------------------------------

    \418\ See 15 U.S.C. 6104(a).
---------------------------------------------------------------------------

    The Commission agrees that the difficulty of identifying those who 
violate the Rule has been an impediment to effective enforcement of the 
Rule, not only by private parties, but by law enforcement as well. 
While Sec. 310.4(d)(1) of the Rule already requires telemarketers to 
disclose the identity of the seller promptly in each call, the 
Commission is persuaded that the Rule should be supplemented to ensure 
that consumers receive this important information in additional ways, 
where feasible. As discussed in detail above in connection with the 
proposed changes to Sec. 310.4(a), the Commission believes that the 
enforceability of the Rule will be bolstered by the Commission's 
proposal to prohibit as an abusive practice any action by a 
telemarketer to block the calling party's name and telephone number, 
thus ensuring that, when feasible, consumers receive information about 
the identity of telemarketers who call them. In addition, the 
Commission believes that enforcement will be enhanced by its proposal 
in Sec. 310.4(b)(1)(ii) to prohibit telemarketers from denying or 
interfering in any way with the consumer's right to be placed on a 
``do-not-call'' list.

IV. Invitation To Comment

    All persons are hereby given notice of the opportunity to submit 
written data, views, facts, and arguments concerning the proposed 
changes to the Commission's Telemarketing Sales Rule. The Commission 
invites written comments to assist it in ascertaining the facts 
necessary to reach a determination as to whether to adopt as final the 
proposed changes to the Rule. Written comments must be submitted to the 
Office of the Secretary, Room 159, FTC, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580, on or before March 29, 2002. Comments submitted 
will be available for public inspection in accordance with the Freedom 
of Information Act (5 U.S.C. 552) and Commission Rules of Practice, on 
normal business days between the hours of 9:00 a.m. and 5 p.m. at the 
Public Reference Section, Room 130, Federal Trade Commission, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. The Commission will 
make this Notice and, to the extent possible, all papers or comments 
received in electronic form in response to this Notice available to the 
public through the Internet at the following address: www.ftc.gov.

V. Public Forum

    The FTC staff will conduct a public forum on June 5, 6, and 7, 
2002, to discuss the written comments received in response to this 
Federal Register Notice. The purpose of the forum is to afford 
Commission staff and interested parties a further opportunity to 
discuss issues raised by the proposal and in the comments; and, in 
particular, to examine publicly any areas of significant controversy or 
divergent opinions that are raised in the written comments. The forum 
is not intended to achieve a consensus among participants or between 
participants and Commission staff with respect to any issue raised in 
the comments. Commission staff will consider the views and suggestions 
made during the forum, in conjunction with the written comments, in 
formulating its final recommendation to the Commission regarding 
amendment of the Telemarketing Sales Rule.
    Commission staff will select a limited number of parties from among 
those who submit written comments to represent the significant 
interests affected by the issues raised in the Notice. These parties 
will participate in an open discussion of the issues, including asking 
and answering questions based on their respective comments. In 
addition, the forum will be open to the general public. The discussion 
will be transcribed and the transcription placed on the public record.
    To the extent possible, Commission staff will select parties to 
represent the following interests: telemarketers, list providers, 
direct marketers, local exchange carriers, consumer groups, federal and 
State law enforcement and regulatory authorities, and any other 
interests that Commission staff may identify and deem appropriate for 
representation.
    Parties who represent the above-referenced interests will be 
selected on the basis of the following criteria:
    1. The party submits a written comment during the comment period.
    2. During the comment period the party notifies Commission staff of 
its interest in participating in the forum.
    3. The party's participation would promote a balance of interests 
being represented at the forum.
    4. The party's participation would promote the consideration and 
discussion of a variety of issues raised in this Notice.
    5. The party has expertise in activities affected by the issues 
raised in this Notice.
    6. The number of parties selected will not be so large as to 
inhibit effective discussion among them.

VI. Communications by Outside Parties to Commissioners or Their 
Advisors

    Written communications and summaries or transcripts of oral 
communications respecting the merits of this proceeding from any 
outside party to any Commissioner or Commissioner's advisor will be 
placed on the public record. See 16 C.F.R. 1.26(b)(5).

[[Page 4534]]

VII. Paperwork Reduction Act

    In this Notice of Proposed Rulemaking, the Commission proposes to 
alter some collection of information requirements contained in the TSR. 
As required by the Paperwork Reduction Act of 1995 (``PRA''), 44 U.S.C. 
3501-3517, the Commission has submitted a copy of the proposed 
revisions and a Supporting Statement for Information Collection 
Provisions of the Telemarketing Sales Rule (``Clearance Submission'') 
to the Office of Management and Budget (``OMB'') for its review.
    The proposed amendments to the Rule presented in this Notice of 
Proposed Rulemaking clarify some of the Rule's language, add and change 
some disclosure items, amend the ``do-not-call'' requirements, modify 
some of the current exemptions, and expand the Rule's coverage by 
mandate of the USA PATRIOT Act. Each of these proposals will impact 
different industry members differently and, depending on the particular 
industry member, may reduce, increase, or have no effect on compliance 
costs and burdens. Several proposals provide new disclosure 
requirements--some for industry members generally, some for 
telemarketers soliciting charitable contributions that are now subject 
to the Rule, and others only in certain specific circumstances. Other 
proposed amendments clarify existing provisions and should provide an 
overall benefit to affected respondents without increasing costs. These 
clarifications, however, do not affect the collections of information 
contained in the regulation and therefore will not be addressed here. 
Only those proposals that might change an information collection 
requirement are discussed below.
    Estimated Total Additional Hour Burden: 392,000 hours (rounded to 
the nearest thousand)
    A. Additional Hour Burden for Non-PATRIOT Act proposals: 247,500 
burden hours.
    The current total public disclosure and recordkeeping burden for 
collections of information under the Rule is 2,301,000 hours, as stated 
most recently in the Commission's immediately preceding clearance 
submission for the TSR,\419\ which OMB approved on July 24, 2001 under 
OMB Control No. 3084-0097 (expiration date July 31, 2004). Consistent 
with that submission and earlier ones addressing the Rule's issuance 
and ensuing requests for OMB clearance, Commission staff estimates that 
approximately 40,000 industry members make approximately 9 billion 
calls per year, or 225,000 calls per year per company.
---------------------------------------------------------------------------

    \419\ 66 Fed. Reg. 33,701 (June 25, 2001).
---------------------------------------------------------------------------

    Staff also noted during previous clearance processes, however, that 
the direct mail exemption in section 310.6(f), which includes all 
required disclosures under the Rule, would result in about 9,000 firms 
choosing that marketing method, and thereby become exempt from the 
remaining TSR requirements. Staff also estimated that the total time 
expenditure for the 31,000 firms choosing marketing methods that 
require these oral disclosures was 7.75 million hours, but that, based 
on the assumption that no more than 25 percent of that 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),\420\ the burden subtotal attributable to these basic 
disclosures is 1,937,500 hours.
---------------------------------------------------------------------------

    \420\ OMB does not view as ``burden'' the time, effort, and 
financial resources necessary to comply with a collection of 
information that would normally be incurred by persons in the normal 
course of their activities to the extent that the activities are 
usual and customary. 5 CFR 1320.3(b)(2).
---------------------------------------------------------------------------

    The Commission received no comments or other evidence to contradict 
these estimates during either the initial rulemaking or its subsequent 
OMB submissions for renewed clearance; thus, Commission staff will 
continue to use them to conduct the instant analysis under the PRA.
    (1) Proposed amendment to the definition of ``outbound call''. The 
Commission proposes modifying the Rule's definition of ``outbound 
telephone call'' to clarify the Rule's coverage of outbound calls, 
which includes not only a call initiated by a telemarketer, but also 
instances when a call: (1) Is transferred to a telemarketer other than 
the original one; or (2) involves a single telemarketer soliciting on 
behalf of more than one seller or telemarketer seeking a charitable 
contribution. Based on its law enforcement experience and the record in 
this Rule review, the Commission believes the majority of these two 
additional types of calls will occur after an inbound call by a 
customer. According to the DMA's year 2000 Statistical Fact Book, 28 
percent of its survey respondents said they used inbound calling as a 
direct marketing method in 1999.
    Based on the DMA data, and assuming broadly that these additional 
types of calls will occur solely via inbound calls by a customer, staff 
estimates that of the 40,000 industry members affected by the Rule 
generally, approximately 11,200 (28%  x  40,000 members) of them may 
additionally be subject to the Rule under the new definition of 
``outbound call.'' Of those members, staff conservatively estimates, 
based on its law enforcement experience and industry research, that 
approximately one-third of telemarketers' calls, or around 75,000 calls 
per year per firm, involve a suggested transfer or further solicitation 
by a single telemarketer on behalf of a second entity. Staff also 
estimates that of the calls in which a transfer is suggested to the 
consumer or in which a second solicitation is attempted, 60% will be 
successfully transferred or ``upsold'' (versus an estimated 40% 
response rate for traditional outbound calls). Assuming, as staff has 
in the past that sales occur in 6 percent of all calls, that it takes 7 
seconds to make the required disclosures, and that these proposed 
revisions will impose a paperwork burden only about 25% of the 
time,\421\ staff estimates that the proposed amendment to the 
definition of ``outbound call'' will yield an increase of 245,000 
burden hours.
---------------------------------------------------------------------------

    \421\ See, e.g, 63 FR 40713 (1998), 66 FR 33701 (2001), in which 
the Commission assumed that sales occurred in 6 percent of all 
outbound calls, that it took 7 seconds to make the required 
disclosures, and that about 75% of affected entities already are 
making these discloures. See also 60 FR 32682 (1995).
---------------------------------------------------------------------------

    (2) Changes to the Express Verifiable Authorization Provision. The 
Commission has proposed no changes to the Rule's recordkeeping 
requirements per se. However, because of the proposed changes to the 
express verifiable authorization provision, Sec. 310.3(a)(3), the 
Sec. 310.5(a)(5) mandate that sellers and telemarketers keep all 
verifiable authorizations required to be provided or received under the 
Rule suggests that additional records must be retained. Nonetheless, as 
noted above in the discussion of the express verifiable authorization 
provision of the Rule, the Rule review record indicates that virtually 
all telemarketers already keep such records in the ordinary course of 
business. Thus, there should be minimal or no incremental recordkeeping 
burden resulting from the contemplated Rule changes.
    The recordkeeping provision, however, now also applies to 
telemarketers soliciting charitable contributions, pursuant to the 
change in the definition of ``telemarketing'' made in the USA PATRIOT 
Act. Staff estimates that approximately 2,500 telemarketers are solely 
engaged in the solicitation of charitable contributions, and that no 
more than 2% of

[[Page 4535]]

telemarketers of goods or services also engage in such activities. 
Staff conservatively estimates that this provision will account for no 
more than one hour of recordkeeping burden per entity engaged solely in 
the solicitation of charitable contributions. Those entities conducting 
telemarketing campaigns in both sales and solicitations of charitable 
contributions are already subject to the Rule regarding their sales 
activities, and, to the extent that they are compliant with the Rule, 
already perform recordkeeping pursuant to it. Consequently, staff 
anticipates that incremental recordkeeping burden for those entities 
would be de minimis. Accordingly, the total increase in recordkeeping 
burden attributable to this provision is approximately 2,500 (2,500 
telemarketers engaged solely in soliciting charitable contributions  x  
1 hour each for recordkeeping under the Rule).
    (3) Adoption of a national ``do-not-call'' registry. As discussed 
with regard to Sec. 310.4(b)(1)(iii), the Commission proposes to amend 
the original Rule to provide consumers the option of placing themselves 
on a national ``do-not-call'' registry, maintained by the Commission. 
Telemarketers would be required, at least monthly, to obtain the 
Commission's registry in order to update their own call lists, ensuring 
that consumers who have requested inclusion on the Commission's 
registry will be deleted from telemarketers' call lists. Staff believes 
that the incremental PRA effects would be minimal and, possibly, lead 
to reduced burden for telemarketers. Many affected entities, whether 
telemarketing for commercial or charitable organizations, already have 
in place procedures either for scrubbing their own lists (to the extent 
that they maintain such lists) or for inputting into their automatic 
dialing systems the numbers of persons who have requested not to be 
called. Moreover, it is possible that some states may partially rescind 
their own provisions with regard to interstate calls in favor of the 
instant proposed rule. The effect of such centralization would be to 
simplify the process for telemarketers as well as consumers and thereby 
reduce cumulative burden.
    B. Additional Hour Burden for PATRIOT Act proposals: 144,375 burden 
hours.
    As noted above, section 1011 of the USA PATRIOT Act amended the 
Telemarketing Act to extend the Act's coverage to solicitations for 
charitable contributions. Specifically, section 1011(b)(2) of the 
PATRIOT Act adds a new section to the Telemarketing Act mandating that 
the Commission include new requirements in the ``abusive telemarketing 
acts or practices'' provisions of the TSR. The proposed Rule, 
therefore, includes proposed Sec. 310.4(e), which requires 
telemarketers soliciting on behalf of charitable organizations to make 
two oral disclosures in the course of the telephone solicitation.
    Based on analysis of data from a sampling of states requiring 
registration of professional fundraisers, including telemarketers, 
staff conservatively estimates that there are approximately 2,500 
telemarketing firms potentially subject to the proposed amendments of 
the Rule specific to the PATRIOT Act. Additionally, staff estimates 
that approximately 2% of the telemarketers currently subject to the 
Rule also solicit charitable contributions, and thus will now be 
subject to additional disclosure requirements. Thus, the total number 
of entities staff estimates will be affected by these additional 
requirements is approximately 3,300.
    Proposed Sec. 310.4(e) requires telemarketers soliciting charitable 
contributions to make two prompt and clear disclosures at the start of 
each call. This provision was drafted to mirror current Sec. 310.4(d), 
which includes four required disclosures, and which staff previously 
estimated would take 7 seconds to make in the course of each 
telemarketing call. Given that there are half as many disclosures 
required of telemarketers under proposed Sec. 310.4(e), staff estimates 
that these disclosures will take approximately 4 seconds per call. As 
with commercial telemarketing calls, staff's estimate anticipates that 
at least 60% of calls result in ``hang-ups'' before the telemarketer 
has the opportunity to make all of the required oral disclosures 
(resulting in, approximately, a 2-second call). Finally, as is the case 
with telemarketing of goods or services, the Commission believes that 
telemarketers already are making the required disclosures in the 
majority of telemarketing transactions subject to these provisions 
under the USA PATRIOT Act amendments. Accordingly, staff estimates that 
the proposed provision will yield an added PRA burden in only 25% of 
affected transactions. Applying these assumptions and estimates, staff 
concludes that the new disclosure requirements will result in an 
additional burden of 144,375 hours. ((225,000 calls/year  x  60% hang-
ups after 2 seconds) + (225,000 calls/year  x  40% with 4-seconds full 
disclosure))  x  3,300 firms  x  25% of them making these additional 
disclosures solely due to the Rule revisions.)
    Thus, total estimated annual hour burden for the TSR will be 
2,693,000 hours, including the effects of the proposed Rule changes.
    Estimated Total Additional Cost Burden: $1,402,000 (rounded to the 
nearest thousand).
    (1) Non-PATRIOT Act proposals: $882,000.
    The current estimate of the cost to comply with the Rule's 
information collection requirements is $10,022,000.\422\ With regard to 
its proposed additional disclosure requirements, the Commission 
recognizes, as it did during the initial rulemaking, that telemarketing 
firms may incur additional costs for telephone service, assuming that 
the firms spend more time on the telephone with customers given the 
proposed disclosure requirements. As noted above, staff estimates that 
the proposed amendment to the definition of ``outbound call'' will 
yield an increase of 245,000 burden hours. Assuming all calls to 
customers are long distance and a commercial calling rate of 6 cents 
per minute ($3.60 per hour), affected entities as a whole may incur up 
to $882,000 in associated telecommunications costs.
---------------------------------------------------------------------------

    \422\ See 66 FR at 33,702.
---------------------------------------------------------------------------

    (2) PATRIOT Act proposals: $519,750.
    The Commission recognizes that telemarketing firms now subject to 
the Rule after the PATRIOT Act amendments may incur additional costs 
for telephone service, assuming that the firms spend more time on the 
telephone with customers due to the proposed disclosure requirements 
specific to the solicitation of charitable contributions. As noted 
abvoe, staff estimates that the proposed amendments arising from this 
Act will result in 144,375 additional burden hours. Assuming all calls 
to customers are long distance and a commercial calling rate of 6 cents 
per minute ($3.60 per hour), affected entities as a whole may incur up 
to $519,750 in associated telecommunications costs.
    Thus, total estimated annual cost burden for the TSR will be 
$11,424,000, including the effects of the proposed Rule changes.

Request for Comments

    The Commission invites comment that will enable it to:
    1. Evaluate whether the proposed collections of information are 
necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility;

[[Page 4536]]

    2. Evaluate the accuracy of the staff's estimates of the burdens of 
the proposed collections of information, including the validity of the 
methodology and assumptions used;
    3. Enhance the quality, utility, and validity of the information to 
be collected; and
    4. Minimize the burden of the collections of information on those 
who are to respond, including through the use of appropriate automated, 
electronic, mechanical or other technological collection techniques or 
other forms of information technology.

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act provides for analysis of the 
potential impact on small entities of rules proposed by federal 
agencies.\423\ In publishing the originally proposed TSR, 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.\424\ After receiving 
public comment, the Commission determined that this projection was 
correct, and certified this fact to the Small Business 
Administration.\425\ In issuing this Notice proposing amendments to the 
TSR, the Commission similarly certifies that these Rule amendments, if 
adopted, will not have a significant economic impact on a substantial 
number of small entities.\426\
---------------------------------------------------------------------------

    \423\ U.S.C. 603-604.
    \424\ 60 FR at 8322.
    \425\ 60 FR at 43863.
    \426\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    In originally promulgating the TSR, which applied to sellers and 
telemarketers engaged in the interstate telemarketing of goods or 
services, the Commission recognized that the Rule might affect a 
substantial number of small entities. The amendments now proposed may 
also affect a substantial number of small entities. Nevertheless, the 
Commission believes that the proposed amendments--including expansion 
of the definition of ``outbound call,'' expansion of the scope of the 
express verifiable authorization provisions to cover additional payment 
methods, and the formulation of a national do-not-call registry--would 
not have a significant economic impact on such entities. As explained 
above in the discussion of each proposed amendment and the PRA 
analysis, the amendments proposed in this NPRM reflect changes to the 
existing Rule, intended to better effectuate the mandate of the 
Telemarketing Act. They would not have a significant economic impact on 
small entities because they reflect practices that already are being 
implemented or utilized by most telemarketing firms, are already 
required of them by state statutes, or impose a minimal burden on these 
entities.
    In addition, the Commission believes that the amendments required 
by the USA PATRIOT Act, which apply to telemarketing firms conducting 
telemarketing campaigns on behalf of charitable organizations, are not 
likely to affect a substantial number of small entities. The 
Commission's understanding is that most such telemarketing firms are 
not small businesses. However, even if the amendments would affect a 
substantial number of small entities, the Commission believes that the 
proposed amendments will not have a significant economic impact upon 
such entities. The disclosure requirements proposed in the NPRM mirror 
the requirements already in effect regarding telemarketers of goods and 
services, and, in fact, are fewer in number, imposing even less burden 
on solicitors of charitable contributions under the proposed 
amendments. Moreover, as with the sale of goods or services, most 
telemarketers soliciting charitable contributions already are making 
such disclosures in the ordinary course of business, either voluntarily 
or pursuant to state statute. Similarly, the Commission tailored the 
recordkeeping requirements that would be applicable to these firms to 
be the least burdensome possible to effectuate the goals of the TSR. 
Also, the kinds of records that would be required by an amended TSR are 
kept by most firms in the ordinary course of business. Finally, the 
establishment of a national do-not-call registry will have no 
significant impact on such entities, since most are already subject to 
similar state-mandated do-not-call regulations.
    However, to ensure that the agency is not overlooking any possible 
substantial economic impact, the Commission is requesting public 
comment on the effect of the proposed regulations on the costs to, 
profitability and competitiveness of, and employment in small entities. 
Subsequent to the receipt of public comments, the Commission will 
determine whether the preparation of a final regulatory flexibility 
analysis is warranted. Accordingly, based on available information, the 
Commission hereby certifies under the Regulatory Flexibility Act, 5 
U.S.C. 605(b), that the proposed regulations will not have a 
significant economic impact on a substantial number of small entities. 
This Notice also serves as certification to the Small Business 
Administration of that determination.

IX. Questions for Comment on the Proposed Rule

    The Commission seeks comment on various aspects of the proposed 
Rule. Without limiting the scope of issues on which it seeks comment, 
the Commission is particularly interested in receiving comments on the 
questions that follow. In responding to these questions, include 
detailed, factual supporting information whenever possible.

General Questions for Comment

    Please provide comment, including relevant data, statistics, 
consumer complaint information, or any other evidence, on each 
different proposed change to the Rule. Regarding each proposed 
modification commented on, please include answers to the following 
questions:
    (a) What is the effect (including any benefits and costs), if any, 
on consumers?
    (b) What is the impact (including any benefits and costs), if any, 
on individual firms that must comply with the Rule?
    (c) What is the impact (including any benefits and costs), if any, 
on industry?
    (d) What changes, if any, should be made to the proposed Rule to 
minimize any cost to industry or consumers?
    (e) How would each suggested change affect the benefits that might 
be provided by the proposed Rule to consumers or industry?
    (f) How would the proposed Rule affect small business entities with 
respect to costs, profitability, competitiveness, and employment?

Questions on Proposed Specific Changes

    In response to each of the following questions, please provide: (1) 
Detailed comment, including data, statistics, consumer complaint 
information and other evidence, regarding the problem referred to in 
the question; (2) comment as to whether the proposed changes do or do 
not provide an adequate solution to the problems they were intended to 
address, and why; and (3) suggestions for additional changes that might 
better maximize consumer protections or minimize the burden on 
industry.

A. Scope

    1. Has the Internet affected the way telemarketing companies 
conduct business? If so, what has the effect been? What, if any, 
changes have occurred in telemarketing as a result of the Internet? 
Have consumers lost any protections against deceptive or abusive acts 
or

[[Page 4537]]

practices in telemarketing as a result of this development?
    2. Does the Rule's coverage of for-profit telemarketers working on 
behalf of sellers outside the FTC's jurisdiction affect the business 
relationships created between those telemarketers and those sellers? If 
so, how do these changes in business relationships affect consumer 
protections provided by the Rule?
    3. Do the Commission's proposals to expand the scope of the TSR to 
cover solicitation of charitable contributions by for-profit 
telemarketers, but not by non-profit charitable organization, achieve 
the Congressional purpose of section 1011 of the USA PATRIOT Act? Has 
the Commission proposed all changes to the text necessary to effectuate 
that Act? Are all proposed changes consistent and workable? What are 
the relative costs and benefits of coverage of calls placed by for-
profit telemarketers, but not by non-profit charitable organizations?

B. Definitions

    1. Is the proposed definition of ``billing information'' broad 
enough to capture any information that can be used to bill a consumer 
for goods or services or a charitable contribution? Is the definition 
too broad?
    2. Is the definition of ``caller identification services'' broad 
enough to capture all devices and services that now or may in the 
future provide a telephone subscriber with the name and telephone 
number of the calling party?
    3. Is the definition of ``charitable contribution'' appropriate and 
sufficient to effectuate section 1011 of the USA PATRIOT Act? If not, 
how can it be improved upon? Are the exclusions of political clubs and 
certain religious organizations appropriate? Should there be other 
exclusions? If so, why and on what basis?
    4. Is the proposed definition of ``donor'' appropriate and 
sufficient to effectuate section 1011 of the USA PATRIOT Act? What, if 
any, changes could be made to improve it?
    5. Is the proposed definition of ``express verifiable 
authorization'' adequate? What, if any, changes could be made to 
improve it?
    6. Does the proposed definition of ``Internet services'' accurately 
define the scope of Internet-related services offered to customers 
through telemarketing?
    7. Is the proposed definition of ``outbound telephone call'' 
adequate to address up-selling situations where the call is transferred 
from one telemarketer to another? If not, why not? Is the definition 
adequate to address situations where a single telemarketer in the 
initial part of the call is selling on behalf of one seller, and 
subsequently during the call begins selling on behalf of another 
seller? If not, why not? What are the benefits to consumers and the 
burdens to telemarketers and sellers of this definition?
    a. In what circumstances do telemarketers currently transfer a call 
from one telemarketer to another? In what circumstances does a single 
telemarketer start a call promoting the products or services of one 
seller, and subsequently during the call sells on behalf of one or more 
other sellers? What are the benefits of these practices? What abusive 
or deceptive practices are associated with them?
    b. Should calls made by a customer directly to a telemarketer be 
treated differently from calls transferred to a telemarketer by another 
person? If so, what differences in treatment by the Rule are 
appropriate? If not, why not?
    c. What would be the benefits to consumers of treating calls made 
by a customer directly to a telemarketer differently from calls 
transferred to a telemarketer by another person?
    d. What burdens, if any, would treating a transferred telemarketing 
call the same as an outbound telemarketing call place on sellers and 
telemarketers?
    e. How has the increased prevalence of up-selling since the Rule 
was promulgated affected telemarketing and the effectiveness of the 
Rule?
    8. Is the proposed definition of ``Web services'' sufficiently 
broad to encompass the range of Internet-related services offered to 
consumers, particularly businesses, through telemarketing?

C. Deceptive Telemarketing Acts or Practices

    1. The proposed Rule would prohibit misrepresentations regarding 
seven enumerated topics in connection with solicitations by 
telemarketers for charitable contributions. Is each of these 
prohibitions necessary? Is each sufficiently widespread to justify 
inclusion in the Rule? What are the relative costs to consumers and 
burdens to industry of prohibiting these practices? Are there changes 
that could be made to lessen the burdens without harming donors? Are 
there other widespread misrepresentations that the TSR should prohibit?
    2. Under the Rule, if a seller will bill charges to a consumer's 
account at the end of a free trial period unless the consumer takes 
affirmative action to prevent that charge, that fact must be disclosed 
as a material restriction, limitation, or condition under 
Sec. 310.3(a)(1)(ii). Does this provision adequately protect consumers 
against unanticipated and unauthorized charges associated with free 
trial offers? If not, what additional protections are needed? What 
benefits does this provision provide to consumers, sellers or 
telemarketers? What costs does this requirement impose on affected 
businesses?
    3. Under the proposed Rule, sellers and telemarketers would no 
longer have the option of providing written confirmation as a method of 
express verifiable authorization. What are the costs and benefits to 
consumers and industry of eliminating this option of providing 
authorization?
    4. The proposed Rule requires that any credit card loss protection 
plan must provide consumers with information about the consumers' 
potential liability under the Consumer Credit Protection Act. Does the 
proposed provision adequately address the problems associated with the 
sale of credit card loss protection plans?
    a. What are the costs and benefits of this provision to industry? 
to consumers?
    b. Does the proposed provision differentiate clearly between 
legitimate credit card registration plans and fraudulent credit cost 
loss protection plans? If not, how should the Rule be changed to 
accomplish this?
    c. How should the disclosure be given? In writing? Orally? What 
costs would a writing requirement impose on industry? What, if any, 
benefits? What would be the costs and benefits to consumers?
    5. What are the implications of the new Electronic Signature (``E-
Sign'') law for telemarketing? Is the requirement that any signature be 
``verifiable'' adequate to protect consumers? If not, what other 
protections are necessary?
    6. What changes, if any, to the scienter requirement in the 
assisting and facilitating provision, Sec. 310.3(b), would be 
appropriate to better ensure effective law enforcement?
    7. What changes, if any, to the credit card laundering provision, 
Sec. 310.3(c), would be appropriate to better ensure effective law 
enforcement? Is it appropriate for this provision to cover 
telemarketers engaged in the solicitation of charitable contributions?

D. Abusive Telemarketing Acts or Practices

    1. In order to address the problems associated with preacquired 
account telemarketing, the proposed Rule prohibits a seller or 
telemarketer from receiving from any person other than the consumer or 
donor, or disclosing to any other person, a consumer's or donor's 
billing information. The only

[[Page 4538]]

circumstance in which the proposed Rule would allow receipt of a 
consumer's or donor's billing information from, or disclosure of the 
consumer's or donor's billing information to, another party is when the 
information is used to process a payment in a transaction where the 
consumer or donor has disclosed the billing information and authorized 
its use to process that payment.
    a. How will this provision interplay with the requirements of the 
Gramm-Leach-Bliley Act?
    b. Will this proposed change adequately address the problems 
resulting from preacquired account telemarketing? Will this action 
adequately protect consumers from being billed for unauthorized 
charges?
    c. If not, what changes to the Rule would provide better protection 
to consumers?
    d. What additional provisions, if any, should be included to 
protect customers from unauthorized billing?
    e. What specific, quantifiable benefits to sellers or telemarketers 
result from preacquired account telemarketing?
    f. Is extension of this provision to cover telemarketers soliciting 
on behalf of charitable organizations appropriate to effectuate the USA 
PATRIOT amendments to the Telemarketing Act? If not, why not?
    2. How do the credit card chargeback rates and error rates for 
telemarketers that use preacquired billing information compare with the 
chargeback rates and error rates for telemarketers that do not use 
preacquired billing information?
    3. The proposed Rule prohibits blocking or altering the 
transmission of caller identification (``Caller ID'') information, but 
allows altering the Caller ID information to provide the actual name of 
the seller or charitable organization and the seller's or charitable 
organization's customer or donor service number.
    a. What costs would this provision impose on sellers? On charitable 
organizations? On telemarketers? Are these costs outweighed by the 
benefits the provision would confer on consumers and donors?
    b. Have significant numbers of consumers used Caller ID information 
to contact sellers, telemarketers, or charitable organizations to make 
``do-not-call'' requests?
    c. What, if any, trends in telecommunications technology might 
permit the transmission of full Caller ID information when the caller 
is using a trunk line or PBX system?
    d. How are telemarketing firms currently meeting the regulatory 
requirements in States that have passed legislation requiring the 
transmission of full caller identification information by 
telemarketers?
    e. If Caller ID information is transmitted in a telemarketing call, 
should the information identify the seller (or charitable organization) 
or should it identify the telemarketer? Is it technologically feasible 
for the calling party to alter the information displayed by Caller ID 
so that the seller's name and customer service telephone number or the 
charitable organization's name and donor service number, are displayed 
rather than the telemarketer's name and the telephone number from which 
the call is being placed? If not currently feasible, is such 
substitution of the seller's or charitable organization's information 
for that of the telemarketer likely to become feasible in the future?
    f. Would charitable organizations likely make use of the option to 
transmit Caller ID information that provides the charitable 
organization's name and a ``donor service'' number? What would be the 
costs and benefits to charitable organizations of doing this?
    g. Would it be desirable for the Commission to propose a date in 
the future by which all telemarketers would be required to transmit 
Caller ID information? If so, what would be a reasonable date by which 
compliance could be required? If not, why not?
    h. Does the proposed Rule provide adequate protection against 
misleading or deceptive information by allowing for alteration to 
provide beneficial information to consumers, i.e., the actual name of 
the seller and the seller's customer service number, or the charitable 
organization and the charitable organization's donor service number? 
What would be the costs and benefits if the Rule were simply to 
prohibit any alteration of Caller ID information that is misleading? 
Should the proposed Rule make any exception to the prohibition on 
altering Caller ID information?
    4. The proposed Rule would prohibit a seller, or a telemarketer 
acting on behalf of a seller or charitable organization, from denying 
or interfering with the consumer's right to be placed on a ``do-not-
call'' list or registry. Is this proposed provision adequate to address 
the problem of telemarketers hanging up on consumers or otherwise 
erecting obstacles when the consumer attempts to assert his or her 
``do-not-call'' rights? What alternatives exist that might provide 
greater protections?
    5. The proposed Rule would establish a national ``do-not-call'' 
registry maintained by the Commission.
    a. What expenses will sellers, and telemarketers acting on behalf 
of sellers or charitable organizations, incur in order to reconcile 
their call lists with a national registry on a regular basis? What 
changes, if any, to the proposed ``do-not-call'' scheme could reduce 
these expenses? Can the offsetting benefits to consumers of a national 
do-not-call scheme be quantified?
    b. Is the restriction on selling, purchasing or using the ``do-not-
call'' registry for any purposes except compliance with 
Secs. 310.4(b)(1)(iii) adequate to protect consumers? Will this 
provision create burdens on industry that are difficult to anticipate 
or quantify? What restrictions, if any, should be placed on a person's 
ability to use or sell a ``do-not-call'' database to other persons who 
may use it other than for the purposes of complying with the Rule?
    c. Would a list or database of telephone numbers of persons who do 
not wish to receive telemarketing calls have any value, other than for 
its intended purpose, for sellers and telemarketers?
    d. How long should a telephone number remain on the central ``do-
not-call'' registry? Should telephone numbers that have been included 
on the registry be deleted once they become reassigned to new 
consumers? Is it feasible for the Commission to accomplish this? If so, 
how? If not, should there be a ``safe harbor'' provision for 
telemarketers who call these reassigned numbers?
    e. Who should be permitted to request that a telephone number be 
placed on the ``do-not-call'' registry? Should permission be limited to 
the line subscriber or should requests from the line subscriber's 
spouse be permitted? Should third parties be permitted to collect and 
forward requests to be put on the ``do-not-call'' registry? What 
procedures, if any, would be appropriate or necessary to verify in 
these situations that the line subscriber intends to be included on the 
``do-not-call'' registry?
    f. What security measures are appropriate and necessary to ensure 
that only those persons who wish to place their telephone numbers on 
the ``do-not-call'' registry can do so? What security measures are 
appropriate and necessary to ensure that access to the registry of 
numbers is used only for TSR compliance? What are the costs and 
benefits of these security measures?
    g. Should consumers be able to verify that their numbers have been 
placed on the ``do-not-call'' registry? If so, what form should that 
verification take?

[[Page 4539]]

    h. Should the ``do-not-call'' registry allow consumers to specify 
the days or time of day that they are willing to accept telemarketing 
calls? What are the costs and benefits of allowing such selective opt-
out/opt-in?
    i. Should the ``do-not-call'' registry be structured so that 
requests not to receive telemarketing calls to induce the purchase of 
goods and services are handled separately from requests not to receive 
calls soliciting charitable contributions?
    j. Some states with centralized statewide ``do-not-call'' list 
programs charge telemarketers for access to the list to enable them to 
``scrub'' their lists. In addition, some of these states charge 
consumers a fee for including their names and/or phone numbers on the 
statewide ``do-not-call'' list. Have these approaches to covering the 
cost of the state ``do-not-call'' list programs been effective? What 
have been the problems, if any, with these two approaches?''
    6. What should be the interplay between the national ``do-not-
call'' registry and centralized state ``do-not-call'' requirements? 
Would state requirements still be needed to reach intrastate 
telemarketing? Would the state requirements be pre-empted in whole or 
in part? If so, to what degree? Should state requirements be pre-empted 
only to the extent that the national ``do-not-call'' registry would 
provide more protection to consumers? Will the national do-not-call 
registry have greater reach than state requirements with numerous 
exceptions?
    7. What procedures could ensure that telephone numbers placed on 
the ``do-not-call'' registry by consumers who subsequently change their 
numbers do not stay on the registry? Can information be obtained from 
the local exchange carriers or other telecommunications entities that 
would enable this to be done, and if so, how? If not, why not?
    8. What procedures could be established to update numbers in the 
``do-not-call'' registry when the area codes associated with those 
numbers change?
    9. The proposed Rule would permit consumers or donors who have 
placed their names and/or telephone numbers on the central ``do-not-
call'' registry to provide to specific sellers or charitable 
organizations express verifiable authorization to receive telemarketing 
calls from those sellers or telemarketers acting on behalf of those 
sellers or charitable organizations.
    a. What are the costs and benefits of providing consumers or donors 
an option to agree to receiving calls from specific entities?
    b. What are the costs and benefits to sellers and telemarketers of 
providing consumers and donors with this option? What expenses will 
sellers and telemarketers incur to ensure that they have the 
authorization of the consumer or donor to call? What, if any, expenses 
will they incur in reconciling these authorizations against the central 
registry?
    c. How will this requirement affect those entities with which a 
consumer (or donor) has a preexisting business (or philanthropic) 
relationship (such as bookstores and the like)?
    d. Does the proposed Rule's express verifiable authorization 
provision for agreeing to receive calls from specific sellers, or 
telemarketers acting on behalf of those sellers or on behalf of 
specific charitable organizations, provide sufficient protection to 
consumers?
    e. Does the proposed Rule provide sufficient guidance to business 
on what information is sufficient to evidence a consumer's express 
verifiable authorization to opt in to receiving calls from a specific 
seller, or a telemarketer acting on behalf of that seller or on behalf 
of a specific charitable organization? Is there additional information 
that should be required in order to evidence the consumer's express 
verifiable authorization?
    10. Is the Commission's position regarding the timing of 
disclosures in multiple purpose calls sufficiently clear? If not, what 
additional clarification is needed?
    11. Is the fact that, in the Commission's view, telemarketers who 
abandon calls are violating Sec. 310.4(d) sufficient to curtail abuses 
of this technology? Is there additional language that could be added to 
the Rule that would more effectively address this problem?
    a. Should the Commission mandate a maximum setting for abandoned 
calls, and, if so, what should that setting be? How could such a limit 
be policed? What are the benefits and costs to consumers and to 
industry from such an approach?
    b. Would it be feasible to limit the use of predictive dialers to 
only those telemarketers who are able to transmit Caller ID 
information, including a meaningful number that the consumer could use 
to return the call? Would providing consumers with this information 
alleviate the injury consumers are now sustaining as a result of 
predictive dialer practices? What would be the costs and burdens to 
sellers, charitable organizations, and telemarketers of such action?
    c. Would it be beneficial to businesses and charitable 
organizations to allow them to play a tape-recorded message when the 
use of a predictive dialer results in a shortage of telemarketing 
agents available to take calls? What would be costs and benefits to 
consumers if such tape-recorded messages were permitted?
    12. Proposed Sec. 310.4(e) requires telemarketers soliciting 
charitable contributions to promptly, clearly and truthfully disclose 
that the purpose of the call is to solicit a charitable contribution 
and the identity of the charitable organization on behalf of which the 
call is being made.
    a. Are the proposed disclosures sufficient to effectuate the 
purposes of the USA PATRIOT Act amendments?
    b. Absent other disclosures, are donors likely to suffer an 
invasion of privacy or incur substantial unavoidable injury that is not 
outweighed by countervailing benefits? If so, what are these 
disclosures, and would they be permissible under leading First 
Amendment decisions, such as Riley v. Nat'l Fed. of Blind?
    c. Should this provision of the TSR require disclosure of the 
mailing address of the charitable organization on behalf of which a 
telemarketer is soliciting a contribution? Should such disclosure be 
required only upon some triggering event, such as the donor's inquiry, 
or the donor's assent to contribute? What would be the costs to 
charitable organizations and telemarketers to require mailing address 
disclosure? What benefits to consumers would result from such a 
requirement?
    13. The Commission is concerned about the misuse of personal 
information in connection with the use of prisoners as telemarketers.
    a. To what extent does the telemarketing industry use inmate work 
programs? What are the costs and benefits of the use of prison-based 
telemarketing to industry? To charitable organizations? To the public? 
Is this a practice more appropriate to address at the federal level 
rather than through State legislatures or State regulatory agencies?
    b. Are there alternatives to banning prison-based telemarketing 
that would provide adequate protection to the public against misuse of 
personal information and abusive telemarketing by prisoner-
telemarketers? For example, are any monitoring systems available that 
would prevent abuses by prison-based telemarketers? If so, would the 
cost of these systems be prohibitively high for telemarketers? Would a 
disclosure requirement (i.e., disclosure to the consumer that the 
caller is a

[[Page 4540]]

prisoner) provide adequate protection for consumers? Would a ban 
provide sufficient protection?
    c. To what extent, if any, do charitable organizations make use of 
prison-based telemarketing?

E. Exemptions

    1. What costs and burdens will be placed on industry by the 
proposed requirement that firms that are exempt from the Rule under 
Secs. 310.6(a)--(c) comply with the requirements of Secs. 310.4(a)(1) 
and (6) and Secs. 310.4(b) and (c)? What benefits would this proposed 
change provide to consumers?
    2. What are the costs and burdens imposed upon industry by the 
proposed modifications to the general media exemption? What benefits to 
the public will these proposed changes provide? Are there alternative 
proposals that would provide the necessary protection for consumers 
while minimizing the burden on industry? Are there additional products 
and services that should be excepted from the general media exemption? 
What benefits and burdens would accrue from excluding from the 
exemption any calls in response to general media advertisements where 
disclosures required by Sec. 310.3(a)(1) were not made either in the 
advertisement or in the call?
    3. What are the costs and burdens imposed upon industry by the 
proposed modifications to the direct mail exemption? What benefits to 
the public will these proposed changes provide? Are there alternative 
proposals that would provide the necessary protection for consumers 
while minimizing the burden on industry? Does the proposed Rule 
sufficiently clarify the types of mail transmission methods that will 
be considered ``direct mail'' for purposes of the Rule? Are there 
additional methods of solicitation that should be included within the 
term ``direct mail'?
    4. What costs and burdens to industry will be imposed by the 
proposed modification to the business-to-business exemption? What 
benefits to the public will this proposed change provide? Are there 
alternative methods that would provide the necessary protections to the 
public while minimizing burdens on industry? Is it appropriate to 
exclude from the coverage of this exemption telemarketing calls made on 
behalf of charitable organizations? If not, why?
Questions Relating to the Paperwork Reduction Act
    The Commission solicits comments on the reporting and disclosure 
requirements above to the extent that they constitute ``collections of 
information'' within the meaning of the PRA. The Commission requests 
comments that will enable it to:
    1. Evaluate whether the proposed collections of information are 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    2. Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collections of information, including the validity of the 
methodology and assumptions used;
    3. Enhance the quality, utility, and clarity of the information to 
be collected, and;
    4. Minimize the burden of the collections of information on those 
who are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology (e.g., permitting electronic 
submission of responses).

X. Proposed Rule

List of Subjects in 16 CFR Part 310

    Telemarketing, Trade practices.
    Accordingly, it is proposed that part 310 of title 16 of the Code 
of Federal Regulations, be revised 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, as amended.


Sec. 310.2  Definitions.

    (a) Acquirer means a business organization, financial institution, 
or an agent of a business organization or financial institution that 
has authority from an organization that operates or licenses a credit 
card system to authorize merchants to accept, transmit, or process 
payment by credit card through the credit card system for money, goods 
or services, or anything else of value.
    (b) Attorney General means the chief legal officer of a State.
    (c) Billing information means any data that provides access to a 
consumer's or donor's account, such as a credit card, checking, 
savings, share or similar account, utility bill, mortgage loan account 
or debit card.
    (d) Caller identification service means a service that allows a 
telephone subscriber to have the telephone number, and, where 
available, name of the calling party transmitted contemporaneously with 
the telephone call, and displayed on a device in or connected to the 
subscriber's telephone.
    (e) 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.
    (f) Charitable contribution means any donation or gift of money or 
any other thing of value; provided, however, that such donations or 
gifts of money or any other thing of value solicited by or on behalf of 
the following shall be excluded from the definition of charitable 
contribution for the purposes of this Rule:
    (1) Political clubs, committees, or parties; or
    (2) Constituted religious organizations or groups affiliated with 
and forming an integral part of the organization where no part of the 
net income inures to the direct benefit of any individual, and which 
has received a declaration of current tax exempt status from the United 
States government.
    (g) Commission means the Federal Trade Commission.
    (h) Credit means the right granted by a creditor to a debtor to 
defer payment of debt or to incur debt and defer its payment.
    (i) 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.
    (j) Credit card sales draft means any record or evidence of a 
credit card transaction.
    (k) 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.
    (l) Customer means any person who is or may be required to pay for 
goods or services offered through telemarketing.
    (m) Donor means any person solicited to make a charitable 
contribution.
    (n) Express verifiable authorization means the informed, explicit 
consent of a consumer or donor, which is capable of substantiation.

[[Page 4541]]

    (o) Internet services means the provision, by an Internet Service 
Provider, or another, of access to the Internet.
    (p) 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.
    (q) Material means likely to affect a person's choice of, or 
conduct regarding,
    (1) Goods or services; or
    (2) A charitable contribution.
    (r) 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 or a charitable contribution.
    (s) 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 or a charitable contribution.
    (t) Outbound telephone call means any telephone call to induce the 
purchase of goods or services or to solicit a charitable contribution, 
when such telephone call:
    (1) Is initiated by a telemarketer;
    (2) Is transferred to a telemarketer other than the original 
telemarketer; or
    (3) Involves a single telemarketer soliciting on behalf of more 
than one seller or charitable organization.
    (u) Person means any individual, group, unincorporated association, 
limited or general partnership, corporation, or other business entity.
    (v) 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.
    (w) 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.
    (x) 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.
    (y) 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.
    (z) Telemarketer means any person who, in connection with 
telemarketing, initiates or receives telephone calls to or from a 
customer or donor.
    (aa) Telemarketing means a plan, program, or campaign which is 
conducted to induce the purchase of goods or services or a charitable 
contribution, 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.
    (bb) Web services means designing, building, creating, publishing, 
maintaining, providing or hosting a website on the Internet.


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 truthfully, 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 
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 that any purchase or 
payment will not increase the person's chances of winning; 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;
    (v) All material costs or conditions to receive or redeem a prize 
that is the subject of the prize promotion;
    (vi) In the sale of any goods or services represented to protect, 
insure, or otherwise limit a customer's liability in the event of 
unauthorized use of the customer's credit card, the limits on a 
cardholder's liability for unauthorized use of a credit card pursuant 
to 15 U.S.C. 1643;
    (2) Misrepresenting, directly or by implication, in the sale of 
goods or services 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 a 
prize or to participate in a prize promotion;

[[Page 4542]]

    (vi) Any material aspect of an investment opportunity including, 
but not limited to, risk, liquidity, earnings potential, or 
profitability;
    (vii) A seller's or telemarketer's affiliation with, or endorsement 
or sponsorship by, any person or government entity; or
    (viii) That any customer needs offered goods or services to provide 
protections a customer already has pursuant to 15 U.S.C. 1643;
    (3) Submitting billing information for payment, or collecting or 
attempting to collect payment for goods or services or a charitable 
contribution, directly or indirectly, without the customer's or donor's 
express verifiable authorization when the method of payment used to 
collect payment does not impose a limitation on the customer's or 
donor's liability for unauthorized charges nor provide for dispute 
resolution procedures pursuant to, or comparable to those available 
under, the Fair Credit Billing Act and the Truth in Lending Act, as 
amended. Such authorization shall be deemed verifiable if either of the 
following means are employed:
    (i) Express written authorization by the customer or donor, which 
includes the customer's or donor's signature; \3\ or
---------------------------------------------------------------------------

    \3\ For purposes of this Rule, the term ``signature'' shall 
include a verifiable electronic or digital form of signature, to the 
extent that such form of signature is recognized as a valid 
signature under applicable federal law or state contract law.
---------------------------------------------------------------------------

    (ii) Express oral authorization which is recorded and made 
available upon request to the customer or donor, and the customer's or 
donor's bank, credit card company or other billing entity, and which 
evidences clearly both the customer's or donor's authorization of 
payment for the goods and services that are the subject of the sales 
offer and the customer's or donor's receipt of all of the following 
information:
    (A) The number of debits, charges or payments;
    (B) The date of the debit(s), charge(s), or payment(s);
    (C) The amount of the debit(s), charge(s), or payment(s);
    (D) The customer's or donor's name;
    (E) The customer's or donor's specific billing information, 
including the name of the account and the account number, that will be 
used to collect payment for the goods or services that are the subject 
of the sales offer;
    (F) A telephone number for customer or donor inquiry that is 
answered during normal business hours; and
    (G) The date of the customer's or donor's oral authorization;
    (4) Making a false or misleading statement to induce any person to 
pay for goods or services or to induce a charitable contribution; or
    (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.
    (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.
    (d) Prohibited deceptive acts or practices in the solicitation of 
charitable contributions, donations, or gifts. It is a fraudulent 
charitable solicitation, a deceptive telemarketing act or practice and 
a violation of this Rule for any telemarketer soliciting charitable 
contributions to misrepresent, directly or by implication, any of the 
following material information:
    (1) The nature, purpose, or mission of any entity on behalf of 
which a charitable contribution is being requested;
    (2) That any charitable contribution is tax deductible in whole or 
in part;
    (3) The purpose for which any charitable contribution will be used;
    (4) The percentage or amount of any charitable contribution that 
will go to a charitable organization or to any particular charitable 
program after any administrative or fundraising expenses are deducted;
    (5) 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 charitable contribution is required to win 
a prize or to participate in a prize promotion;
    (6) In connection with the sale of advertising: The purpose for 
which the proceeds from the sale of advertising will be used; that a 
purchase of advertising has been authorized or approved by any donor; 
that any donor owes payment for advertising; or the geographic area in 
which the advertising will be distributed; or
    (7) A seller's or telemarketer's affiliation with, or endorsement 
or sponsorship by, any person or government entity.


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;
    (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

[[Page 4543]]

arranging a loan or other extension of credit for a person;
    (5) Receiving from any person other than the consumer or donor for 
use in telemarketing any consumer's or donor's billing information, or 
disclosing any consumer's or donor's billing information to any person 
for use in telemarketing; provided, however, this paragraph does not 
apply to the transfer of a consumer's or donor's billing information to 
process a payment for goods or services or a charitable contribution 
pursuant to a transaction in which the consumer or donor has disclosed 
his or her billing information and has authorized the use of such 
billing information to process such payment for goods or services or a 
charitable contribution.
    (6) Blocking, circumventing, or altering the transmission of, or 
directing another person to block, circumvent, or alter the 
transmission of, the name and/or telephone number of the calling party 
for caller identification service purposes; provided that it shall not 
be a violation to substitute the actual name of the seller or 
charitable organization and the customer or donor service telephone 
number of the seller or charitable organization which is answered 
during regular business hours, for the phone number used in making the 
call.
    (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;
    (ii) Denying or interfering in any way, directly or through an 
intermediary, or directing another person to deny or interfere in any 
way, with a person's right to be placed on any registry of names and/or 
telephone numbers of persons who do not wish to receive outbound 
telephone calls established to comply with Sec. 310.4(b)(1)(iii); or
    (iii) Initiating any outbound telephone call to a person when that 
person previously has:
    (A) 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 or the charitable organization on whose 
behalf a charitable contribution is being requested; or
    (B) Placed his or her name and/or telephone number on a do-not-call 
registry, maintained by the Commission, of persons who do not wish to 
receive outbound telephone calls, unless the seller or charitable 
organization has obtained the express verifiable authorization of such 
person to place calls to that person. Such authorizations shall be 
deemed verifiable if either of the following means are employed:
    (1) Express written authorization by the consumer or donor which 
clearly evidences his or her authorization that calls made by or on 
behalf of a specific seller or charitable organization may be placed to 
the consumer or donor, and which shall include the telephone number to 
which the calls may be placed and the signature of the consumer or 
donor; or
    (2) Express oral authorization which is recorded and which clearly 
evidences the authorization of the consumer or donor that calls made by 
or on behalf of a specific seller or charitable organization may be 
placed to the consumer or donor; provided, however, that the recorded 
oral authorization shall only be deemed effective when the telemarketer 
receiving such authorization is able to verify that the authorization 
is being made from the telephone number to which the consumer or donor, 
as the case may be, is authorizing access.
    (iv) Selling, purchasing or using a certified registry for any 
purposes except compliance with Secs. 310.4(b)(1)(iii).
    (2) A seller or telemarketer will not be liable for violating 
Sec. 310.4(b)(1)(ii) and (iii) if it can demonstrate that, in the 
ordinary course of business:
    (i) It has established and implemented written procedures to comply 
with Sec. 310.4(b)(1)(ii) and (iii);
    (ii) It has trained its personnel, and any entity assisting in its 
compliance, in the procedures established pursuant to 
Sec. 310.4(b)(2)(i);
    (iii) The seller or a telemarketer or another person acting on 
behalf of the seller or a charitable organization uses a process to 
prevent telemarketing calls from being placed to any telephone number 
included on the Commission's do-not-call registry, employing a version 
of the do-not-call registry obtained from the Commission not more than 
30 days before the calls are made, and maintains records documenting 
this process;
    (iv) The seller or a telemarketer or another person acting on 
behalf of the seller or charitable organization, has maintained and 
recorded lists of persons the seller or charitable organization may not 
contact, in compliance with Sec. 310.4(b)(1)(iii)(A) and (B);
    (v) The seller or a telemarketer or another person acting on behalf 
of the seller or charitable organization, has maintained and recorded 
the express verifiable authorization of those persons who have agreed 
to accept telemarketing calls by or on behalf of the seller or 
charitable organization, in compliance with Sec. 310.4(b)(1)(iii)(B);
    (vi) The seller or a telemarketer or another person acting on 
behalf of the seller or charitable organization, monitors and enforces 
compliance with the procedures established pursuant to 
Sec. 310.4(b)(2)(i); and
    (vii) Any subsequent call otherwise violating Sec. 310.4(b)(1)(ii) 
or (iii) is the result of error.
    (3) Within two years following the effective date of this Rule, the 
Commission shall review the implementation and operation of the 
registry established pursuant to Sec. 310.4(b)(1)(iii)(B).
    (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 8:00 a.m. and 
9:00 p.m. local time at the called person's location.
    (d) Required oral disclosures in the sale of goods or services. It 
is an abusive telemarketing act or practice and a violation of this 
Rule for a telemarketer in an outbound telephone call to induce the 
purchase of goods or services to fail to disclose truthfully, 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 prize promotion is 
offered and that any purchase or payment will not increase the person's 
chances of winning. 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.
    (e) Required oral disclosures in charitable solicitations. It is an 
abusive telemarketing act or practice and a violation of this Rule for 
a telemarketer, in an outbound telephone call to induce a charitable 
contribution to fail to disclose truthfully, promptly, and in a clear 
and conspicuous manner to the person receiving the call, the following 
information:

[[Page 4544]]

    (1) The identity of the charitable organization on behalf of which 
the request is being made; and
    (2) That the purpose of the call is to solicit a charitable 
contribution;


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; \4\
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    \4\ 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 
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.
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    (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 or solicitations; 
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 or the telemarketer calling on behalf of the seller 
or may, by written agreement, allocate responsibility between 
themselves for the recordkeeping required by this section. When a 
seller or a 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, provided, however, 
that this exemption does not apply to the requirements of 
Sec. 310.4(a)(1) and Sec. 310.4(a)(6), (b), and (c);
    (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, 
provided, however, that this exemption does not apply to the 
requirements of Sec. 310.4(a)(1) and Sec. 310.4(a)(6), (b), and (c);
    (c) Telephone calls in which the sale of goods or services or 
charitable solicitation is not completed, and payment or authorization 
of payment is not required, until after a face-to-face sales 
presentation by the seller or charitable organization, provided, 
however, that this exemption does not apply to the requirements of 
Sec. 310.4(a)(1) and Sec. 310.4(a)(6), (b), and (c);
    (d) Telephone calls initiated by a customer or donor that are not 
the result of any solicitation by a seller, charitable organization, or 
telemarketer;
    (e) Telephone calls initiated by a customer or donor in response to 
an advertisement through any medium, other than direct mail 
solicitation; provided, however, that this exemption does not apply to 
calls initiated by a customer or donor in response to an advertisement 
relating to investment opportunities, business opportunities other than 
business arrangements covered by the Franchise Rule or any subsequent 
rule covering business opportunities the Commission may promulgate, or 
advertisements involving goods or services described in 
Sec. 310.3(a)(1)(vi) or Sec. 310.4(a)(2)-(4);
    (f) Telephone calls initiated by a customer or donor in response to 
a direct mail solicitation, including solicitations via the U.S. Postal 
Service, facsimile transmission, electronic mail, and other similar 
methods of delivery in which a solicitation is directed to specific 
address(es) or person(s), that clearly, conspicuously, and truthfully 
disclose all material information listed in Sec. 310.3(a)(1), for any 
goods or services offered in the direct mail solicitation or any 
requested charitable contribution; 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, business opportunities other than business arrangements 
covered by the Franchise Rule or any subsequent rule covering business 
opportunities the Commission may promulgate, or goods or services 
described in Secs. 310.4(a)(2)-(4); and
    (g) Telephone calls between a telemarketer and any business, except 
calls to induce a charitable contribution, and those involving the sale 
of Internet services, Web services, or the retail sale of nondurable 
office or cleaning supplies; provided, however, that Sec. 310.5 Rule 
shall not apply to sellers or telemarketers of nondurable office or 
cleaning supplies, Internet Services, or Web services.


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

[[Page 4545]]

remaining provisions shall continue in effect.

    By direction of the Commission.
Donald S. Clark,
Secretary.

    Note: This Appendix is published for informational purposes only 
and will not be codified in Title 16 of the Code of Regulations.

Appendix A--List of Commenters and Acronyms, February 28, 2000: 
Notice and Comment; Telemarketing Sales Rule Review

Acronym/Commenter

AARP--AARP
Alan--Alan, Alicia
ARDA--American Resort Development Association
ATA--American Teleservices Association
Anderson--Anderson, Wayne
Baressi--Baressi, Sandy
Bell Atlantic--Bell Atlantic
Bennett--Bennett, Douglas H.
Biagiotti--Biagiotti, Mary
Bishop--Bishop, Lew & Lois
Blake--Blake, Ted
Bowman-Kruhm--Bowman-Kruhm, Mary
Braddick--Braddick, Jane Ann
Brass--Brass, Eric
Brosnahan--Brosnahan, Kevin
Budro--Budro, Edgar
Card--Card, Giles S.
Collison--Collison, Doug
Conn--Conn, David
Conway--Conway, Candace
Croushore--Croushore, Amanda
Curtis--Curtis, Joel
Dawson--Dawson, Darcy
DMA--Direct Marketing Association
DSA--Direct Selling Association
Doe--Doe, Jane
ERA--Electronic Retailing Association
FAMSA--FAMSA--Funeral Consumers Alliance, Inc.
Gannett--Gannett Co., Inc.
Garbin--Garbin, David and Linda
A. Gardner--Gardner, Anne
S. Gardner--Gardner, Stephen
Gibb--Gibb, Ronald E.
Gilchrist--Gilchrist, Dr. K. James
Gindin--Gindin, Jim
Haines--Haines, Charlotte
Harper--Harper, Greg
Heagy--Heagy, Annette M.
Hecht--Hecht, Jeff
Hickman--Hickman, Bill and Donna
Hollingsworth--Hollingsworth, Bob and Pat
Holloway--Holloway, Lynn S.
Holmay--Holmay, Kathleen
ICFA--International Cemetery and Funeral Association
Johnson--Johnson, Sharon Coleman
Jordan--Jordan, April
Kelly--Kelly, Lawrence M.
KTW--KTW Consulting Techniques, Inc.
Lamet--Lamet, Jerome S.
Lee--Lee, Rockie
LSAP--Legal Services Advocacy Project
LeQuang--LeQuang, Albert
Lesher--Lesher, David
Mack--Mack, Mr. and Mrs. Alfred
MPA--Magazine Publishers of America, Inc.
Manz--Manz, Matthias
McCurdy--McCurdy, Bridget E.
Menefee--Menefee, Marcie
Merritt--Merritt, Everett W.
Mey--Mey, Diana
Mitchelp--Mitchelp
NACHA--NACHA--The Electronic Payments Association
NAAG--National Association of Attorneys General
NACAA--National Association of Consumer Agency Administrators
NCL--National Consumers League
NFN--National Federation of Nonprofits
NAA--Newspaper Association of America
NASAA--North American Securities Administrators Association
Nova53--Nova53
Nurik--Nurik, Margy and Irv
PLP--Personal Legal Plans, Inc.
Peters--Peters, John and Frederickson, Constance
Reese--Reese Brothers, Inc.
Reynolds--Reynolds, Charles
Rothman--Rothman, Iris
Runnels--Runnels, Mike
Sanford--Sanford, Kanija
Schiber--Schiber, Bill
Schmied--Schmied, R. L.
Strang--Strang, Wayne G.
TeleSource--Morgan-Francis/Tele-Source Industries
Texas--Texas Attorney General
Thai--Thai, Linh Vien
Vanderburg--Vanderburg, Mary Lou
Ver Steegt--Ver Steegt, Karen
Verizon--Verizon Wireless
Warren--Warren, Joshua
Weltha--Weltha, Nick
Worsham--Worsham, Michael C., Esq.
Concurring Statement of Commissioner Orson Swindle in Telemarketing 
Sales Rule Review, File No. R411001
    Telemarketing calls can provide consumers with valuable information 
about goods and services. On the other hand, telemarketing calls also 
can be deceptive or can be an unwanted intrusion into the homes of 
consumers--an intrusion that many consumers find difficult to prevent 
or remedy. The challenge for government, therefore, is to strike a 
balance that allows consumers, if they wish, to receive telemarketing 
calls with useful information without being deceived or abused.
    In 1994, Congress passed the Telemarketing Consumer Fraud and Abuse 
Prevention Act (``Telemarketing Act''), giving the Commission the 
authority to promulgate rules to prohibit ``deceptive'' or ``abusive'' 
telemarketing practices. In 1995, the Commission issued the 
Telemarketing Sales Rule (``TSR''), which declared a number of 
telemarketing practices to be deceptive or abusive. In light of 
technological developments and changes in the marketplace since 1995 as 
well as our law enforcement experience with telemarketing fraud, the 
Commission now proposes to declare additional practices to be deceptive 
or abusive. I wholeheartedly support the proposed changes to the TSR, 
because they appear to strike the right balance by protecting consumers 
without unduly restricting the practices of legitimate telemarketers.
    I want to emphasize two points concerning the Telemarketing Act and 
the TSR, however. The first point is that the Commission's regulatory 
scheme would be more effective if it covered the entire spectrum of 
entities engaged in telemarketing.\1\ Under the Telemarketing Act and 
the TSR, however, the Commission lacks jurisdiction in whole or in part 
over the calls of entities such as banks, telephone companies, 
airlines, insurance companies, credit unions, charities,\2\ political 
campaigns, and political fund raisers. In addition, the Commission also 
proposes to exempt from the TSR calls made on behalf of certain 
religious organizations.
---------------------------------------------------------------------------

    \1\ I have expressed concern in the past that the Commission's 
effectiveness in regualting telemarketing is significantly limited 
by our inability to reach the practices of entities that are exempt 
in whole or in part from the Telemarketing Act and the TSR. See 
Concurring Statement of Commissioner Orson Swindle in Miscellaneous 
Matters--Director (BCP), File No. P004101 (June 13, 2000) (statement 
issued in conjunction with Commission testimony on The Telemarketing 
Victims Protection Act (H.R. 3180) and The Know Your Caller Act 
(H.R. 3100), before the Subcommittee on Telecommunications, Trade 
and Consumer Protection of the Committee on Commerce, United States 
House of Representatives).
    \2\ As discussed in the Notice of Proposed Rulemaking, Congress 
recently enacted the USA PATRIOT Act of 2001, which gives the 
Commission new authority to regulate (under the Telemarketing Act 
and the TSR] for-profit companies that make telephone calls seeking 
charitable donations. I applaud Congress for taking this important 
step to protect consumers.
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    A major objective of the Telemarketing Act and the TSR is to 
protect consumers' ``right to be let alone'' in their homes, which is 
the ``most comprehensive of rights and the right most valued by 
civilized men.'' Olmstead v. U.S., 277 U.S. 438, 478 (1928) (Brandeis, 
J., dissenting). From the perspective of consumers, their right to be 
let alone is invaded just as much by an unwanted call from an exempt 
entity (e.g., a bank or a telephone company) as it is by such a call 
from a covered entity (e.g., a sporting goods manufacturer). The 
Commission's regulatory scheme would be more effective in protecting 
the right of consumers to be let alone if the Telemarketing Act and the 
TSR covered the entire spectrum of entities that make telemarketing 
calls to consumers.
    Covering the entire spectrum of entities also would result in a 
more

[[Page 4546]]

equitable regulatory scheme. For example, telephone companies currently 
are exempt in whole or in part from the Telemarketing Act and the TSR 
because they are common carriers, yet some vendors that compete with 
them apparently are not exempt from these regulatory requirements, see 
Notice of Proposed Rulemaking at 16, which may confer a competitive 
advantage in marketing on telephone companies. It would be more 
equitable if companies that compete with each other had to comply with 
the same regulatory requirements when they engage in telemarketing.
    The second point that I want to raise concerns how the Commission 
determines whether a practice is ``abusive'' under the Telemarketing 
Act. For the most part, the Commission has used the examples of abusive 
practices that Congress provided in the Telemarketing Act and 
principles drawn from these examples to determine whether we can 
declare a practice to be abusive. I think that this is an appropriate 
means of determining the metes and bounds of abusive practices.
    The Commission, however, also concludes that the transfer of pre-
acquired account information and certain other telemarketing practices 
are ``abusive'' for purposes of the Telemarketing Act and the TSR, 
because they meet the Commission's standards for ``unfairness'' under 
section 5 of the FTC Act. The Commission's interjection of unfairness 
principles into the determination of which telemarketing practices are 
abusive is designed to provide greater certainty and to limit the scope 
of what will be considered abusive. Although these are laudable 
objectives, I have reservations about using unfairness principles under 
Section 5 to determine what is abusive for purposes of the 
Telemarketing Act. Nothing in the language of the Telemarketing Act or 
its legislative history indicates that Congress intended the Commission 
to use unfairness principles to determine which practices are abusive. 
Given that it amended the FTC Act to define unfairness the same year 
that it passed the Telemarketing Act, Congress presumably would have 
given some indication if it wanted us to employ unfairness principles 
to decide which telemarketing practices are abusive.\3\
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    \3\ In fact, when the Commission issued the TSR in 1995, it did 
not use unfairness principles to determine whether telemarketing 
practices are abusive under the Telemarketing Act. Statement of 
Basis and Purpose, Prohibition of Deceptive and Abusive 
Telemarketing Practices; Final Rule, 60 FR 43842 (Aug. 23, 1995).
---------------------------------------------------------------------------

    Accordingly, I would ask for public comment addressing the legal, 
factual, and policy issues implicated by the use of unfairness 
principles under Section 5 of the FTC Act to determine whether 
telemarketing practices are abusive for purposes of the Telemarketing 
Act. I would also seek comment specifically addressing whether the 
transfer of pre-acquired account information meets the standard for 
unfairness under Section 5 of the FTC Act.

[FR Doc. 02-1998 Filed 1-29-02; 8:45 am]
BILLING CODE 6750-01-P