[Federal Register Volume 68, Number 19 (Wednesday, January 29, 2003)]
[Rules and Regulations]
[Pages 4580-4679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1811]



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Part III





Federal Trade Commission





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16 CFR Part 310



Telemarketing Sales Rule; Final Rule

  Federal Register / Vol. 68, No. 19 / Wednesday, January 29, 2003 / 
Rules and Regulations  

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FEDERAL TRADE COMMISSION

16 CFR Part 310


Telemarketing Sales Rule

AGENCY: Federal Trade Commission.

ACTION: Final Amended Rule.

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SUMMARY: In this document, the Federal Trade Commission (``FTC'' or 
``Commission'') issues its Statement of Basis and Purpose (``SBP'') and 
final amended Telemarketing Sales Rule (``amended Rule''). The amended 
Rule sets forth the FTC's amendments to the Telemarketing Sales Rule 
(``original Rule'' or ``TSR''). The amended Rule is issued pursuant to 
the Commission's Rule Review, the Telemarketing and Consumer Fraud and 
Abuse Prevention Act (``Telemarketing Act'' or ``Act'') and the Uniting 
and Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act (``USA PATRIOT Act'').

EFFECTIVE DATES:  The amended Rule will become effective March 31, 
2003. Full compliance with Sec.  310.4(a)(7), the caller identification 
transmission provision, is required by January 29, 2004. The Commission 
will announce at a future time the date by which full compliance with 
Sec.  310.4(b)(1)(iii)(B), the ``do-not-call'' registry provision, will 
be required. The Commission anticipates that full compliance with the 
``do-not-call'' provision will be required approximately seven months 
from the date a contract is awarded to create the national registry.

ADDRESSES: Requests for copies of the amended Rule and this SBP should 
be sent to: Public Reference Branch, Room 130, Federal Trade 
Commission, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The 
complete record of this proceeding is also available at that address. 
Relevant portions of the proceeding, including the amended Rule and 
SBP, are available at http://www.ftc.gov.

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

SUPPLEMENTARY INFORMATION: The amended Rule: (1) retains most of the 
original Rule's requirements concerning deceptive and abusive 
telemarketing acts or practices without major substantive changes; (2) 
establishes a national ``do-not-call'' registry maintained by the 
Commission; (3) defines ``upselling'' to clarify the amended Rule's 
application to these transactions, requires specific disclosures for 
upsell transactions, and expressly excludes upselling transactions from 
certain exemptions in the amended Rule; (4) requires that sellers and 
telemarketers accepting payment by methods other than credit and debit 
cards subject to certain protections obtain express verifiable 
authorization from their customers; (5) retains the exemptions for pay-
per-call, franchise, and face-to-face transactions, but makes these 
transactions subject to the national ``do-not-call'' registry and 
certain other provisions in the abusive practices section of the Rule; 
(6) specifies requirements for the use of predictive dialers; (7) 
requires disclosures and prohibits misrepresentations in connection 
with the sale of credit card loss protection plans; (8) requires an 
additional disclosure in connection with prize promotions; (9) requires 
disclosures and prohibits misrepresentations in connection with offers 
that include a negative option feature; (10) eliminates the general 
media and direct mail exemptions for the telemarketing of credit card 
loss protection plans and business opportunities other than business 
arrangements covered by the Franchise Rule\1\; (11) requires 
telemarketers to transmit caller identification information; (12) 
eliminates the use of post-transaction written confirmation as a means 
of obtaining a customer's express verifiable authorization when the 
goods or services are offered on a ``free-to-pay conversion'' basis; 
(13) prohibits the disclosure or receipt of the customer's or donor's 
unencrypted billing information for consideration, except in limited 
circumstances; and (14) requires that the seller or telemarketer obtain 
the customer's express informed consent to all transactions, with 
specific requirements for transactions involving ``free-to-pay 
conversions'' and preacquired account information.
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    \1\ Disclosure Requirements and Prohibitions Concerning 
Franchising and Business Opportunity Ventures (``Franchise Rule''), 
16 CFR Part 436.
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Statement of Basis and Purpose

I. Background

A. Telemarketing and Consumer Fraud and Abuse Prevention Act.

    The early 1990s saw heightened Congressional attention to 
burgeoning problems with telemarketing fraud.\2\ The culmination of 
Congressional efforts to protect consumers against telemarketing fraud 
occurred in 1994 with the passage of the Telemarketing Act, which was 
signed into law on August 16, 1994.\3\ The purpose of the Act was to 
combat telemarketing fraud by providing law enforcement agencies with 
new tools and to give consumers new protections.
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    \2\ Statutes enacted by Congress to address telemarketing fraud 
during the early 1990s 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.
    \3\ 15 U.S.C. 6101-6108.
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    The Telemarketing Act directed the Commission to issue a rule 
prohibiting deceptive and abusive telemarketing acts or practices, and 
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 consumer would 
consider coercive or abusive of his or her 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.\4\ 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.\5\ The Act further directed the Commission to consider 
including recordkeeping requirements in the rule.\6\ 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.\7\
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    \4\ 15 U.S.C. 6102(a)(3)(A)-(C).
    \5\ 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 43842, 43853 (Aug. 
23, 1995).
    \6\ 15 U.S.C. 6102(a)(3).
    \7\ 15 U.S.C. 6103, 6104.

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B. Original Rule.

    The FTC adopted the original Rule on August 16, 1995.\8\ 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.\9\ 
Telemarketers must, in any telephone sales call, also disclose cost and 
other material information before consumers pay.\10\ In addition, the 
original Rule requires that telemarketers have consumers' express 
verifiable authorization before using a demand draft (or ``phone 
check'') to debit consumers' bank accounts.\11\ The original 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.\12\ The original 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.\13\ Finally, the original 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,\14\ and prohibits credit card 
laundering and other forms of assisting and facilitating fraudulent 
telemarketers.\15\
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    \8\ 60 FR at 43842 (codified at 16 CFR 310 (1995)).
    \9\ 16 CFR 310.4(d).
    \10\ 16 CFR 310.3(a)(1).
    \11\ 16 CFR 310.3(a)(3).
    \12\ 16 CFR 310.4(c), and 310.4(b)(1)(ii).
    \13\ 16 CFR 310.3(a)(2).
    \14\ 16 CFR 310.4(a)(2)-(4).
    \15\ 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,\16\ or the Franchise Rule),\17\ 
calls initiated by consumers that are not in response to any 
solicitation, calls initiated by consumers in response to direct mail, 
provided certain disclosures are made, and calls initiated by consumers 
in response to advertisements in general media, such as newspapers or 
television.\18\ Lastly, catalog sales are exempt, as are most business-
to-business calls, except those involving the sale of non-durable 
office or cleaning supplies.\19\
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    \16\ Trade Regulation Rule Pursuant to the Telephone Disclosure 
and Dispute Resolution Act of 1992 (``Pay-Per-Call Rule''), 16 CFR 
Part 308.
    \17\ 16 CFR 310.6(a)-(c).
    \18\ 16 CFR 310.6(d)-(f).
    \19\ 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, common carriers engaged in common carrier 
activity, non-profit organizations, and companies engaged in the 
business of insurance regulated by state law 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 below 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. 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.\20\ 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 
related to the ``do-not-call'' provision of the Rule, and soliciting 
applications to participate in the forum.\21\
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    \20\ 15 U.S.C. 6108.
    \21\ 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). Seventeen associations, individual businesses, consumer 
groups, and law enforcement agencies 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, D.C. 
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\
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    \22\ 65 FR 10428 (Feb. 28, 2000) (the ``February 28 Notice''). 
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 commenters and the acronyms used to identify 
each commenter who submitted a comment in response to the February 
28 Notice is attached hereto as Appendix A. Appendix B is a list of 
the commenters and the acronyms used to identify each commenter who 
submitted a comment in response to the Notice of Proposed Rulemaking 
(``NPRM''), discussed below, including supplemental comments and 
comments submitted on the user fee proposal. References to comments 
are cited by the commenter's acronym followed by the appropriate 
page designation. ``RR'' after the commenter's acronym indicates 
that the comment was received in response to the Rule Review. 
``NPRM'' after the commenter's acronym indicates that the comment 
was received in response to the NPRM. ``Supp.'' after the 
commenter's acronym indicates that the comment was received as a 
Supplemental Comment. ``User Fee'' after the commenter's acronym 
indicates the comment was submitted in response to the request for 
comments on the Commission's user fee proposal.
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    The commenters generally 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. 
Commenters consistently stressed that it is important to retain the 
Rule. 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. Commenters identified several changes in the 
marketplace that had occurred in the five years since the Rule was 
promulgated and that threatened the Rule's effectiveness. Those changes 
included increased consumer concern about personal privacy,\24\ the 
development of novel payment methods,\25\ and the increased use of

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preacquired account telemarketing\26\ and upselling.\27\
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    \24\ The past several years have seen a greater public and 
governmental focus on the ``do-not-call'' issue. 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. Similarly, privacy advocates have 
raised concerns about technologies used by telemarketers (such as 
predictive dialers and deliberate blocking of caller identification 
information) that hinder consumers' attempts to screen calls or make 
requests to be placed on a ``do-not-call'' list.
    \25\ 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. 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. These newly 
available payment methods in many instances are relatively untested, 
and may not provide protections for consumers from unauthorized 
charges.
    \26\ The practice of preacquired account telemarketing--where a 
telemarketer acquires the customer'sbilling 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'sutility company, from the consumer in a 
previous transaction, or from another source. 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.
    \27\ The practice of ``upselling'' has also become more 
prevalent in telemarketing. Through this technique, customers are 
offered additional items for purchase after the completion of an 
initial sale. In the majority of upselling scenarios, the seller or 
telemarketer already has received the consumer's billing 
information, either from the consumer or from another source.
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    Following the receipt of public comments, the Commission held a 
second forum on July 27 and 28, 2000 (``Rule Review Forum''), to 
discuss provisions of the Rule other than the ``do-not-call'' provision 
and to discuss the Rule's effectiveness.\28\ Both the ``Do-Not-Call'' 
Forum and the Rule Review Forum were open to the public, and time was 
reserved to receive oral comments from members of the public in 
attendance. Both proceedings were transcribed and, along with the 
comments received, placed on the public record.\29\
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    \28\ References to the Rule Review Forum transcript are cited as 
``RR Tr.'' followed by the appropriate page designation.
    \29\ Relevant portions of the entire record of the Rule Review 
proceeding, including all transcripts and comments, can be viewed on 
the FTC'swebsite at http://www.ftc.gov/bcp/rulemaking/tsr/tsr-review.htm. In addition, the full paper record is available in Room 
130 at the FTC, 600 Pennsylvania Avenue, N.W., Washington, DC 20580, 
telephone number: 1-202-326-2222.
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    Based on the record developed during the Rule Review, as well as 
the Commission's law enforcement experience, the Commission determined 
to retain the Rule but proposed to amend it to better address recurring 
abuses and to reach emerging problem areas.

D. The USA PATRIOT Act of 2001.

    On October 25, 2001, the USA PATRIOT Act\30\ became effective. This 
legislation contains provisions that have significant impact on the 
TSR. Specifically, Sec.  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 
fundraising conducted by for-profit telemarketers on behalf of 
charitable organizations. Because enactment of the USA PATRIOT Act took 
place after the comment period for the Rule Review closed, the 
Commission did not raise issues relating to charitable fundraising by 
telemarketers in the Rule Review.
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    \30\ Pub. L. 107-56, 115 Stat. 272 (Oct. 26, 2001).
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    Section 1011(b)(3) of the USA PATRIOT Act amends the definition of 
``telemarketing'' that appears in the Telemarketing Act, 15 U.S.C. 
Sec.  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, Sec.  1011(b)(2), among other things, 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.\31\ Finally, Sec.  1011(b)(1) amends the 
``deceptive telemarketing acts or practices'' provision of the 
Telemarketing Act, 15 U.S.C. Sec.  6102(a)(2), by specifying that 
``fraudulent charitable solicitation'' is to be included as a deceptive 
practice under the TSR.
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    \31\ Specifically, Sec.  1011(b)(2)(d) mandates that the TSR 
include in its regulation of abusive telemarketing acts and 
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.'' Pub. L. 107-56 (Oct. 26, 2001).
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E. Notice of Proposed Rulemaking.

    On January 30, 2002, the Commission published its NPRM, proposing 
revisions to the TSR (``proposed Rule'') in order to ensure that 
consumers receive the protections that the Telemarketing Act mandated, 
and to effectuate Sec.  1011 of the USA PATRIOT Act.\32\ The Commission 
proposed a number of changes, including creating a national ``do-not-
call'' registry maintained by the FTC, a ban on receiving from or 
disclosing to a third party a consumer's billing information, a 
prohibition against blocking caller identification information, and a 
requirement that sellers or telemarketers accepting payment via novel 
payment methods obtain the customer's express verifiable authorization. 
During the course of this NPRM proceeding, the Commission received 
about 64,000 electronic and paper comments from representatives of 
industry, law enforcement, consumer and privacy groups, and from 
individual consumers.\33\ On June 5, 6 and 7, 2002, the Commission held 
a forum (``June 2002 Forum'') to discuss the issues raised by 
commenters regarding the FTC's proposed revisions.\34\ The forum was 
open to the public, and time was reserved to receive oral comments from 
members of the public in attendance. During the forum, the Commission 
announced that it would accept supplemental comments until June 28, 
2002.\35\ The forum proceeding was transcribed and placed on the public 
record. The public record, including many comments and all forum 
transcripts, has been placed on the Commission's website on the 
Internet.\36\
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    \32\ 67 FR 4492 (Jan. 30, 2002).
    \33\ Of these, more than forty-five were supplemental comments 
from organizations and individuals, and about 15,000 supplemental 
comments were from Gottschalks' customers submitted by Gottschalks. 
Simultaneous with, but separate from, the NPRM proceeding, the 
Commission has been exploring possible methods for implementing the 
proposed national ``do-not-call'' registry. On February 28, 2002, 
the Commission published a Request for Information (``RFI'') that 
solicited information from potential contractors on various aspects 
of implementing the proposed registry. The RFI comment period closed 
on March 29, 2002. On August 2, 2002, the Commission issued a 
Request for Quotes to selected vendors. Final proposals were 
submitted on September 20, 2002, and are being evaluated by 
Commission staff. On May 29, 2002, the Commission published a Notice 
of Proposed Rulemaking, soliciting comments on a proposed amendment 
to the TSR that would establish the methods by which fees for use of 
the registry would be set. 67 FR 37362 (May 29, 2002). The comment 
period ended June 28, 2002. The proposed amendment received about 
forty comments (cited as ``[Name of Commenter]-User Fee at [page 
number]''), virtually all of which argued that the Commission does 
not have the authority to issue a user fee, or that it was premature 
to propose a user fee because the Commission did not have sufficient 
information upon which to base the proposal. The user fee proposal 
remains under review as the Commission continues to evaluate the 
issues raised in the comments.
    \34\ References to the June 2002 Forum transcript are cited as 
``June 2002 Tr.'' followed by the appropriate day (I, II, or III, 
referring to June 5, 6, or 7, respectively) and page designation.
    \35\ June 2002 Tr. II at 254. References to the supplemental 
comments received are cited as ``[Name of Commenter]-Supp. at [page 
number].''
    \36\ Much of the record in this proceeding can be viewed on the 
FTC's website at http://www.ftc.gov/bcp/rulemaking/tsr/tsr-review.htm. In addition, the full paper record is available in Room 
130 at the FTC, 600 Pennsylvania Avenue, N.W., Washington, DC 20580, 
telephone number: 1-202-326-2222.
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    Individual consumers generally favored the Commission's proposals, 
particularly with regard to a national ``do-not-call'' registry. 
Consumer groups and state law enforcement representatives also 
generally supported the proposed amendments, although they expressed 
concern about the effect of the proposal on state ``do-not-call''

[[Page 4583]]

and other laws. Business and industry commenters generally opposed the 
proposal, but suggested changes that they believed would make the 
proposed amendments less burdensome on legitimate business while still 
achieving the desired consumer protections. Comments from charitable 
organizations focused primarily on the FTC proposal which would require 
for-profit telemarketers who solicit on behalf of charitable 
organizations to comply with the proposed ``do-not-call'' registry. 
Charitable organizations consistently opposed such a requirement. The 
comments and the basis for the Commission's decision on the various 
recommendations are analyzed in detail in Section II below.

F. The Amended Rule.

    The Commission has carefully reviewed the entire record developed 
in its rulemaking proceeding. The record, as well as the Commission's 
law enforcement experience, leave little doubt that important changes 
have occurred in the marketplace, and that modifications to the 
original Rule are necessary if consumers are to receive the protections 
that Congress intended to provide when it enacted the Telemarketing 
Act. Based on that record and on the Commission's law enforcement 
experience, the Commission has modified the proposed Rule published in 
the NPRM and now promulgates this amended Rule, as described in this 
SBP.
    The Commission's decision to retain certain provisions of the 
original Rule while supplementing or amending others is made pursuant 
to the Rule Review requirements of the Telemarketing Act,\37\ and 
pursuant to the rulemaking authority granted to the Commission by that 
Act to protect consumers from deceptive and abusive practices,\38\ 
including practices that may be coercive or abusive of the consumer's 
interest in protecting his or her privacy.\39\ The Commission's 
decision to amend the original Rule also is made pursuant to the 
authority granted to the Commission by Sec.  1011 of the USA PATRIOT 
Act.
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    \37\ 15 U.S.C. 6108.
    \38\ 15 U.S.C. 6102(a)(1) and (a)(3).
    \39\ 15 U.S.C. 6102(a)(3)(A).
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    As discussed in detail herein, the Commission believes that it is 
necessary to amend the original Rule to ensure that the Telemarketing 
Act's goals are met--that is, encouraging the growth of the legitimate 
telemarketing industry, while curtailing those practices that are 
abusive or deceptive. The record in this rulemaking proceeding 
demonstrates that many of the changes in the marketplace that have 
occurred since the original Rule was promulgated have led to the growth 
of deceptive and abusive practices in areas not adequately addressed by 
the original Rule. The amended Rule addresses these practices by 
responding to the changes in the marketplace in a manner consistent 
with the intent of Congress in enacting the Telemarketing Act and Sec.  
1011 of the USA PATRIOT Act. The Commission believes that the amended 
Rule strikes a balance, maximizing consumer protections without 
imposing unnecessary burdens on the telemarketing industry. Each of the 
amendments is discussed in detail in this SBP. A summary of the major 
changes from the original Rule is set forth below. The amended Rule:
    [sbull] Supplements the current company-specific ``do-not-call'' 
provision with a 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, except when the consumer has an ``established business 
relationship'' with the seller on whose behalf the call is made;
    [sbull] Permits consumers who have put their numbers on the 
national ``do-not-call'' registry to provide permission to call to any 
specific seller by an express written agreement;
    [sbull] Explicitly exempts solicitations to induce charitable 
contributions via outbound telephone calls from coverage under the 
national ``do-not-call'' registry provision;
    [sbull] Modifies Sec.  310.3(a)(3) to require express verifiable 
authorization for all transactions except when the method of payment 
used is a credit card subject to protections of the Truth in Lending 
Act and Regulation Z, or a debit card subject to the protections of the 
Electronic Fund Transfer Act and Regulation E;
    [sbull] Modifies 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;
    [sbull] Mandates disclosures in the sale of credit card loss 
protection, and prohibits misrepresenting that a consumer needs offered 
goods or services in order to receive protections he or she already has 
under 15 U.S.C. Sec.  1643 (limiting a cardholder's liability for 
unauthorized charges on a credit card account);
    [sbull] Explicitly mandates that all required disclosures in Sec.  
310.3(a)(1) and Sec.  310.4(d) be made truthfully;
    [sbull] Expands upon the current prize promotion disclosures to 
include a statement that any purchase or payment will not increase a 
consumer's chances of winning;
    [sbull] Prohibits disclosing or receiving, for consideration, 
unencrypted consumer account numbers for use in telemarketing, except 
when the disclosure or receipt is to process a payment for goods or 
services or a charitable contribution pursuant to a transaction;
    [sbull] Prohibits causing billing information to be submitted for 
payment, directly or indirectly, without the express informed consent 
of the customer or donor;
    [sbull] Sets out guidelines for what evidences express informed 
consent in transactions involving preacquired account information and 
``free-to-pay conversion'' features;
    [sbull] Requires telemarketers to transmit the telephone number, 
and name, when available, of the telemarketer to any caller 
identification service;
    [sbull] Prohibits telemarketers from abandoning any outbound 
telephone call, and provides, in a safe harbor provision, that to avoid 
liability under this provision, a telemarketer must: abandon no more 
than three percent of all calls answered by a person; allow the 
telephone to ring for fifteen seconds or four rings; whenever a sales 
representative is unavailable within two seconds of a person's 
answering the call, play a recorded message stating the name and 
telephone number of the seller on whose behalf the call was placed; and 
maintain records documenting compliance;
    [sbull] Extends the applicability of most provisions of the Rule to 
``upselling'' transactions;
    [sbull] Prohibits denying or interfering in any way with a 
consumer's right to be placed on a ``do-not-call'' list;
    [sbull] Requires maintenance of records of express informed consent 
and express agreement;
    [sbull] Narrows certain exemptions of the Rule;
    [sbull] Clarifies that facsimile transmissions, electronic mail, 
and other similar methods of delivery are direct mail for purposes of 
the direct mail exemption; and
    [sbull] Modifies 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, and 
adds new mandatory disclosures and prohibited misrepresentations in 
charitable solicitations.

[[Page 4584]]

G. Proposed Rule Adopted with Some Modifications.

    Based on the entire record in this proceeding, the amended Rule 
adopted by the Commission is substantially similar to the proposed 
Rule. However, the amended Rule contains some important differences 
from the proposed Rule. These further modifications to the original 
Rule were based on the recommendations of commenters and on the 
Commission's more comprehensive law enforcement experience in certain 
areas over the months since publishing the NPRM.
    The major differences between the proposed Rule and the amended 
Rule adopted here are as follows:
    [sbull] The definition of ``charitable contribution'' no longer 
contains exceptions for religious and political groups;
    [sbull] Sellers who have an ``established business relationship'' 
with the consumer are exempted from the national ``do-not-call'' 
registry;
    [sbull] For-profit telemarketers who solicit charitable 
contributions are exempted from the national ``do-not-call'' registry, 
but remain subject to the entity-specific ``do-not-call'' provision;
    [sbull] The original Rule's definition of ``outbound call'' has 
been reinstated, and the proposed Rule modified to require specific 
disclosures in an upsell transaction;
    [sbull] Disclosures regarding negative option features are 
required;
    [sbull] Express verifiable authorization is required for all 
payments, except those made by a credit or debit card subject to 
certain statutorily-mandated consumer protections;
    [sbull] For express oral authorization to be deemed verifiable, a 
seller must ensure the customer's or donor's receipt of the date the 
charge will be submitted for payment (rather than the date of the 
payment) and identify the account to be charged with sufficient 
specificity such that the customer or donor understands what account is 
being used to collect payment (rather than provide the account name and 
number);
    [sbull] The use of written post-sale confirmations is permitted, 
subject to the requirement that such confirmations be clearly and 
conspicuously labeled as such; however, this method is not permitted in 
transactions involving a ``free-to-pay conversion'' feature and 
preacquired account information;
    [sbull] In charitable solicitations, the prohibited 
misrepresentation regarding the percentage or amount of any charitable 
contribution that will go to a charitable organization or program is no 
longer delimited by the phrase ``after any administrative or 
fundraising expenses are deducted;''
    [sbull] The Rule now specifies that billing charges to a consumer's 
account without the consumer's authorization is an abusive practice and 
a Rule violation; and the Rule now requires that a customer's express 
informed consent be provided in every transaction;
    [sbull] The ban on the transfer of consumers' billing information 
has been replaced with a ban on transferring unencrypted consumer 
account numbers;
    [sbull] The failure to transmit caller identification information 
is prohibited, rather than the affirmative blocking of such 
information;
    [sbull] Abandoned calls are prohibited, subject to a ``safe 
harbor'' that requires a telemarketer to: abandon no more than three 
percent of all calls answered by a person; allow the telephone to ring 
for fifteen seconds or four rings; whenever a sales representative is 
unavailable within two seconds of a person's answering the call, play a 
recorded message stating the name and telephone number of the seller on 
whose behalf the call was placed; and maintain records documenting 
compliance;
    [sbull] Records of express informed consent or express agreement 
must be maintained;
    [sbull] The exemptions for certain kinds of calls are explicitly 
unavailable to upselling transactions;
    [sbull] The exemption for business-to-business telemarketing is 
once again available to telemarketing of Web services and Internet 
services, as well as the solicitation of charitable contributions.

II. Discussion of the Amended Rule

    The amendments to the Rule do not alter Sec.  310.7 (Actions by 
States and Private Persons), or Sec.  310.8 (Severability), although 
Sec.  310.8 (Severability) has been renumbered as Sec.  310.9 in the 
amended Rule. Section 310.8 of the amended Rule is now reserved.

A. Section 310.1 -- Scope of Regulations.

    Section 310.1 of the amended Rule states that ``this part [of the 
CFR] implements the [Telemarketing Act], as amended,'' reflecting the 
amendment of the Telemarketing Act by Sec.  1011 of the USA PATRIOT 
Act.\40\ This section discusses comments received regarding the 
implementation of the USA PATRIOT Act amendments as well as other 
issues relating to the scope of coverage of the TSR.
---------------------------------------------------------------------------

    \40\ 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. 26, 
2001).
---------------------------------------------------------------------------

Effect of the USA PATRIOT Act.

    As noted in the NPRM, Sec.  1011(b)(3) of the USA PATRIOT Act 
amends the definition of ``telemarketing'' that appears in the 
Telemarketing Act, 15 U.S.C. Sec.  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, Sec.  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, Sec.  1011(b)(1) amends the ``deceptive telemarketing acts or 
practices'' provision of the Telemarketing Act, 15 U.S.C. Sec.  
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 the amendment of these provisions of the 
Telemarketing Act, neither the text of Sec.  1011 nor its legislative 
history suggests that it amends Sec.  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) of the Act states:

Except as otherwise provided in sections 6102(d) [with respect to 
the Securities and Exchange Commission], 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.). Consequently, no activity which is 
outside of the jurisdiction of that Act shall

[[Page 4585]]

be affected by this chapter. (emphasis added).\41\
---------------------------------------------------------------------------

    \41\ Section 6105(b) reinforces the point made in Sec.  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. Sec.  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 conducted by 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.''\42\
---------------------------------------------------------------------------

    \42\ 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 
Sec.  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.\43\ 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.
---------------------------------------------------------------------------

    \43\ 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.'' 1A 
NORMAN J. SINGER, SUTHERLAND STATUTES & STAT. CONSTR. Sec.  22:34 
(6th ed. 2002), 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); Am. Airlines, Inc. v. Remis Indus., Inc., 494 
F.2d 196 (2d Cir. 1974); Kirchner v. Kansas Tpk. Auth., 336 F.2d 222 
(10th Cir. 1964); Nat'l Ctr. for Preservation Law v. Landrieu, 496 
F. Supp. 716 (D.S.C. 1980); Conoco, Inc. v. Hodel, 626 F. Supp. 287 
(D. Del. 1986); Palardy v. Horner, 711 F. Supp. 667 (D. Mass. 1989). 
Thus, in construing a statute and its amendments, ``[e]ffect is to 
be given to each part, and they are to be int erpreted so that they 
do not conflict.'' Id.
---------------------------------------------------------------------------

    The Commission received numerous comments regarding the change in 
scope to the TSR required by the USA PATRIOT Act amendments of the 
Telemarketing Act. Some comments supported the Commission's 
interpretation of the USA PATRIOT Act amendments, and the coverage of 
for-profit telemarketers who solicit on behalf of exempt charitable 
organizations.\44\ However, the majority of commenters who addressed 
this issue believed the Commission had misinterpreted the mandate of 
the USA PATRIOT Act amendments. Law enforcement agencies and consumer 
groups, including NAAG and NASCO, generally expressed the view that the 
Commission had underestimated the jurisdictional powers conferred on it 
by the USA PATRIOT Act amendments, and urged that the Rule apply not 
only to for-profit solicitors who call on behalf of charities, but also 
to the charities themselves.\45\ These commenters argued that the 
language of the USA PATRIOT Act and its legislative history do not 
support limiting the applicability of the TSR to telemarketers who call 
on behalf of non-profits, rather than extending it to cover charitable 
organizations as well.\46\
---------------------------------------------------------------------------

    \44\ See, e.g., AARP-NPRM at 4; AFP-NPRM at 3 (arguing that the 
USA PATRIOT Act gives the FTC jurisdiction over for-profit 
telemarketers soliciting on behalf of non-profits, agreeing that the 
disclosures required by amended Rule Sec.  310.4(e) are necessary, 
and noting that the disclosures mirror the disclosures required by 
AFP's code of ethics); ASTA-NPRM at 1; Make-a-Wish-NPRM, passim; 
MBNA-NPRM at 6 (the Rule amendments to effectuate the USA PATRIOT 
Act's provisions ``reflect Congress' intent and are limited in scope 
and impact while providing important consumer benefits.'').
    \45\ See, e.g., NAAG-NPRM at 50-51; NASCO-NPRM at 3-4.
    \46\ See NAAG-NPRM at 50-51; NASCO-NPRM at 3-4 (the USA PATRIOT 
Act refers to ``fraudulent charitable solicitations,'' and requires 
disclosures by ``any person'' engaged in telemarketing; also noting 
that the USA PATRIOT Act was passed in the wake of September 11, 
2001, and in response to misrepresentations by non-profits as well 
as their for-profit telemarketers.).
---------------------------------------------------------------------------

    On the other hand, most non-profit organizations that commented 
argued that the Commission's interpretation of the USA PATRIOT Act 
amendments was too expansive. Several of these commenters argued that 
in adopting Sec.  1011 of the USA PATRIOT Act, ``Congress meant only to 
apply certain disclosure requirements--and not the other aspects of the 
Rule--to professional fundraisers for charities and to for-profit 
entities soliciting charitable contributions for their own 
philanthropic purposes.''\47\ Others suggested that ``Congress intended 
only to address bogus charitable solicitation where the non-profit or 
charitable cause or organizational scheme itself is of a criminal or 
fraudulent nature.''\48\ These commenters cite statements made by the 
legislation's chief sponsor to the effect that concerns about 
fraudulent charities prompted him to introduce the legislation.\49\
---------------------------------------------------------------------------

    \47\ DMA-NonProfit-NPRM at 4. See also ACE-NPRM at 1-2; ERA-NPRM 
at 45; IUPA-NPRM at 21-22.
    \48\ Not-For-Profit Coalition-NPRM at 26. See also Community 
Safety-NPRM at 2.
    \49\ See Not-For-Profit Coalition-NPRM at 27-28; DMA-NonProfit-
NPRM at 5.
---------------------------------------------------------------------------

    The Commission believes that concerns about bogus charitable 
fundraising in the wake of the events of September 11, 2001, in large 
measure propelled passage of Sec.  1011 of the USA PATRIOT Act.\50\ But 
the fact remains that Congress did more than impose upon the 
solicitation of charitable contributions by for-profit telemarketers 
prohibitions against misrepresentation and basic disclosure 
obligations. Indeed, the USA PATRIOT Act amendments alter the scope of 
the entire TSR by altering the key definition of the statute--
``telemarketing''--to encompass charitable solicitation. Moreover, the 
text of Sec.  1011 expressly directs the Commission to address both 
deceptive and abusive acts or practices.\51\ Thus, there is no textual 
support for the notion that Sec.  1011 excludes from its grant of 
authority over charitable solicitations the power to prohibit deceptive 
or abusive practices.\52\
---------------------------------------------------------------------------

    \50\ See letter dated June 14, 2002, from Senator Mitch 
McConnell to FTC Chairman Timothy Muris, commenting on the NPRM and 
stating:
    ``In an effort to protect generous citizens and the charitable 
institutions they support, I was proud to introduce the Crimes 
Against Charitable Americans Act and secure its inclusion in the USA 
PATRIOT Act. This legislation strengthens federal laws regulating 
charitable phone solicitations. The bill also takes important steps 
to combat deceptive charitable solicitations by requiring 
telemarketers to make common sense disclosures such as the charity's 
identity and address at the beginning of the phone call. . . . When 
Congress enacted this legislation, it did not envision, nor did it 
call for, the FTC to propose a federal ``do-not-call'' list, and 
certainly not a list that applied to charitable organizations or 
their authorized agents.''
    \51\ Pub. L. 107-56 (Oct. 26, 2001).
    \52\ It is a tenet of statutory construction that ``an 
amendatory act is not to be construed to change the original act . . 
. further than expressly declared or necessarily implied.'' 
SUTHERLAND STAT. CONSTR., note 43 above, at Sec.  22:30 (citations 
omitted). The Commission believes the necessary implication of 
modifying the definition of ``telemarketing'' in the USA PATRIOT Act 
is to have all provisions of the Rule apply to charitable 
solicitations.

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

[[Page 4586]]

    Some non-profit commenters also argued that the Commission's 
interpretation of the USA PATRIOT Act produced, in effect, a double 
standard, regulating charities who outsource their telemarketing, but 
not those who conduct their own telemarketing campaigns.\53\ Others 
opined that this bifurcated regulatory scheme was not intended by 
Congress when it passed the USA PATRIOT Act amendments to the 
Telemarketing Act.\54\ These commenters argued that this distinction 
penalizes charities (by subjecting them to regulation) merely because 
they choose to outsource an administrative function. Some argued 
further that the increased costs of regulatory compliance will not be 
borne by the for-profit telemarketers, but rather by charities 
themselves, negatively impacting their ability to carry out their 
primary mission.\55\
---------------------------------------------------------------------------

    \53\ See, e.g., March of Dimes-NPRM at 2.
    \54\ See IUPA-NPRM at 1.
    \55\ See Reese-NPRM at 2.
---------------------------------------------------------------------------

    Again, the Commission notes that despite its broad mandate to 
regulate charitable solicitations made via telemarketing, the USA 
PATRIOT Act amendments did not expand the Commission's jurisdiction 
under the TSR to make direct regulation of non-profit organizations 
possible. Nevertheless, reading the amendatory act together with the 
original language, as it must, the Commission has sought to give full 
effect to the directive of Congress set forth in the USA PATRIOT Act 
amendments.
    Another argument raised by large numbers of non-profit commenters 
is that regulating for-profit telemarketers who solicit on behalf of 
non-profits, and in particular subjecting them to the requirements of 
the ``do-not-call'' registry provision, is unfair given the other 
limitations on the Commission's jurisdiction.\56\ These commenters 
suggested that the result of this scheme would be to allow commercial 
calls that consumers find intrusive, while banning calls from 
charities, even those with whom a donor has a past relationship.\57\ As 
explained in greater detail in the discussion of the applicability of 
the ``do-not-call'' provisions to charitable solicitation 
telemarketing, careful consideration of this argument has led the 
Commission to exempt solicitations to induce charitable contributions 
via outbound telephone calls from the ``do-not-call'' registry 
provision. Only the less restrictive entity-specific ``do-not-call'' 
provision included in the original Rule will apply to charitable 
solicitation telemarketing. However, both the entity-specific ``do-not-
call'' provisions and the ``do-not-call'' registry provisions apply to 
commercial telemarketing to induce purchases of goods or services. This 
approach fulfills the Commission's intention that the TSR be consistent 
with First Amendment principles, whereby a higher degree of protection 
is extended to charitable solicitation than to commercial solicitation. 
Moreover, as a practical matter, the Commission believes that this 
approach will enable charities to continue soliciting support and 
pursuing their missions.
---------------------------------------------------------------------------

    \56\ See, e.g., FOP-NPRM at 2; HRC-NPRM at 1; Italian American 
Police-NPRM at 1; Lautman-NPRM at 2; Leukemia Society-NPRM at 1-2; 
NCLF-NPRM at 1; Angel Food-NPRM at 1; North Carolina FFA-NPRM at 1; 
SO-CT-NPRM at 1; SO-NJ-NPRM at 1; SO-WA-NPRM at 1; Reese-NPRM at 2; 
SHARE-NPRM at 3; Stage Door-NPRM at 1.
    \57\ See, e.g., PAF-NPRM at 1; AOP-Supp. at 1; Chesapeake-Supp. 
at 1.
---------------------------------------------------------------------------

Commenters' Proposals.

    Noting the Commission's jurisdictional limitations with respect to 
banks, MBNA requested that the Rule explicitly state that it is 
``inapplicable to entities exempt from coverage under Sec.  5(a)(2) of 
the [FTC Act].''\58\ MBNA also recommended that the Rule extend this 
exemption to ``entities acting on behalf of banks . . . because such 
entities are regulated by the Bank Service Company Act, 15 U.S.C. Sec.  
45(a)(2), concerning services they provide for banks.''\59\ MasterCard 
challenged the Commission's statement that it can regulate third-party 
telemarketers who call on behalf of a bank, and urged that the 
Commission explicitly exempt ``any bank subsidiary or affiliate 
performing services on behalf of a bank.\60\ ABA recommended that the 
amended Rule clarify that ``non-bank operating subsidiaries of banks as 
defined by the banking agencies'' are exempt.\61\
---------------------------------------------------------------------------

    \58\ MBNA-NPRM at 2. Accord Fleet-NPRM at 2 (arguing that the 
Office of the Comptroller of the Currency already provides 
significant guidance to banks on managing risks that may arise from 
their business relationships with third parties); AFSA-NPRM at 3.
    \59\ MBNA-NPRM at 2. See also AFSA-NPRM at 3.
    \60\ MasterCard-NPRM at 13-14. Accord Citigroup-NPRM at 11.
    \61\ ABA-NPRM at 3.
---------------------------------------------------------------------------

    The Commission notes that, from the inception of the Rule, the 
Commission has asserted that parties acting on behalf of exempt 
organizations are not thereby exempt from the FTC Act, and thus, for 
example, ``a nonbank company that contracts with a bank to provide 
telemarketing services on behalf of the bank is covered'' by this 
Rule.\62\ This reading is consistent with the Commission's long-
standing interpretation of the scope of its authority under the FTC 
Act, as well as with judicial precedent.\63\ Furthermore, the 
Commission's authority was clarified in Sec.  133 of the Gramm-Leach-
Bliley Act (``GLBA''), which states that ``[a]ny person that . . . is 
controlled directly or indirectly . . . by . . . any bank . . . ([as] 
defined in section 3 of the Federal Deposit Insurance Act) and is not 
itself a bank . . . shall not be deemed to be a bank . . . for purposes 
of any provisions applied by'' the FTC under the FTC Act.\64\ Most 
recently, a federal district court held that, under this language, the 
Rule applies to telemarketing by a mortgage subsidiary of a national 
bank. As the court stated, ``the definition of `bank' identified by 
Congress simply does not include the subsidiaries of banks.''\65\
---------------------------------------------------------------------------

    \62\ 60 FR at 43843, citing, inter alia, Official Airline Guides 
v. FTC, 630 F.2d 920 (2d Cir. 1980) (holding that the air carrier 
exemption from the FTC Act did not apply to a firm publishing 
schedules and fares for air carriers, which was not itself an air 
carrier); FTC/Direct Mktg. Ass'n., Complying with the Telemarketing 
Sales Rule (Apr. 1996) (``TSR Compliance Guide'') at 7.
    \63\ See, e.g., Official Airline Guides, note 62 above; FTC v. 
Saja, 1997-2 CCH (Trade Cas.) P 71,952 (D. Ariz. 1997); FTC v. Am. 
Standard Credit Sys., Inc., 874 F. Supp. 1080 (1994).
    \64\ GLBA, Pub. L. 106-102, 113 Stat. 1383, Title I, Sec.  
133(a), 15 U.S.C. 6801-6810 (2001).
    \65\ Minnesota v. Fleet Mortgage Corp., 181 F. Supp. 2d 995 (D. 
Minn. 2001) (noting that the applicable definition under the Federal 
Deposit Insurance Act (``FDIA'') is ``any national bank, State bank, 
District Bank, and any Federal branch and insured branch'' citing 
FDIA, 12 U.S.C. 1813(a)(1)(A)).
---------------------------------------------------------------------------

    The Commission believes it is unnecessary to state in the Rule what 
is already plain in the Telemarketing Act, i.e., that its jurisdiction 
for purposes of the TSR is conterminous with its jurisdiction under the 
FTC Act, and therefore declines to include an express statement of this 
fact in the Rule. Further, the Commission declines to adopt the 
interpretation of some commenters that the FTC Act itself exempts non-
bank entities based on their affiliation with or provision of services 
to exempt banks, and the recommendations of those commenters who sought 
an exemption from the Rule for bank subsidiaries or agents. To do so 
would be contrary to the Commission's interpretation of its 
jurisdictional boundaries, and would unnecessarily limit the reach of 
the Rule.\66\
---------------------------------------------------------------------------

    \66\ This approach is consistent with that laid out in the SBP 
of the original Rule. See 60 FR at 43483.
---------------------------------------------------------------------------

    In a similar argument, SBC asserted that, contrary to the 
Commission's stated position, the Commission's lack of jurisdiction 
over common carriers engaged in common carriage activity extends to 
their affiliates and their agents engaged in telemarketing on their 
behalf.\67\ SBC cites no authority for this proposition, and the 
Commission is

[[Page 4587]]

aware of none. SBC claims that the cases cited by the Commission in the 
NPRM\68\ in support of its authority provide no support for Commission 
jurisdiction over a common carrier's agent assisting in selling common 
carrier services.\69\ In fact, in one of those cases, the publisher of 
what the court described as ``the primary market tool of . . . 
virtually every (air) carrier . . . in the United States'' was held not 
to be exempt under the exemption for air carriers.\70\ Accordingly, the 
Commission declines to revise its position.
---------------------------------------------------------------------------

    \67\ SBC-NPRM at 2, 4-5.
    \68\ 67 FR at 4407 (citing 60 FR at 43843, citing FTC v. Miller, 
549 F.2d 452 (7th Cir. 1977) and Official Airline Guides), see note 
62 above.
    \69\ SBC-NPRM at 4-5.
    \70\ Official Airline Guides, see note 62 above. See also cases 
cited above in note 63, rejecting exemption claims of telemarketers 
for exempt organizations.
---------------------------------------------------------------------------

    Citigroup requested that the amended Rule clarify that certain 
financial services providers, such as insurance underwriters and 
registered broker-dealers, are exempt from the Rule.\71\ NAIFA 
requested similar clarification regarding insurance companies, as well 
as an explicit statement of exemption in the Rule.\72\ The Commission 
believes that the explicit statement of the Commission's jurisdictional 
limitation over broker-dealers is abundantly clear in the Telemarketing 
Act itself;\73\ thus, it is unnecessary to exempt them in the Rule. 
Similarly, the Commission believes its jurisdictional limitations 
regarding the business of insurance are clear, and thus no express 
exemption for these entities is necessary.\74\
---------------------------------------------------------------------------

    \71\ See Citigroup-NPRM at 10.
    \72\ See NAIFA-NPRM at 1-2.
    \73\ 15 U.S.C. 6102(d)(2).
    \74\ See Section 2 of the McCarran-Ferguson Act, 15 U.S.C. 
1012(b) (the business of insurance, to the extent that it is 
regulated by state law, is exempt from the Commission's jurisdiction 
pursuant to the FTC Act).
---------------------------------------------------------------------------

    In contrast to these requests to circumscribe or restate the 
Commission's jurisdiction under the Rule, a number of commenters urged 
the expansion of the Rule's scope beyond its current boundaries. As NCL 
put it, ``[b]ecause the Commission's general jurisdiction does not 
include significant segments of the telemarketing industry, such as 
common carriers and financial institutions, the Rule does not provide 
comprehensive protection for consumers or a level playing field for 
marketers.''\75\ Others argued that the Commission should assert 
jurisdiction over intrastate calls as well as interstate calls.\76\
---------------------------------------------------------------------------

    \75\ NCL-NPRM at 2. See also Horick-NPRM at 1; PRC-NPRM at 3-4; 
Myrick-NPRM at 1.
    \76\ FCA-NPRM at 2.
---------------------------------------------------------------------------

    As the Commission stated in the NPRM, ``the jurisdictional reach of 
the Rule is set by statute, and the Commission has no authority to 
expand the Rule beyond those statutory limits.''\77\ Thus, absent 
amendments to the FTC Act or the Telemarketing Act, the Commission is 
limited with regard to its ability to regulate under the Rule those 
entities explicitly exempt from the FTC Act. Despite this limitation, 
the Commission can reach telemarketing activity conducted by non-exempt 
entities on behalf of exempt entities.\78\ Therefore, when an exempt 
financial institution, telephone company, or non-profit entity conducts 
its telemarketing campaign using a third-party telemarketer not exempt 
from the Rule, then that campaign is subject to the provisions of the 
TSR.\79\
---------------------------------------------------------------------------

    \77\ 67 FR at 4497.
    \78\ Id.
    \79\ 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.'' 60 FR at 43843. Although some 
commenters, such as SBC (SBC-NPRM at 5-8) and Wells Fargo (Wells 
Fargo-NPRM at 2), took issue with this proposition, the fact remains 
that the Telemarketing Act states merely that ``no activity which is 
outside the jurisdiction of that Act shall be affected by this 
chapter.'' 15 U.S.C. 6105(a). Thus, when an entity not exempt from 
the FTC Act engages in telemarketing, that conduct falls within the 
Commission's jurisdiction under the TSR. Id.; TSR Compliance Guide 
at 12.
---------------------------------------------------------------------------

    Regarding the suggestion that the Commission regulate intrastate 
telemarketing calls, the Commission notes that, pursuant to the 
definition of ``telemarketing'' included in the Telemarketing Act, 15 
U.S.C. Sec.  6106(4), the Commission only has authority to regulate ``a 
plan, program, or campaign which is conducted . . . by use of one or 
more telephones and which involves more than one interstate call.'' 
(emphasis added).
    Finally, one commenter suggested that the Commission expressly 
state its jurisdiction over prerecorded telephone solicitations and 
facsimile advertisements.\80\ The Commission believes that sales calls 
using pre-recorded messages may fall within the Rule's definition of 
``telemarketing,'' provided the call is not exempt and provided the 
call meets the other criteria of ``telemarketing.'' Thus, a sales call 
using a prerecorded message may be ``telemarketing'' if it is part of a 
plan, program, or campaign for the purpose of inducing the purchase of 
goods or services or inducing a donation to a charitable organization, 
is conducted by use of one or more telephones, and involves more than 
one interstate call. However, the fact that prerecorded sales calls may 
be ``telemarketing'' does not affect the fact that such calls are 
already prohibited, except with the consumer's prior express consent, 
under regulations promulgated by the FCC pursuant to the TCPA.\81\ 
Similarly, FCC regulations already prohibit unsolicited facsimile 
advertisements,\82\ although facsimiles also are a form of direct mail 
subject to the TSR. The Commission notes in the discussion of Sec.  
310.6(b)(6) below that it considers facsimiles to be a form of direct 
mail solicitation. Thus, under Sec.  310.6(b)(6), a seller using a 
facsimile advertisement to induce calls from consumers may not claim 
the direct mail exemption unless the facsimile truthfully discloses the 
material information listed in Sec.  310.3(a)(1) (or contains no 
material misrepresentation regarding any item contained in Sec.  
310.3(d) if the solicitation is for a charitable contribution).
---------------------------------------------------------------------------

    \80\ See Worsham-NPRM at 6.
    \81\ 47 CFR 64.1200(a)(2).
    \82\ 47 CFR 64.1200(a)(3).
---------------------------------------------------------------------------

B. Section 310.2 -- Definitions.

    The amended 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,''\83\ ``investment opportunity,''\84\ ``merchant,'' 
``merchant agreement,'' ``person,'' ``prize,'' ``prize promotion,'' 
``seller,'' and ``State.''
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    \83\ VISA stated that the definition of ``customer'' is too 
broad, encompassing not only ``the person who is party to the 
telemarketing call and who would be liable for the amount of a 
purchase as the contracting party, but also would include any person 
who is liable under the terms of the payment device.'' VISA-NPRM at 
7. Although the term ``customer,'' defined to mean ``any person who 
is or may be required to pay for goods or services offered through 
telemarketing,'' is broad in scope, the Commission believes this 
breadth is necessary to effect the purposes of the Rule. Further, 
the Commission believes that the term ``customer,'' taken in context 
of the various Rule sections in which it is used, is not confusing. 
Therefore, the Commission makes no change in the amended Rule to the 
definition of ``customer.''
    \84\ One commenter recommended that the Commission clarify that 
an investment vehicle whose main attribute is that it provides tax 
benefits would be considered an ``investment opportunity'' under the 
Rule. Thayer-NPRM at 6. The Commission believes that such a tax-
advantaged investment would come under the present definition, which 
is predicated on representations about ``past, present, or future 
income, profit, or appreciation.'' The Commission believes that any 
such investment opportunity would only result in a tax advantage 
because of its ability to produce income or appreciation, regardless 
of whether that income is positive (and tax-deferred or tax-exempt) 
or negative (resulting in deductible losses). Thus, the Commission 
has retained the original definition of ``investment opportunity'' 
in the amended Rule.
---------------------------------------------------------------------------

    Based on the record developed in this matter, the Commission has 
determined to retain the following definitions from

[[Page 4588]]

the proposed Rule unchanged, apart from renumbering: ``caller 
identification service,'' ``donor,'' ``telemarketer,''\85\ and 
``telemarketing.'' The amended Rule modifies the definitions put forth 
in the NPRM for the terms ``billing information,'' ``charitable 
contribution,'' ``material,'' and ``outbound telephone call.'' Finally, 
the amended Rule adds five definitions that were not included in the 
NPRM proposal. They are: ``established business relationship,'' ``free-
to-pay conversion,'' ``negative option feature,'' ``preacquired account 
information,'' and ``upselling.'' The Commission discusses each of 
these definitions below, along with the comments received regarding 
them, and the Commission's reasoning in making a final determination 
regarding each of these definitions.\86\
---------------------------------------------------------------------------

    \85\ One commenter expressed concern that ``a company that sells 
telemarketing services to sellers, but does not maintain any calling 
facilities itself, instead subcontracting the actual telephoning to 
individuals'' might not fall within the definition of 
``telemarketer.'' Patrick-NPRM at 2. The Commission disagrees, and 
believes that regardless of whether an entity maintains a physical 
call center, it would be a ``telemarketer'' for purposes of the Rule 
if ``in connection with telemarketing, [it] initiates or receives 
telephone calls to or from a customer or donor.'' Amended Rule Sec.  
310.2(bb).
    \86\ The definitions proposed in the NPRM for ``express 
verifiable authorization,'' ``Internet services,'' and ``Web 
services'' have been deleted from the amended Rule because they are 
no longer necessary in light of certain substantive modifications in 
the amended Rule.
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Sec.  310.2(c) -- Billing information

    The proposed Rule included a definition of the term ``billing 
information,'' which was used in proposed Sec.  310.3(a)(3), the 
express verifiable authorization provision, and proposed Sec.  
310.4(a)(5), the section that addressed preacquired account 
telemarketing. Under the definition proposed in the NPRM, the term 
``billing information'' encompassed ``any data that provides access to 
a consumer's or donor's account, such as a credit card, checking, 
savings, or similar account, utility bill, mortgage loan account, or 
debit card.''\87\
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    \87\ See proposed Rule Sec.  310.2(c), and discussion, 67 FR at 
4498-99.
---------------------------------------------------------------------------

    The Commission received numerous comments regarding this definition 
as it pertained to the express verifiable authorization and preacquired 
account provisions of the proposed Rule. The use of the term in the 
express verifiable authorization provision drew less comment, perhaps 
because that provision merely required that the customer or donor 
receive such billing information if express verifiable authorization of 
payment is to be deemed verifiable.\88\ Comments from consumer groups 
generally favored the ``billing information'' definition, noting that 
the breadth of the term would prove beneficial to consumers.\89\ AARP, 
for example, stated that the definition, as employed in the proposed 
preacquired account telemarketing provision, ``is broad enough so as 
not to leave any doubt in the mind of the telemarketer regarding what 
can and cannot be shared.''\90\ Law enforcement representatives and 
some consumer groups expressed their concern that, as broad as the 
definition might seem, it should be further expanded to encompass 
encrypted data, and other kinds of information that can allow access to 
a consumer's account.\91\ Industry commenters, on the other hand, 
argued precisely the opposite, requesting that the definition be 
narrowed and that it specifically exclude encrypted data,\92\ or other 
specified items unique to that commenter's business practices.\93\ 
Instead, industry commenters recommended, ``billing information'' 
should be limited to account information that ``in and of itself, is 
sufficient to effect a transaction'' against a consumer's account.\94\ 
Virtually all of these comments were made in the context of the 
proposed Rule provision regarding preacquired account telemarketing, 
which would have prohibited the disclosure or receipt of ``billing 
information'' except when provided by the customer or donor to process 
payment.
---------------------------------------------------------------------------

    \88\ As discussed below, in the section explaining the express 
verifiable authorization provision (i.e., Sec.  310.3(a)(3)), 
commenters' concerns regarding billing information in the express 
verifiable authorization provision focused on the dangers of 
disclosure of consumers' account numbers.
    \89\ See NCLC-NPRM at 13; LSAP-NPRM at 5 (approved of 
definition, but also suggested changing ``such as'' to ``including 
but not limited to'').
    \90\ AARP-NPRM at 7.
    \91\ Specifically, NAAG noted: ``[T]he Gramm Leach Bliley Act 
(``GLBA'') has resulted in the common use of reference numbers and 
encrypted numbers to identify consumer accounts in preacquired 
account telemarketing. These types of account access devices 
definitely should be included in the list of examples. Failure to 
include encrypted numbers within the scope of the Rule's definition 
of `billing information' would render the Rule useless as a device 
to combat the ills of preacquired account telemarketing.'' NAAG-NPRM 
at 38. See also NACAA-NPRM at 5-6 (``consider providing a non-
exclusive list of such information, based upon technologies in place 
today. Thus, name, account number, telephone number, married and 
maiden names of parents, social security number, passwords to 
accounts and PINs, and encrypted versions of this information, with 
or without the encryption [key], should all be prohibited from use 
in any trasaction but the immediate one in which the co nsumer is 
engaged.''); NCLC-NPRM at 13.
    \92\ Citigroup-NPRM at 7-8; Household Auto-NPRM at 2 (``Although 
the specific language of the proposed definition does appear to be 
consistent with the Commission's GLBA interpretation, the 
explanation of the term in the [NPRM] is broader and creates a 
conflict with the GLBA interpretation . . . . To avoid such a 
conflict, we suggest that the Commission clarify that the term . . . 
includes only account numbers and specifically excludes encrypted 
account numbers.''). Accord ABIA-NPRM at 2; Roundtable-NPRM at 8 
(``The Roundtable is concerned that this definition is so broad that 
it could be construed to restrict the sharing of publicly available 
identifying information, such as a consumer's name, phone number and 
address.''). See also AFSA-NPRM at 11-12; Advanta-NPRM at 3; ARDA-
NPRM at 3; Assurant-NPRM at 3; Capital One-NPRM at 8-9; Cendant-NPRM 
at 7; Citigroup-NPRM at 7; E-Commerce Coalition-NPRM at 2; ERA-NPRM 
at 24; IBM-NPRM at 10; MPA-NPRM at 23, n.23; MasterCard-NPRM at 8; 
Metris-NPRM at 7; VISA-NPRM at 6.
    \93\ See, e.g., Green Mountain-NPRM at 31 (``If the Commission 
intends to adopt its proposal to amend the TSR to add a new Section 
310.4(a)(5) to ban the use of preacquired billing information 
obtained from third parties, it should exempt names, addresses, 
electricity meter identifiers, and electricity usage patterns from 
its definition of `billing information.''')
    \94\ IBM-NPRM at 10. ARDA argued that information that would 
fall within the definition of ``billing information'' --such as a 
customer's or donor's date of birth-- may be collected during a call 
for purposes other than to effect a charge. ARDA cited examples 
including ``eligibility to enter a contest or drawing'' or 
``demographic purposes.'' ARDA-NPRM at 3. ARDA then asserted that, 
while this information may not be gathered during a call in which a 
billing occurs, or used for billing purposes in the first instance, 
it could be passed along to other parties for marketing or other 
purposes. Id. While the Commission recognizes that information like 
date of birth has marketing uses beyond access to consumer accounts 
for billing purposes, the Commission finds it improbable at best 
that collection or confirmation of date of birth, or similar piece 
of information, as a proxy for consent to be charged for a purchase 
or donation would satisfy the ``express informed consent'' 
requirements of amended Rule Sec.  310.4(a)(6), discussed below.
---------------------------------------------------------------------------

    As noted below in the discussions of amended Rule Sec. Sec.  
310.4(a)(5) and (6), the Commission has tailored its approach to 
preacquired account telemarketing, thereby addressing many of the 
concerns raised by commenters on both sides regarding the proposed 
definition of ``billing information.'' The amended Rule's approach to 
preacquired account telemarketing--which no longer focuses on the 
sharing of ``billing information'' in anticipation of telemarketing, 
but instead prohibits ``[c]ausing billing information to be submitted 
for payment, directly or indirectly, without the express informed 
consent of the customer or donor''--obviates the concerns about the 
breadth of the term, and whether it includes or excludes encrypted 
account numbers.\95\ However,

[[Page 4589]]

the amended Rule includes a definition of ``preacquired account 
information,'' which encompasses both encrypted and unencrypted account 
information, to address specifically the practice of preacquired 
account telemarketing.\96\
---------------------------------------------------------------------------

    \95\ During the Rule Review, industry argued the term was so 
broad it might mean that sellers and telemarketers could not share 
customer names and telephone numbers for use in telemarketing. See, 
e.g., Advanta-NPRM at 3; Roundtable-NPRM at 8. Industry also argued 
that encrypted data should not be included in the definition of 
``billing information,'' because such data by itself does not allow 
a charge to be placed on a consumer's account, and because sharing 
it is permitted by the GLBA. See, e.g., Cendant-NPRM at 7; E-
Commerce Coalition-NPRM at 2; MPA at 23, n.23. These arguments have 
been addressed by the Commission's revised approach to preacquired 
account telemarketing, which focuses not on the sharing of account 
information--except in the very limited area of sale of unencrypted 
account numbers--but on the harm that results from certain practices 
in preacquired account telemarketing, i.e., unauthorized charges. 
Moreover, in those instances where there has been the strongest 
history of abuse, sellers and telemarketers are required to obtain 
part or all of the customer's account number directly from the 
customer.
    \96\ See amended Rule Sec.  310.2(w), and related discussion 
below.
---------------------------------------------------------------------------

    Consequently, after consideration of the record in this proceeding, 
and in light of the more focused approach to the provisions in which 
the term is used, the Commission has decided to retain the proposed 
definition of ``billing information,'' with a minor modification. The 
definition now encompasses ``any data that enables any person to obtain 
access to a customer's or donor's account, such as a credit card, 
checking, savings, share or similar account, utility bill, mortgage 
loan account, or debit card.'' (emphasis added). The Commission 
believes that this syntactical modification, substituting the phrase 
``that enables any person to obtain access'' for the phrase ``that 
provides access,'' makes the definition more precise and somewhat 
easier to understand. The definition retains the broad scope of its 
predecessor in order to capture the myriad ways a charge may be placed 
against a consumer's account,\97\ yet has more limited effect in the 
context of the approach adopted in the amended Rule to address 
preacquired account telemarketing and express verifiable authorization.
---------------------------------------------------------------------------

    \97\ The record shows that a telemarketer or seller may provide 
anything from complete account number to mother's maiden name to 
initiate a charge for a telemarketing transaction, depending on its 
relationship with another seller, financial institution, or billing 
entity. See, e.g., Assurant-NPRM at 4.
---------------------------------------------------------------------------

Sec.  310.2(d) -- Caller identification service

    The definition of ``caller identification service'' comes into play 
in Sec.  310.4(a)(7) of the amended Rule, discussed below. In the NPRM, 
the Commission proposed to define ``caller identification service'' to 
mean ``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.'' As the 
Commission explained in the NPRM, the Commission intends the 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.\98\ Those few commenters who addressed the definition 
supported the Commission's proposal.\99\ Therefore, the amended Rule 
adopts Sec.  310.2(d), the definition of ``caller identification 
service,'' unchanged from the proposal.
---------------------------------------------------------------------------

    \98\ 67 FR at 4499.
    \99\ See, e.g., EPIC-NPRM at 11; ARDA-NPRM at 4. ARDA suggested 
that the definition be expanded to allow transmission of the name 
and number of ``any party whom the telephone subscriber may 
contact'' regarding being placed on the company's ``do-not-call'' 
list. As noted in the subsequent discussion of this provision, Sec.  
310.4(a)(7) of the amended Rule permits telemarketers to substitute 
a customer service number on the caller identification transmission.
---------------------------------------------------------------------------

Sec.  310.2(e) -- Charitable contribution

    The original Rule did not include a definition of ``charitable 
contribution'' because originally the term ``telemarketing'' in the 
Telemarketing Act, which determined the scope of the TSR, was defined 
to reach telephone solicitations only for the purpose of inducing sales 
of goods or services.\100\ The proposed Rule added a definition of the 
term ``charitable contribution'' because Sec.  1011 of the USA PATRIOT 
Act amended the Telemarketing Act to specify that ``telemarketing'' now 
includes not only calls to induce purchases of goods or services but 
also calls to induce ``a charitable contribution, donation, or gift of 
money or any other thing of value.''\101\ The Commission has determined 
that the 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 has retained this definition from the 
proposed Rule. It has, however, determined to modify the proposed 
definition to eliminate the exemptions included in the proposed Rule.
---------------------------------------------------------------------------

    \100\ 15 U.S.C. 6106(4).
    \101\ 15 U.S.C. 6106(4) (amended by Sec.  1011(b)(3) of the USA 
PATRIOT Act, Pub. L. 107-56 (Oct. 26, 2001)).
---------------------------------------------------------------------------

    The proposed definition in the NPRM expressly excluded donations or 
gifts of money or any other thing of value solicited by or on behalf of 
``political clubs, committees, or parties, or 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.''\102\ 
This proposed exemption drew strong comment and criticism. NASCO 
recommended that a definition of ``constituted religious 
organizations'' be included in the Rule to set clear boundaries for 
what kinds of groups were intended to be included.\103\ Hudson Bay 
stated that ``establishing governmentally preferred groups, such as 
religious organizations or political parties, and providing them with 
superior access to the public, is in our opinion unquestionably a 
violation of the Fourteenth Amendment's guarantee of equal protection 
and of the First Amendment.''\104\ Similarly, DMA-Nonprofit stated 
``the Commission has no authority to single out agents of religious 
organizations for exemption . . . . [T]here is no language in the [USA 
PATRIOT Act] that allows the Commission to make this 
distinction.''\105\
---------------------------------------------------------------------------

    \102\ Proposed Rule Sec.  310.2(f).
    \103\ NASCO-NPRM at 6.
    \104\ Hudson Bay-NPRM at 12.
    \105\ DMA-NonProfit-NPRM at 5-6. See also Not-for-Profit 
Coalition-NPRM at 41.
---------------------------------------------------------------------------

    Based on careful consideration of the record, the Commission is 
persuaded that no exemptions based upon the type of organization 
engaged in telemarketing are warranted, and that all telemarketing (as 
defined in the Telemarketing Act as amended by the USA PATRIOT Act) 
conducted by any entity within its jurisdiction should be covered by 
the TSR. This does not mean that the Commission believes political 
fundraising is within the scope of the Rule.\106\ It means only that 
the TSR applies to all calls that are part of any ``plan, program, or 
campaign'' that is conducted by any entity within the FTC's 
jurisdiction, involving more than one interstate telephone call for the 
purpose of inducing a purchase of goods or services or a charitable 
contribution, donation, or gift of money or any other thing of value. 
Thus, for example, if a for-profit telemarketer on behalf of a

[[Page 4590]]

(presumably non-profit) political club or constituted religious 
organization were to engage in a ``plan, program, or campaign'' 
involving more than one interstate telephone call to induce a purchase 
of goods or services or a charitable contribution, that activity would 
be within the scope of the TSR. But if such a for-profit telemarketer 
on behalf of the same client made calls that were not for the purpose 
of inducing a purchase of goods or services or a charitable 
contribution, those calls would not be within the scope of the TSR.
---------------------------------------------------------------------------

    \106\ The USA PATRIOT Act is consistent with a basic common law 
distinction between charities and political organizations. ``Gifts 
or trusts for political purposes or the attainment of political 
objectives generally have been regarded as not charitable in nature. 
Also . . . a trust to promote the success of a political party is 
not charitable in nature.'' 15 Am. Jur. 2d Charities Sec.  60 
(2002). In this regard, it is noteworthy that Congress elsewhere has 
established a regulatory scheme applicable to political fundraising. 
2 U.S.C. Sec. Sec.  431-455.
---------------------------------------------------------------------------

    Commenters also addressed the scope of the term ``or any thing of 
value'' in the definition of ``charitable contribution'' in the 
proposed Rule, suggesting exemptions to limit this definition. Red 
Cross urged the Commission to exempt blood from the definition of 
``charitable contribution'' because, it argued, ``blood donations are 
not 'a thing of value' in a fiduciary sense.''\107\ Blood Centers 
agreed with this position, arguing that while ``the donor's blood is of 
great value to the recipient of the blood donation . . . the donor is 
not being asked to part with anything other than his or her 
time.''\108\ Blood Centers also argued that donations of blood are of 
grave importance to save lives, and so are distinguishable from typical 
commercial and even charitable telemarketing calls.\109\ Another 
argument raised by Blood Centers in support of its position that a 
blood donation should be excluded from the definition of ``charitable 
contribution'' is that blood donation programs are highly regulated by 
the Food and Drug Administration (``FDA'').\110\ March of Dimes also 
requested that volunteers' time not be considered a ``thing of value'' 
under the Rule, noting that their organization often uses the telephone 
to contact volunteers who then solicit contributions from their friends 
and neighbors.\111\
---------------------------------------------------------------------------

    \107\ Red Cross-NPRM at 3.
    \108\ Blood Centers-NPRM at 2.
    \109\ Id.
    \110\ Id. at 2-3.
    \111\ March of Dimes-NPRM at 2. See also AFP-NPRM at 5.
---------------------------------------------------------------------------

    The Commission believes that the text of the USA PATRIOT Act 
provision expanding the definition of telemarketing to include calls to 
induce ``a charitable contribution, donation, or gift of money or any 
other thing of value'' is broad in scope and plain in meaning. The USA 
PATRIOT Act specifically uses the term ``or any other thing of value'' 
in addition to the terms ``charitable contribution, donation, or gift 
of money,'' ensuring that it will encompass non-money contributions. 
The Commission believes that, while blood donors are asked for blood 
and not money, the blood they donate is clearly a ``thing of 
value.''\112\ Similarly, although volunteers are asked to give time 
rather than money, the Commission believes that a donation of time is a 
``thing of value.''\113\ Therefore, the Commission cannot exempt from 
the definition of ``charitable contribution'' either blood or time 
volunteered. The Commission believes, however, that legitimate concern 
about inclusion of blood in the definition should be alleviated by the 
exemption of charitable solicitation telemarketing from the ``do-not-
call'' registry provisions. The remaining provisions that will apply to 
telemarketing to solicit blood donations are neither burdensome nor 
likely to impede the mission of the non-profit organizations that seek 
such donations.
---------------------------------------------------------------------------

    \112\ See Maryland Health Care, Fall 2000 at 4, http://www.mdhospitals.org/MarylandPubs/MDHlthCr--1100.pdf (noting the 
blood shortages had driven up the price of blood from $145.24 per 
unit to $174.10 per unit in a single year).
    \113\ Presumably, organizations that rely on volunteers would, 
absent their donations of time, be forced to pay labor costs 
associated with the work done by volunteers. Therefore, the time 
donated is a ``thing of value,'' equivalent to the labor cost saved.
---------------------------------------------------------------------------

    NAAG and NASCO suggested that the Commission ``state that the word 
`charitable' does not limit the character of the recipient of the 
contribution.''\114\ According to these commenters, it is important to 
ensure that donations solicited by or on behalf of public safety 
organizations are considered ``charitable contributions'' for 
regulatory purposes, and that those contributions solicited by sham 
charities are still ``charitable contributions'' under the amended 
Rule.\115\ The Commission believes that the current definition, which 
closely tracks the USA PATRIOT Act definition, is clear as to what is 
covered.\116\ Its focus is on the donation, rather than the solicitor, 
and it is sufficiently broad in scope to encompass donations solicited 
on behalf of any organization.
---------------------------------------------------------------------------

    \114\ NAAG-NPRM at 52; NASCO-NPRM at 5-6.
    \115\ Id.
    \116\ 15 Am. Jur. 2d Charities Sec.  60 (2002).
---------------------------------------------------------------------------

    NAAG and NASCO also requested that the Commission explicitly 
address the situation where a call involves ```percent of purchase' 
situations, where contributions are sought in the form of the purchase 
of goods or services, [and] where a portion of the price will, 
according to the solicitor, be dedicated to a charitable cause.''\117\ 
These commenters urged the Commission to ensure that such hybrid 
transactions are covered, either as sales of goods or services or as 
charitable contributions, or both, under the Rule.\118\ The Commission 
believes that when the transaction predominantly is an inducement to 
make a charitable contribution, such as when an incentive of nominal 
value is offered in return for a donation, the telemarketer should 
proceed as if the call were exclusively to induce a charitable 
contribution. Similarly, if the call is predominantly to induce the 
purchase of goods or services, but, for example, some portion of the 
proceeds from this sale will benefit a charitable organization, the 
telemarketer should adhere to the portions of the Rule relevant to 
sellers of goods or services. The Commission believes that further 
elaboration on the differences between these scenarios is unnecessary 
because, in either case, the requirements are similar, consisting 
primarily of avoiding misrepresentations, and promptly disclosing 
information that would likely be disclosed in the ordinary course of a 
telemarketing call.
---------------------------------------------------------------------------

    \117\ NAAG-NPRM at 52. See also NASCO-NPRM at 5-6.
    \118\ Id.
---------------------------------------------------------------------------

Sec.  310.2(m) -- Donor

    The proposed Rule contained a definition of ``donor'' in order to 
effectuate the goals of the USA PATRIOT Act amendments. Under that 
definition, a ``donor'' is ``any person solicited to make a charitable 
contribution.''\119\ Throughout the proposed Rule, wherever the word 
``customer'' was used, the Commission added the word ``or donor'' where 
appropriate, to indicate that the provision was also applicable to the 
solicitation of charitable contributions. The Commission received very 
few comments on this definition. The March of Dimes expressed the 
concern that ``[t]he definition of a `donor' does not accurately 
reflect the nomenclature used by the industry.''\120\ Rather, the March 
of Dimes suggested, the term ``donor,'' as used in philanthropic 
circles, ``connotes an established relationship with the non-profit 
charitable organization.''\121\ The March of Dimes recommended 
replacing the terms ``customer'' and ``donor'' in the Rule with the 
term ``consumer.''
---------------------------------------------------------------------------

    \119\ Proposed Rule Sec.  310.2(m), 67 FR at 4540.
    \120\ March of Dimes-NPRM at 3.
    \121\ Id. (noting that the term ``prospect'' is used to mean a 
potential donor).
---------------------------------------------------------------------------

    The Commission believes that the term ``consumer'' is too broad and 
non-specific to substitute for the terms

[[Page 4591]]

``customer'' and ``donor.''\122\ The Rule uses these more targeted 
terms to capture the varied nature of transactions between sellers or 
telemarketers and individuals who are, or may be, required to pay for 
something as the result of a telemarketing solicitation. Thus, it is 
the intent of the Commission that the term ``donor'' as used in the 
Rule encompass not only those who have agreed to make a charitable 
contribution, but also any person who is solicited to do so, to be 
consistent with its use of the term ``customer.'' Therefore, the 
Commission has determined that the term ``donor'' is necessary and 
appropriate, and has retained the definition of ``donor'' in the 
amended Rule without modification.
---------------------------------------------------------------------------

    \122\ The term ``consumer'' is defined generally as ``one that 
utilizes economic goods.'' Merriam-Webster's Collegiate Dictionary, 
at: http://www.merriamwebster.com/cgi-bin/dictionary. This 
broader term is used in the Rule in the definition of ``established 
business relationship,'' Sec.  310.2(n), and in the provision 
banning the transfer of unencrypted account numbers, Sec.  
310.4(a)(5). In each of these instances, the Commission has 
consciously used the broader term ``consumer'' to effect broader 
Rule coverage.
---------------------------------------------------------------------------

Sec.  310.2(n) -- Established business relationship

    The Commission has determined to add to the Rule a definition of 
``established business relationship.'' This new definition comes into 
play in Sec.  310.4(b)(1)(iii), which now exempts from the national 
``do-not-call'' registry calls from sellers with whom the consumer has 
an ``established business relationship'' (unless that consumer has 
asked to be placed on that seller's company-specific ``do-not-call'' 
list). This definition limits the exemption to relationships formed by 
the consumer's purchase, rental, or lease of goods or services from, or 
financial transaction with, the seller within eighteen months of the 
telephone call (or, in the case of inquiries or applications, within 
three months of the call).
    Industry comments were nearly unanimous in emphasizing that it is 
essential that sellers be able to call their existing customers.\123\ 
Although the initial comments from consumer groups opposed an exemption 
for ``established business relationships,''\124\ their statements 
during the June 2002 Forum and in their supplemental comments expressed 
the view that such an exemption would be acceptable, as long as it was 
narrowly-tailored and limited to current, ongoing relationships.\125\ 
Moreover, state law enforcement representatives' comments on their 
experience with state ``do-not-call'' laws that have an exemption for 
``established business relationships'' suggest that this type of 
exemption is consistent with consumer expectations.\126\ While the 
Commission is persuaded that an ``established business relationship'' 
exemption is necessary and appropriate, it believes that the exemption 
must be narrowly crafted and clearly defined to avoid a potential 
loophole that could defeat the purpose of the national ``do-not-call'' 
registry.
---------------------------------------------------------------------------

    \123\ See, e.g., AFSA-NPRM at 13-14; AmEx-NPRM at 3; ANA-NPRM at 
5; ARDA-NPRM at 17; ATA-NPRM at 29; BofA-NPRM at 4; Best Buy-NPRM at 
1; DialAmerica-NPRM at 12; DMA-NPRM at 33-34; DSA-NPRM at 7-8; ERA-
NPRM at 36-37; Gottschalks-NPRM at 1; NCTA-NPRM at 6; NRF-NPRM at 
13; PMA-NPRM at 28; Roundtable-NPRM at 5; SIIA-NPRM at 2-3; Time-
NPRM at 6-7; VISA-NPRM at 3. See also, e.g., ARDA-Supp. at 1; ICTA-
Supp. at 2.
    \124\ See, e.g., EPIC-NPRM at 20-21; NCL-NPRM at 10. Among other 
things, consumer advocates opposed such an exemption because of the 
difficulty in defining a ``pre-existing business relationship'' 
without creating significant loopholes in the protections provided 
by the national ``do-not-call'' registry (described in the 
discussion of amended Rule Sec.  310.4(b)(1)(iii) below). See NCL-
NPRM at 10. Furthermore, they did not agree with industry's argument 
that consumers want to hear from companies with whom they have an 
existing relationship. NCL stated that the fact that a consumer may 
have had a relationship with a company does not necessarily mean 
that he or she wishes to receive calls, or to continue to receive 
calls, from that company. NCL-NPRM at 10. Consumer advocates 
believed the FTC had taken the right approach: the burden should lie 
with the seller to show specific consent to receive calls. NCL-NPRM 
at 10; EPIC-NPRM at 20-21; PRC-NPRM at 2.
    \125\ June 2002 Tr. I at 110 (NCL) (``This would have to be . . 
. really narrowly defined in order to protect consumers so that if 
somebody had something that was ongoing . . . that would be in a 
different category.''). See also AARP-Supp. at 3 (``AARP recognizes 
that there may be an expectation by consumers that they will be in 
contact with businesses with whom they have current, ongoing, 
voluntary relationship; calls from such businesses are not 
necessarily unwanted or unsolicited. Calls made from a business with 
which consumers had a prior relationship are a different matter 
altogether. In situations where the consumer has chosen not to 
continue a business relationship, it cannot be presumed they wish to 
be solicited by that business again. Therefore, AARP believes that 
any exemption for an existing business relationship must be limited 
to those situations where the relationship is current, ongoing, 
voluntary, involves an exchange of consideration, and has not been 
terminated by either party.'').
    \126\ June 2002 Tr. I at 110-19. See also June 2002 Tr. I at 
119-22, in which participants discussed an AARP survey conducted in 
conjunction with the Missouri Attorney General's Office, which 
showed that three-fourths of consumers did not feel an established 
business relationship was justified. However, representatives from 
the Missouri Attorney General's Office explained that the results 
were less a measure of consumer condemnation of such an exemption, 
than an indication that consumers were receiving calls from 
businesses with whom they did not perceive that they had such a 
relationship. According to the Missouri representatives, businesses 
took a broader view of the relationship than did consumers. As noted 
in more detail below, consumers appear to be comfortable with an 
exemption for ``established business relationships'' once its 
parameters are explained to them.
---------------------------------------------------------------------------

    In adopting the ``do-not-call'' provisions of the original Rule, 
the Commission considered, among other things, the approach taken by 
Congress and the FCC in the TCPA and its implementing regulations.\127\ 
In crafting an ``established business relationship'' definition, it is 
useful again to consider the TCPA, which specifically exempts calls 
``to any person with whom the caller has an established business 
relationship.''\128\ The House Report on the TCPA's ``established 
business relationship'' exemption confirms that Congress intended for 
the reasonable expectation of the consumer to be the touchstone of the 
exemption:
---------------------------------------------------------------------------

    \127\ 60 FR at 43855.
    \128\ 47 U.S.C. 227(a)(3)(B). The legislative history of the 
TCPA shows that Congress exempted ``established business 
relationship'' calls ``so as not to foreclose the capacity of 
businesses to place calls that build upon, follow-up, or renew, 
within a reasonable period of time, what had once been an existing 
customer relationship.'' H.R. REP. NO. 102-317 at 13 (1991). 
Throughout the House Report discussing the exemption for 
``established business relationship,'' the point is stressed that 
the exemption is intended to reach only those relationships that are 
current or recent. The Report consistently refers to an 
``established business relationship'' in terms of ``the existence of 
the relationship at the time of the solicitation, or within a 
reasonable time prior to it.'' Id. at 13-15. (emphasis added).

In the Committee's view, an ``established business relationship'' 
also could be based upon any prior transaction, negotiation, or 
inquiry between the called party and the business entity that has 
occurred during a reasonable period of time. . . . By requiring this 
type of relationship, the Committee expects that otherwise objecting 
consumers would be less annoyed and surprised by this type of 
unsolicited call since the consumer would have a recently 
established interest in the specific products or services. . . . In 
sum, the Committee believes the test to be applied must be grounded 
in the consumer's expectation of receiving the call.\129\
---------------------------------------------------------------------------

    \129\ Id. at 14, 15.

When it promulgated its rules pursuant to the TCPA, the FCC included 
the following definition of ``established business relationship'' with 
---------------------------------------------------------------------------
regard to its company-specific ``do-not-call'' requirements:

The term established business relationship means a prior or existing 
relationship formed by a voluntary two-way communication between a 
person or entity and a residential subscriber with or without an 
exchange of consideration, on the basis of an inquiry, application, 
purchase or transaction by the residential subscriber regarding 
products or services offered by such person or entity, which 
relationship has not been previously terminated by either 
party.\130\
---------------------------------------------------------------------------

    \130\ 47 CFR 64.1200(f)(4).

    Consideration of state approaches to the ``established business 
relationship''

[[Page 4592]]

exemption is also instructive. Most state ``do-not-call'' laws have 
some form of exemption for ``established business relationships,'' and 
several of these are modeled on the language of the FCC's 
exemption.\131\ However, there is an important difference between the 
FCC approach and that of many of the states, in that many state law 
exemptions circumscribe the scope of an ``established business 
relationship'' by specifying the amount of time after a particular 
event (like a purchase) during which such a relationship may be deemed 
to exist.\132\ The Commission believes that this approach is more in 
keeping with consumer expectations than an open-ended exemption. As 
discussed in more detail below, many consumers favor an exemption for 
companies with whom they have an established relationship. Consumers 
also might reasonably expect sellers with whom they have recently dealt 
to call them, and they may be willing to accept these calls. A purchase 
from a seller ten years ago, however, would not likely be a basis for 
the consumer to expect or welcome solicitation calls from that seller.
---------------------------------------------------------------------------

    \131\ Fourteen state ``do-not-call'' statutes are open-ended and 
do not contain a time limit for tolling the established business 
relationship: Alabama, California, Connecticut, Florida, Georgia, 
Idaho, Kentucky, Maine, Minnesota, Oregon, Texas, Vermont, 
Wisconsin, and Wyoming. Three of these ``open-ended'' state statutes 
incorporate the FCC definition either in whole or in part: 
California, Texas, and Wyoming. In addition, four other states 
incorporate the FCC definition in whole or in part, but limit the 
time period during which a business may claim an ``established 
business relationship'' once the relationship has lapsed: Colorado, 
Kansas, Oklahoma, and Pennsylvania. See note 592 below for citations 
to all state ``do-not-call'' statutes.
    \132\ See discussion and note 135 below.
---------------------------------------------------------------------------

    In addition, specific time limits for an ``established business 
relationship'' are particularly appropriate for a general ``do-not-
call'' registry such as the one to be maintained by the Commission, as 
opposed to the company-specific ``do-not-call'' lists for which the FCC 
definition was crafted. The Commission believes that an ``established 
business relationship'' exemption in a national list applying to many 
sellers and telemarketers should be carefully and narrowly crafted to 
ensure that appropriate companies are covered while excluding those 
from whom consumers would not expect to receive calls. A specific time 
limit balances the privacy needs of consumers and the need of 
businesses to contact their current customers.
    Comments received in response to the NPRM stress the importance of 
extending such an exemption to current, existing relationships and 
prior relationships that occurred within a reasonable period of 
time.\133\ Throughout the comments from industry stressing the need for 
an ``established business relationship'' exemption, a consistent theme 
is that such an exemption is necessary for ``existing customers'' or 
someone with whom sellers ``currently do business,'' and there seems to 
be a common understanding regarding what constitutes an ``existing'' 
relationship.\134\ There is less consensus when it comes to the issue 
of how long a business relationship lasts following a transaction 
between a seller and consumer. Many states have attempted to provide 
some clarity regarding how long after dealings between a consumer and 
seller have ceased that a residual ``established business 
relationship'' could be deemed still to exist.
---------------------------------------------------------------------------

    \133\ The comments received on ``established business 
relationship'' came primarily from the business community. On the 
other hand, there was little comment from consumer advocates and 
state regulators on how such an exemption would be formulated 
because the proposed Rule did not include an ``established business 
relationship'' exemption. However, the NPRM did ask about the effect 
on companies and charitable organizations with whom consumers had a 
pre-existing business or philanthropic relationship of the proposal 
to allow companies to call consumers on the ``do-not-call'' registry 
if they had given their express verifiable authorization to call (67 
FR at 4539, question 9). As discussed in more detail above in note 
124, those few consumer advocates who did mention such an exemption 
were opposed to it.
    \134\ See, e.g., ABA-NPRM at 10; Community Bankers-NPRM at 2; 
AmEx-NPRM at 3; ANA-NPRM at 5; Associations-NPRM at 2; ARDA-NPRM at 
17; Bank One-NPRM at 4; BofA-NPRM at 4; Best Buy-NPRM at 1; Cendant-
NPRM at 5-6; Citigroup-NPRM at 4; Comcast-NPRM at 3; CMC-NPRM at 6; 
Cox-NPRM at 2, 4; DMA-NPRM at 33, 34; Eagle Bank-NPRM at 2; 
Roundtable-NPRM at 5; Gottschalks-NPRM at 1; NCTA-NPRM at 4; NRF-
NPRM at 13; SIIA-NPRM at 2-3; Time-NPRM at 6; VISA-NPRM at 3.
---------------------------------------------------------------------------

    Twelve of the states that have an ``established business 
relationship'' exemption limit it to a specific time period after a 
transaction has occurred, ranging from six months to 36 months.\135\ 
Industry commenters suggested various time periods to limit the 
exemption. Several suggested 24 to 36 months, while others stated that 
a shorter period (12 months) would be more appropriate.\136\ The 
Commission believes, based on the record evidence and statements from 
Congress regarding the TCPA's ``established business relationship,'' 
that a company should be able to claim the exemption only if there has 
been a relatively recent transaction between the customer and the 
seller sufficient to support the existence of an ``established business 
relationship.''
---------------------------------------------------------------------------

    \135\ Six months (Louisiana, Missouri); 12 months (Pennsylvania, 
Tennessee); 18 months (Colorado, Illinois); 24 months (Alaska, 
Massachusetts, Oklahoma); 36 months (Arkansas, Kansas). In addition, 
New York apparently has adopted an 18-month time period: the New 
York statute does not contain a time limit; however, at the June 
2002 Forum, NYSCPB stated that New York applies an 18-month time 
limit. June 2002 Tr. I at 115 (``We have two separate exemptions. . 
. . The second thing is a prior business relationship, which we 
define as an exchange of goods and services for consideration within 
the preceding 18 months. . . .''). Indiana's statute does not have 
an exemption for ``established business relationships.''
    \136\ Industry commenters generally supported a 24-month time 
period, but did not submit data that would tend to show that a 
shorter time period would not serve their purposes. The breakdown of 
suggested time periods is as follows: ``recently terminated or 
lapsed'' (New Orleans-NPRM at 14-15); 12 months (BofA-NPRM at 4; 
CMC-NPRM at 6-7); 24 months (ATA-Supp. at 8; ERA-NPRM at 38; ERA-
Supp. at 19; MPA-Supp. at 11; NAA-NPRM at 11; June 2002 Tr. I at 109 
(PMA)); 36 months (ARDA-NPRM at 20; Associations-Supp. at 3-4). In a 
supplement to their comment, FDS supported limiting telemarketing 
sales calls to customers who have made a purchase in the past 12 
months, while allowing strictly informational calls to persons who 
have had a transaction within the past 36 months. Federated-Supp. at 
1-2.
---------------------------------------------------------------------------

    Based on the comments, the Commission finds little support for a 
36-month time period. Most of the commenters who suggested that time 
period did so as part of a joint comment filed by five 
associations.\137\ In the comments the individual associations filed 
separately, however, they suggested a time period of 24 months.\138\ 
NAA initially suggested 24 months, but expanded that to 36 months in 
its supplemental comment. Industry commenters who advocate 24 months 
provide little support for their assertion that it is the appropriate 
length of time by which to measure ``reasonableness;'' nor did they 
submit data that would show that a shorter time period would not serve 
their purposes. Other industry members (such as Bank of America, 
Consumer Mortgage Coalition, and Federated Department Stores) suggested 
shorter time periods. The Commission does not believe that a 
relationship which terminated or lapsed two years ago would constitute 
a relationship that had recently terminated or lapsed. The Commission 
believes that if consumers received a call from a company with whom the 
most recent purchase, rental, lease or financial transaction occurred 
or lapsed two years ago or longer, consumers would likely be surprised 
by that call and find it to be unexpected.
---------------------------------------------------------------------------

    \137\ See Associations-NPRM at 3-4.
    \138\ See note 136 above.
---------------------------------------------------------------------------

    The Commission believes that 18 months is an appropriate time frame 
because it strikes a balance between industry's needs and consumers' 
privacy rights and reasonable expectations about who may call them and 
when. By extending beyond a single annual sales cycle, the 18-month 
period allows sufficient time for businesses to renew contact with 
prospects who may only purchase once a year. Moreover,

[[Page 4593]]

limiting the ``established business relationship'' to 18 months from 
the date of the last purchase or transaction would be at least as 
restrictive as the majority of states that have such an exemption, thus 
achieving greater consistency for both industry and consumers. The 
experience of states that have an ``established business relationship'' 
exemption in their ``do-not-call'' laws indicates that a relatively 
limited ``established business relationship'' exemption does not 
conflict with consumers' expectations. At the June 2002 Forum, the 
representatives from New York and Missouri spoke about consumer 
expectations in connection with their states' ``do-not-call'' 
lists.\139\ Both noted that consumers appeared to be comfortable with 
such an exemption because they had received few complaints from 
consumers regarding companies with whom they had an established 
relationship.\140\ The states' experience is not contradicted by the 
comments of individual consumers in response to a specific question 
included on the Commission's website inviting email comments from the 
public. Although 60 percent of consumers who responded to this question 
stated that they opposed an exemption for ``established business 
relationship,'' 40 percent favored such an exemption.\141\
---------------------------------------------------------------------------

    \139\ See June 2002 Tr. I at 110-21.
    \140\ Id. at 118-19 (New York: ``Well, [consumers are not 
unhappy], and a lot of times they complain, and you could say 
they're [sic] prima facie evidence they're unhappy. We call them 
back and say, gee, did you have a transaction with these folks? They 
claim you did on X, Y and Z, and they furnished us this paperwork. 
And then they say, oh, yeah. They don't seem to be mad.'') 
(Missouri: ``Most people when you call them back are delighted that 
70 to 80 percent of their phone calls have been caused to not come 
in, so when we explain to them that you had a relationship or you 
explain to them that some of these calls are exempt, they understand 
when you explain that to them, and they're delighted, because our 
anecdotal information shows that 70 to 80 percent of the calls 
people had been receiving, they're not receiving now.'').
    \141\ Analysis of consumer email comments in the Commission's 
TSR comment database indicates that about 860 favored an exemption 
for calls from firms with whom they already have an established 
relationship, while about 1,080 opposed such an exemption. 
Furthermore, over 13,000 of the 14,971 comments submitted by 
Gottschalks' customers supported allowing Gottschalks to call them 
even if they signed up on a ``do-not-call'' registry to block other 
calls.
---------------------------------------------------------------------------

    Furthermore, a study conducted in 2002 by the Information Policy 
Institute found that consumers preferred a ``nuanced approach'' to the 
``do-not-call'' issue, wanting to limit some calls to their household, 
but not all calls.\142\ According to the study, 50 percent of consumers 
surveyed supported regulations that would allow local or community-
based organizations to call during specific hours of the day.\143\ 
Furthermore, slightly less than half of the respondents supported 
legislation that would allow calls, but only from local or community-
based organizations with whom they have an existing relationship.\144\ 
The survey showed that consumers were less likely to welcome calls from 
national companies, although 40 percent indicated that they would allow 
calls from national organizations with whom they had an existing 
relationship.\145\
---------------------------------------------------------------------------

    \142\ Michael A. Turner, ``Consumers, Citizens, Charity and 
Content: Attitudes Toward Teleservices'' (Information Policy 
Institute, June 2002) at 4, 8 (hereinafter ``Turner study'').
    \143\ Id.
    \144\ Id.
    \145\ Id.
---------------------------------------------------------------------------

    In sum, consumers are split over whether they favor an 
``established business relationship'' exemption. Given the difference 
of opinion among consumers, and industry's convincing arguments 
regarding the detrimental effects the lack of an exemption would cause, 
the Commission is persuaded to provide an exemption for ``established 
business relationships.''
    The definition of ``established business relationship'' in the 
amended Rule would limit the exemption in the case of inquiries and 
applications to three months after the date of the application or 
inquiry (except with the consumer's express consent or permission to 
continue the relationship). The Commission believes that a consumer's 
reasonable expectations are different in the case of inquiries and 
applications as compared to purchase, rental, and lease transactions. A 
simple inquiry or application would reasonably lead to an expectation 
of a prompt follow-up telephone contact close in time to the initial 
inquiry or application, not one after an extended period of time. 
Comments from NYSCPB at the June 2002 Forum also warned of possible 
abuse in the creation of an ``established business relationship'' based 
on inquiries from consumers.\146\ The Commission believes three months 
should be a sufficient time frame in which to respond to a consumer's 
inquiry or application.
---------------------------------------------------------------------------

    \146\ [146]: June 2002 Tr. I at 116 (NYSCPB) (``[D]oes a mere 
inquiry constitute a business relationship? And our answer to that 
is no, because we have had some what I would say are really sleazy 
operators. They will call up and leave a message on your phone. They 
won't even identify who they are. They will simply say `Call us 
back, it's very important.' You call back out of curiosity or 
whatever, okay, and then all of a sudden they feel free to bombard 
you for the next few years with calls.''). The Commission intends 
that such a practice would not entitle a seller or telemarketer to 
make calls to consumers by claiming to have an ``established 
business relationship.''
---------------------------------------------------------------------------

    The amended Rule allows for an 18-month time limit where there has 
been a purchase, rental or lease, or other financial transaction 
between the customer and seller. The 18-month time limit for an 
``established business relationship'' based on a purchase, lease, 
rental, or financial transaction runs from the date of the last payment 
or transaction, not from the first payment. In instances where 
consumers pay in advance for future services (e.g., purchase a two-year 
magazine subscription or health club membership), the seller may claim 
the exemption for 18 months from the last payment or shipment of the 
product. For such ongoing relationships, it makes little difference to 
likely consumer expectations whether the purchase was financed over 
time or paid for up front. Sellers who provide products or services 
where the consumer is required to pay in advance can also get the 
consumer's express agreement to call, as provided in Sec.  
310.4(b)(1)(iii)(B)(i).
    Several financial services industry commenters urged that any 
``established business relationship'' exemption should encompass all 
affiliates of a seller.\147\ These commenters noted that regulatory 
requirements often dictate the corporate structure of financial 
institutions, which must market products and services across holding 
company affiliates and subsidiaries.\148\ For that reason, they 
suggested that any exemption for an ``established business 
relationship'' should extend to all members of a corporate family, 
including affiliates and subsidiaries, so long as the individual has an 
``established business relationship'' with any member of that corporate 
family.\149\ They also suggested that agents of the seller be included 
within the exemption if the consumer reasonably would expect the agent 
to be included under the exception.\150\
---------------------------------------------------------------------------

    \147\ See, e.g., BofA-NPRM at 4; Bank One-NPRM at 4; Eagle Bank-
NPRM at 2; Roundtable-NPRM at 5; Fleet-NPRM at 4; VISA-NPRM at 3-4.
    \148\ See Bank One-NPRM at 4; Fleet-NPRM at 4.
    \149\ See Eagle Bank-NPRM at 2; HSBC-NPRM at 2; Roundtable-NPRM 
at 5.
    \150\ See Roundtable-NPRM at 5.
---------------------------------------------------------------------------

    The Commission believes that such a broad definition of 
``established business relationship'' is inappropriate in the context 
of a ``do-not-call'' registry which is intended to protect consumers' 
privacy. As stated earlier, the Commission believes that such an 
exemption must be narrowly crafted to avoid defeating the purpose of 
the ``do-not-call'' registry. In determining whether affiliates or 
subsidiaries should

[[Page 4594]]

be encompassed within an ``established business relationship,'' the 
Commission looks to consumer expectations: If consumers received a call 
from a company that is an affiliate or subsidiary of a company with 
whom they have a relationship, would consumers likely be surprised by 
that call and find it inconsistent with having placed their telephone 
number on the national ``do-not-call'' registry?
    The Commission used similar reasoning in resolving this issue in 
connection with the definition of ``seller'' in the original Rule. In 
the discussion on the definition of ``seller,'' the Commission stated 
that there were several factors that it would consider in determining 
how it would view the Rule's application to diversified companies or 
divisions within one parent organization. Among those factors was 
``whether the nature and type of goods or services offered by the 
division are substantially different from those offered by other 
divisions of the corporation or the corporate organization as a 
whole.''\151\ This distinction looks to consumer expectations and 
whether a consumer would perceive the division to be the same as or 
different from other divisions or from the corporate organization as a 
whole. For example, a consumer who had purchased aluminum siding from 
Company A's aluminum and vinyl siding subsidiary would likely not be 
surprised to receive a call from kitchen remodeling service also owned 
by, and operating under the name of, Company A.
---------------------------------------------------------------------------

    \151\ 60 FR at 43844.
---------------------------------------------------------------------------

    Thus, under the amended Rule, some but not all affiliates will be 
able to take advantage of the ``established business relationship'' 
exemption to the national ``do-not-call'' registry. The Commission 
intends that the affiliates that fall within the exemption will only be 
those that the consumer would reasonably expect to be included given 
the nature and type of goods or services offered and the identity of 
the affiliate. The consumer's expectations of receiving the call are 
the measure against which the breadth of the exemption must be judged.

Sec.  310.2(o) -- Free-to-pay conversion

    Section 310.2(o) of the amended Rule sets out a new definition:--
``free-to-pay conversion.'' In connection with an offer or agreement to 
sell or provide goods or services, a ``free-to-pay conversion'' is ``a 
provision under which a customer receives a product or service for free 
for an initial period and will incur an obligation to pay for the 
product or service if he or she does not take affirmative action to 
cancel before the end of that period.'' The term ``free-to-pay 
conversion'' is the terminology commonly used in the telemarketing 
industry to describe what was referred to throughout the Rule Review 
proceeding as a ``free trial offer.''\152\
---------------------------------------------------------------------------

    \152\ See, e.g., Electronic Retailing Association, GUIDELINES 
FOR ADVANCE CONSENT MARKETING, http://www.retailing.org/regulatory/publicpolicy_consent.html; Magazine Publishers of America, 
Resources - Research: ``Advance Consent Subscription Plans,'' http://www.magazine.org/resources/advance_consent.html.
---------------------------------------------------------------------------

    A ``free-to-pay conversion'' is a form of ``negative option 
feature''--a term that is also newly defined in the amended Rule and is 
discussed below. The term ``free-to-pay conversion'' comes into play in 
the amended Rule in three provisions. First, as a form of negative 
option feature, any ``free-to-pay conversion'' is subject to the newly-
added disclosure requirements in Sec.  310.3(a)(1)(vii). Second, where 
a telemarketing offer involves a ``free-to-pay conversion,'' and is 
accepted by a consumer using a payment method subject to the express 
verifiable authorization requirements of Sec.  310.3(a)(3), the seller 
or telemarketer may not use the written confirmation form of 
authorization generally available under Sec.  310.3(a)(3)(iii). Third, 
under the new unauthorized billing provision at Sec.  310.4(a)(6), the 
amended Rule sets forth specific requirements to obtain express 
informed consent in any transaction involving preacquired account 
information and a ``free-to-pay conversion.'' Each of these provisions 
is discussed in detail below.

Sec.  310.2(q)--Material

    The amended Rule retains unchanged the definition of ``material'' 
from the original Rule, except for extending it to charitable 
contributions pursuant to the mandate of the USA PATRIOT Act. The 
Commission received no comments on this definition in response to the 
NPRM. The amended Rule has deleted the designations for subsections (a) 
and (b) that had been proposed in the NPRM. This is merely a formatting 
change and does not alter the substantive content of the definition. 
The amended Rule's definition of ``material,'' therefore, reads: 
``likely to affect a person's choice of, or conduct regarding, goods or 
services or a charitable contribution.''

Sec.  310.2(t)--Negative option feature

    The amended Rule includes new requirements in Sec.  
310.3(a)(1)(vii) for specific material disclosures necessary to avoid 
misleading consumers with respect to offers that entail incurring an 
obligation to pay a seller due to the consumers' non-action. To 
describe the circumstances when these disclosures must be made, the 
amended Rule employs the term ``negative option feature'' and, 
accordingly, provides a definition of that term in Sec.  310.2(t). A 
``negative option feature'' is any provision under which the consumer's 
silence or failure to take an affirmative action to reject goods or 
services or to cancel the agreement is interpreted by the seller as 
acceptance of the offer. This provision includes, but is not limited 
to, ``free-to-pay conversions,'' (which are discussed above), as well 
as negative option plans\153\ and continuity plans.\154\ Section 
310.3(a)(1)(vii) below provides a detailed discussion of the definition 
of ``negative option feature'' and the disclosures necessary when such 
a provision is a part of an offer to sell goods or services.
---------------------------------------------------------------------------

    \153\ Under a ``negative option plan,'' the customer agrees to 
purchase a specific number of items in a specified period of time. 
The customer receives periodic announcements of the selections; each 
announcement describes the selection, which will be sent 
automatically and billed to the customer unless the customer tells 
the company not to send it. See the Commission's Rule governing 
``Use of Negative Option Plans by Sellers in Commerce,'' 16 CFR 425.
    \154\ A ``continuity plan'' consists of a subscription to a 
collection or series of goods. Customers are offered an introductory 
selection and agree to receive additional selections on a regular 
basis until they cancel their subscription. Unlike negative option 
plans, customers do not agree to buy a specified number of 
additional items in a specified time period, but may cancel their 
subscriptions at any time. Continuity plans resemble negative option 
plans in that customers are sent announcements of selections and 
those selections are shipped automatically to the customer unless 
the customer advises the company not to send them. Unlike negative 
option plans, however, customers are not billed for the selection 
when it is shipped, but only if they do not return the selection 
within the time specified for the free examination period. See, 
e.g., FTC Facts for Consumers, ``Continuity Plans: Coming to You 
Like Clockwork,'' (June 2002), http://www.ftc.gov/bcp/online/pubs/products/continue.htm. See also FTC, ``Pre-Notification Negative 
Option Plans'' (May 2001) (distinguishing these plans from 
continuity plans), http://www.ftc.gov/bcp/online/pubs/products/negative.htm); and FTC, ``Facts for Business: Complying with the 
Telemarketing Sales Rule,'' http://www.ftc.gov/bcp/online/pubs/buspubs/tsr.htm.
---------------------------------------------------------------------------

Sec.  310.2(u)--Outbound telephone call

    Based on a review of the record, the Commission has decided to 
retain the definition of ``outbound telephone call'' that was in the 
original Rule, and not to expand the definition to include ``upsell'' 
transactions, as proposed in the NPRM. Many commenters noted that, by 
including upselling in the proposed Rule's definition of ``outbound 
telephone call,'' the proposal brought upselling transactions within 
all of the provisions relating to outbound calls,

[[Page 4595]]

which led to unintended and undesirable consequences, such as 
subjecting upsells to the calling time restrictions and national ``do-
not-call'' registry provisions.\155\ The amended Rule addresses 
upselling transactions separately, rather than attempting to sweep them 
within the definition of ``outbound telephone call.''\156\ The amended 
Rule reinstates the original definition of ``outbound telephone call,'' 
with only a modification to reflect the expanded reach of the Rule to 
charitable contributions pursuant to the USA PATRIOT Act. In the 
amended Rule, then, an ```[o]utbound telephone call' means a telephone 
call initiated by a telemarketer to induce the purchase of goods or 
services or to solicit a charitable contribution.''
---------------------------------------------------------------------------

    \155\ See, e.g., ABA-NPRM at 4; AmEx-NPRM at 6; AFSA-NPRM at 16; 
Associations-NPRM at 3; Cendant-NPRM at 2; CCC-NPRM at 13; Cox-NPRM 
at 6; KeyCorp-NPRM at 6; Metris-NPRM at 9; MBA-NPRM at 4; NBCECP-
NPRM at 2; NCTA-NPRM at 13-14; PCIC-NPRM at 1; PMA-NPRM at 10-11; 
Time-NPRM at 10; VISA-NPRM at 8; Wells Fargo-NPRM at 5-6.
    \156\ See Sec.  310.2(dd), defining the term ``upselling'' in 
the amended Rule.
---------------------------------------------------------------------------

Sec.  310.2(w)--Preacquired account information

    The amended Rule adds a definition of ``preacquired account 
information'' to address the problems that have been associated with 
telemarketing transactions where the telemarketer already has access to 
the customer's billing information at the time the outbound call is 
placed.\157\ The NPRM discussed these problems at length. The 
Commission used the term ``preacquired account telemarketing'' in the 
NPRM during its discussion of the proposed ban on disclosing or 
receiving billing information for use in telemarketing, but did not use 
the term itself in the proposed Rule, and so did not define it.\158\ In 
response, several industry commenters asked for more specificity as to 
what the Commission intends the term to mean.\159\ Thus, the definition 
of ``preacquired account information'' also serves to address these 
commenters' concerns about clarifying the concept of preacquired 
account telemarketing.
---------------------------------------------------------------------------

    \157\ See discussions of amended Rule Sec. Sec.  310.4(a)(5) and 
(6) below.
    \158\ See 67 FR at 4512-14.
    \159\ See, e.g., June 2002 Tr. II at 123-24 (CCC), 133-34 (ERA) 
and 173 (ATA); PMA-NPRM at 13-14; MPA-Supp. at 5; PRA-NPRM at 13-14.
---------------------------------------------------------------------------

    As explained in detail in the discussion of Sec.  310.4(a)(6) 
below, the amended Rule sets forth specific requirements for obtaining 
express informed consent in any telemarketing transaction that involves 
``preacquired account information.'' To clarify the situations where 
these requirements come into play, the amended Rule defines 
``preacquired account information'' as:

any information that enables a seller or telemarketer to cause a 
charge to be placed against a customer's or donor's account without 
obtaining the account number directly from the customer or donor 
during the telemarketing transaction pursuant to which the account 
will be charged.

The Commission intends this definition to be construed broadly. The 
definition includes any type of billing information, encrypted or 
unencrypted,\160\ that enables a seller or telemarketer to cause a 
charge to be placed on any customer's or donor's account without 
obtaining the account number directly from the customer or donor. It 
obviously covers instances where the seller or telemarketer is in 
actual possession of account information, whether by virtue of some 
prior relationship with the consumer or otherwise. It also is intended 
specifically to address affinity marketing campaigns where, for 
example, through a joint marketing arrangement, Seller A provides 
access to its customer base and those customers' accounts or account 
numbers to Seller B in exchange for a percentage of the proceeds from 
each sale.\161\
---------------------------------------------------------------------------

    \160\ By ``unencrypted,'' the Commission means both unencrypted 
readable account information, and encrypted information in 
combination with a decryption key. See discussion of amended Rule 
Sec.  310.4(a)(5) below.
    \161\ See 67 FR at 4513.
---------------------------------------------------------------------------

    Some industry members expressed their belief that this second class 
of transactions does not involve preacquired account information at all 
because, in such affinity marketing campaigns, Seller B may possess 
only encrypted account numbers, or no account numbers at all prior to 
initiating the call to the consumer.\162\ The Commission intends to 
clarify that such an arrangement does involve ``preacquired account 
information,'' since the seller or telemarketer does not have to obtain 
the account number from the customer or donor in order to cause a 
charge to be placed on the customer's or donor's account.
---------------------------------------------------------------------------

    \162\ ERA/PMA-Supp. at 14; June 2002 Tr. II at 134 (ERA). ERA 
described such a scenario during the June 2002 Forum:
    ``What typically might occur is L.L. Bean might enter into some 
type of [affinity] agreement with Timberland to say, We would like 
you to sell your boots . . . to our customers. . . . So L.L. Bean 
would provide the name and telephone number . . . and they might 
provide some unique identifier, it could be a four digit code. It 
might be an encrypted code that's used solely for the purpose of 
matching back, but the account billing number or any information 
that would provide access to the account is not transmitted to the 
telemarketer when you make that call. They make the call to the 
consumer. They ask the consumer if they want to order the boots. If 
the customer says yes, that information is then transferred to 
Timberland. Timberland would go back to L.L. Bean and say, This 
customer has accepted our offer. We would now like to get the 
account information to bill the consumer for something that they've 
authorized.''
    June 2002 Tr. II at 136-37.
---------------------------------------------------------------------------

    Finally, this definition would apply to upsell transactions, 
because the seller or telemarketer in the upsell transaction may either 
already possess the account information from the initial transaction, 
or would, by virtue of a joint marketing or other arrangement, have 
access to that information, so as to be able to charge the customer 
without getting the account number directly from the customer in the 
upsell transaction.

Sec.  310.2 (cc) -- Telemarketing

    The Commission received very few comments on its proposed 
definition of ``telemarketing,''\163\ but those it did receive 
expressed agreement that the definition should continue to include the 
phrase ``by use of one or more telephones,'' to ensure that large and 
small telemarketing operations are covered by the Rule.\164\ Based on 
the Commission's review of the record in this proceeding, the amended 
Rule retains unchanged the definition of ``telemarketing'' that was 
proposed in the NPRM. This definition is virtually the same as that in 
the original Rule, except that it now includes the phrase ``or a 
charitable contribution'' following ``goods or services,'' pursuant to 
the mandate of the USA PATRIOT Act.
---------------------------------------------------------------------------

    \163\ Although few commenters directly addressed this 
definition, many who commented on the USA PATRIOT Act amendments 
discussed the expansion of the Rule to cover the solicitation of 
charitable contributions. These comments are addressed above, in the 
discussion of amended Rule Sec.  310.1 relating to the scope of the 
Rule.
    \164\ DOJ-NPRM at 1 (noting its experience with fraudulent 
telemarketers operating using only one or two telephones); Patrick-
NPRM at 2 (urging that the practice of subcontracting telemarketing 
to individual sales agents who work from their homes using their 
home phones continue to be captured by the Rule).
---------------------------------------------------------------------------

Sec.  310.2(dd) -- Upselling

    As described above in Sec.  310.2(u), the Commission proposed in 
the NPRM to modify the Rule's definition of ``outbound telephone call'' 
to include most upsell transactions.\165\ The majority of commenters 
who addressed this issue, including both industry members and consumer 
groups,

[[Page 4596]]

supported the proposition that upsells should be expressly included in 
the Rule.\166\ Most of these commenters, however, suggested that the 
Commission's proposal to address the problem by expanding the 
definition of ``outbound telephone call'' to include upselling was not 
the most effective way to achieve this goal.\167\ Instead, many 
commenters recommended treating upsells as a distinct type of 
transaction by adding a definition of ``upselling'' to the Rule and 
specifying a unique set of disclosures required in upsell 
transactions.\168\ Others suggested retaining the expanded definition 
of ``outbound telephone call'' but amending it to avoid application of 
certain provisions unnecessary or inappropriate to the upselling 
context,\169\ such as application of the ``do-not-call'' and calling 
time provisions of the Rule, to upsells.\170\ The Commission does not 
intend for upselling to be subject to the ``do-not-call'' requirements 
or the calling time restrictions in the Rule.\171\ The goal of the 
initial proposal,\172\ and the focus of the current amendments, is to 
ensure that consumers in upselling transactions receive the same 
information and protections as consumers in other telemarketing 
transactions subject to the Rule.
---------------------------------------------------------------------------

    \165\ Specifically, the Commission proposed amending the 
definition to mean ``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.'' Proposed Rule Sec.  
310.2(t), 67 FR at 4541.
    \166\ See, e.g., AmEx-NPRM at 6 (``We agree with the Commission 
that the disclosure requirements of the TSR should apply whenever a 
new offer is made to the consumer, whether by the original 
telemarketer or a telemarketer to whom a call is transferred. 
Consumers should always be informed of material terms and conditions 
before they purchase a product.''); ERA-NPRM at 8, 11 (``The ERA is 
cognizant of the fact that the practice of upselling has increased 
dramatically since the Rule was originally promulgated in 1995. . . 
. The ERA acknowledges the Commission's desire to include upsells 
within the ambit of the Rule and supports the position that, in 
instances where solicitations are made during a single telephone 
call on behalf of multiple unaffiliated entities, there should be a 
clear disclosure. . . .''); ERA-Supp. at 6; LSAP-NPRM at 6; NAAG-
NPRM at 36; NCL-NPRM at 3; PMA-NPRM at 4, 8 (``PMA acknowledges that 
the practice of marketing products and services via upsell offers 
has increased in recent years and that the existing TSR does not 
provide express guidance regarding responsible marketing practices 
via the upsell channel.''); June 2002 Tr. II at 213-15, 249-50. But 
see CCC-NPRM at 15-16; CMC-NPRM at 7; Household Auto-NPRM at 3; 
Keycorp-NPRM at 5-6; Noble-NPRM at 3; NATN-NPRM at 3-4; NSDI-NPRM at 
4; PCIC-NPRM at 1-2; Technion-NPRM at 5.
    \167\ AmEx-NPRM at 6; ARDA-NPRM at 4; DMA-NPRM at 38; ERA-NPRM 
at 8, 12; Household Auto-NPRM at 3; ICT-NPRM at 2; E-Commerce 
Coalition-NPRM at 2; NCTA-NPRM at 14; PMA-NPRM at 8-10; SIIA-NPRM at 
3; Time-NPRM at 9; June 2002 Tr. II at 213-14.
    \168\ See, e.g., ERA-NPRM at 14-15; ERA-Supp. at 6; PMA-NPRM at 
8-10.
    \169\ ARDA-NPRM at 4; Cox-NPRM at 36; Discover-NPRM at 5; Eagle 
Bank-NPRM AT 4; NCL-NPRM at 3.
    \170\ ABA-NPRM at 4-5; AFSA-NPRM at 15; ARDA-NPRM at 4; CCC-NPRM 
at 13; DMA-NPRM at 38; Eagle Bank-NPRM at 4; NCTA-NPRM at 14; PMA-
NPRM at 10; SIIA-NPRM at 3; Time-NPRM at 10. The ``do-not-call'' 
provision is found at proposed and amended Rules Sec.  
310.4(b)(1)(iii), while the calling time restrictions are at 
proposed and amended Rules Sec.  310.4(c).
    \171\ June 2002 Tr. II at 213-15.
    \172\ See 67 FR at 4500.
---------------------------------------------------------------------------

    Based upon the comments received during the rulemaking period and 
the Commission's law enforcement experience, the Commission has taken a 
two-fold approach to upselling in the amended Rule. The Commission has 
added a definition of ``upselling,'' which, in combination with certain 
amendments to Sec. Sec.  310.4(d) and 310.6 of the Rule,\173\ provides 
important protections to consumers who, after completing one 
transaction, are offered goods or services in an additional 
telemarketing transaction during the same telephone call.\174\ By 
including the definition, the Commission intends to clarify that 
upsells are subject to all of the Rule's requirements except the ``do-
not-call'' and calling time restrictions in Sec. Sec.  310.4(b)(1)(iii) 
and 310.4(c).\175\ With this definitional shift, the ``do-not-call'' 
regime no longer applies to upsells, since the ``do-not-call'' 
provisions specifically prohibit ``initiating outbound telephone 
calls'' to anyone who has placed their telephone numbers on a company-
specific ``do-not-call'' list or on the FTC's ``do-not-call'' 
registry.\176\ Second, the amended Rule expressly excludes upsell 
transactions from the exemptions in Sec. Sec.  310.6(b)(4), (5) and 
(6)--i.e., where the initial transaction is exempted from the Rule 
because the call was initiated by the consumer unilaterally or because 
it was initiated in response to a direct mail solicitation or general 
media advertisement.\177\
---------------------------------------------------------------------------

    \173\ Section 310.4(d) now includes the phrase ``or internal or 
external upsell'' after ``outbound telephone call'' to clearly state 
that the basic disclosure requirements of that provision--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 
disclosures related to prize promotions--must be made in any upsell 
associated with an initial telephone transaction. Sections 
310.6(b)(4), (5) and (6) have been amended to expressly exclude 
upsells from these exemptions.
    \174\ The provisions relating to ``upselling'' address the 
practices which the Commission had proposed to address in the NPRM 
through modification of the definition of ``outbound telephone 
call.'' Because the amended Rule addresses the practice of 
``upselling'' in a different manner, the amended Rule retains 
unchanged the wording in the original Rule for the definition of 
``outbound telephone call'' (now expanded to cover calls to induce 
charitable contributions, pursuant to the USA PATRIOT Act). See 
Sec.  310.2(u) of the amended Rule.
    \175\ In the NPRM, the Commission noted that in addition to the 
disclosure requirements of Sec.  310.4(d) (and the proposed 
disclosures of Sec.  310.4(e)), the disclosures in Sec.  
310.3(a)(1):
    ``would, of course, also have to be made by each telemarketer. 
In fact . . . the Commission believes that [in any upsell] it is 
necessary for this transaction 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 the consumer's or 
donor's explicit consent to the purchase or contribution is 
obtained.''
    67 FR at 4500, n.71.
    \176\ See Sec.  310.4(b)(1)(iii).
    \177\ Treating upsells as ``outbound telephone calls'' meant 
that they were implicitly not covered by any of these exemptions 
(which all involve inbound telephone calls of one sort or another). 
Creating a separate definition for ``upselling'' requires that the 
Commission explicitly address which of the exemptions in Sec.  310.6 
of the Rule do not apply to upselling.
---------------------------------------------------------------------------

    The definition of ``upselling'' encompasses any solicitation for 
goods or services that follows an initial transaction of any sort in a 
single telephone call. Thus, both solicitations made by or on behalf of 
the same seller involved in the initial transaction, and those made by 
or on behalf of a different seller are considered upsells, and both 
types of transactions are covered by the Rule.\178\ The term ``initial 
transaction'' is intended to describe any sort of exchange between a 
consumer and a seller or telemarketer, including but not limited to 
sales offers, customer service calls initiated by either the seller or 
telemarketer or the consumer, consumer inquiries, or responses to 
general media advertisements or direct mail solicitations. The upsell 
is defined as a ``separate telemarketing transaction, not a 
continuation of the initial transaction'' to emphasize that an upsell 
is to be treated as a new telemarketing call, independently requiring 
adherence to all relevant provisions of the Rule.\179\
---------------------------------------------------------------------------

    \178\ In the NPRM, the Commission focused its analysis of 
upselling on whether there were one or two telemarketers or sellers 
involved in the upsell transaction. After reviewing the record in 
this matter, the Commission believes that the salient distinction is 
whether a separate offer is made in the course of a single telephone 
call.
    \179\ This definition also addresses the concerns of some 
telemarketers that simply transferring a consumer-initiated call to 
the individual most qualified to address the consumer's inquiry 
would trigger the application of the Rule to that otherwise exempt 
transaction. See, e.g., CMC-NPRM at 7-8; Cox-NPRM at 35; Eagle Bank-
NPRM at 4; HSBC-NPRM at 2. Instead of focusing on the transfer of a 
call, the definition of ``upselling'' centers on the instigation of 
an offer for sale of goods or services subsequent to an initial 
transaction. Thus, where a consumer calls a company, makes an 
inquiry, and is immediately transferred in direct response to that 
inquiry, that transfer would not fall within the definition of 
``upselling'' and would not be subject to the Rule.
---------------------------------------------------------------------------

    Upselling occurs in a wide variety of circumstances--as an addendum 
to a customer service call, or after an initial

[[Page 4597]]

offer of goods or services via an inbound or outbound telephone call, 
for example.\180\ The upsell can be made by or on behalf of the same 
seller involved in the initial transaction (``internal upsell''), or a 
different seller (``external upsell'').\181\ Commenters argue that 
upsell transactions provide benefits to both sellers and consumers. 
According to some industry commenters, sellers can reduce costs 
associated with telemarketing by linking transactions together in a 
single call,\182\ and are more likely to make successful sales to 
consumers already predisposed to the transaction.\183\ Consumers can 
benefit from the convenience of such transactions, and from receiving 
more targeted marketing offers.\184\ Industry commenters also suggested 
that sellers' reduced costs in such transactions are passed along as 
savings to consumers.\185\
---------------------------------------------------------------------------

    \180\ See, e.g., NAAG-NPRM at 33 (``The upsell can follow either 
a sales call or a call related to customer service, such as a call 
about an account payment or product repair. . . . Some examples are 
the upsell of membership programs, magazines and the like or a 
television solicitation to buy an inexpensive lighting product that 
includes an upsell of a costly membership program, consumers sold a 
membership program when attempting to purchase United States flags 
following the September 11, 2001, tragedy, or tickets to 
entertainment events.'') (citations omitted). Industry commenters 
emphasized the prevalence of upselling in the inbound call context 
generally. See, e.g., CCC-NPRM at 12; ERA-NPRM at 11-12; PMA-NPRM at 
9-10.
    \181\ The NPRM described these forms of upselling as 
``internal'' and ``external.'' 67 FR at 4496. Some commenters, such 
as ERA, noted that the industry refers to multiple offers by a 
single seller--what the Commission calls an ``internal upsell''--as 
a ``cross sell,'' and to multiple offers by separate sellers--what 
the Commission calls an ``external upsell''--as an ``upsell.'' ERA-
NPRM at 9, n.3. The Commission's approach, however, does not appear 
to have caused any confusion in the industry, or on the consumer 
side. So, for the sake of consistency both within the rulemaking 
process and with existing law enforcement cases, the Commission has 
decided to retain these terms as originally proposed.
    \182\ See, e.g., PMA-NPRM at 9.
    \183\ CCC determined that 14 billion inbound calls are made per 
year, of which 40 percent have an upsell associated with them. June 
2002 Tr. II at 218. ERA estimated, based on a 12 percent conversion 
rate, that approximately $1.5 billion in sales are generated through 
inbound upsells alone each year. ERA-NPRM at 11. Aegis estimated the 
conversion rate for consumers accepting upsell offers at between 25 
and 30 percent. Aegis-NPRM at 4.
    \184\ DMA-NPRM at 40; PMA-NPRM at 10; SIIA-NPRM at 3.
    \185\ ERA-NPRM at 12; PMA-NPRM at 10; SIIA-NPRM at 3.
---------------------------------------------------------------------------

    Despite these benefits, upsells are no less vulnerable to abuse 
than other telemarketing practices, and provide the potential for harm 
to consumers. Some industry commenters argued that this is not the 
case, suggesting that, particularly when the call is initiated by the 
consumer: ``The consumer calling a business voluntarily puts herself in 
a business environment and knows that she is doing so. It should come 
as no surprise to the consumer if, once in that environment, she is 
solicited for products and services provided by affiliates or partners 
of the business . . . .''\186\
---------------------------------------------------------------------------

    \186\ CMC-NPRM at 9. See also Citigroup-NPRM at 6-7; Fleet-NPRM 
at 5; Household Auto-NPRM at 4.
---------------------------------------------------------------------------

    According to NCL, however, ``[c]omplaints to the NFIC [National 
Fraud Information Center] indicate that abuses can occur when consumers 
who respond to an advertisement for one thing are then solicited for 
something else, especially if the new offer is significantly different 
than the original one or is from another vendor. In these situations, 
the only information that consumers have on which to decide whether to 
make a purchase or donation is that which is provided during the 
call.''\187\ In other words, in any upsell, the seller or telemarketer 
initiates the offer; it is not the consumer who solicits or requests 
the transaction. This means that the consumer is hearing the terms of 
that upsell offer for the first time on the telephone. The consumer has 
not had an opportunity to review and consider the terms of the offer in 
a direct mail piece, or to view an advertisement and gather information 
on pricing or quality of the particular good or service before 
determining to make the purchase. This makes an upsell very much akin 
to an outbound telephone call from the consumer's perspective, even 
when the seller is someone with whom the consumer is familiar. Thus, as 
NCL noted, every consumer needs ``the same basic disclosures about who 
they're dealing with, what they're buying and the terms and conditions 
[of the offer]'' regardless of the nature of the telephone sale.\188\ 
The disclosure provisions of Sec. Sec.  310.3(a) and 310.4(d) were 
designed to ensure that consumers know they are being offered goods or 
services for sale, and receive all information material to their 
decision to accept an offer before they pay for the purchase.
---------------------------------------------------------------------------

    \187\ NCL-NPRM at 3. Accord ERA-NPRM at 11 (``The ERA is . . . 
aware of the fact that there have been some marketers who have 
engaged in unscrupulous marketing practices in soliciting purchases 
via upsells, particularly when such upsells involve a free trial 
offer and/or other advance consent marketing technique.'').
    \188\ June 2002 Tr. II at 221-22.
---------------------------------------------------------------------------

    Moreover, it should be noted that the introductory paragraphs of 
Sec. Sec.  310.3(a), 310.4(a) and 310.5 do not distinguish between 
types of telemarketing transactions.\189\ The Rule is clear that its 
requirements and prohibitions apply to all sellers and telemarketers 
that are subject to the Commission's jurisdiction. Thus, a seller or 
telemarketer subject to the Rule must abide by the requirements of 
these sections, regardless of whether they are engaged in an initial 
telemarketing transaction or in an upsell transaction. Indeed, the 
Commission assumes that, where the initial transaction is subject to 
the Rule, most sellers and telemarketers treat the upsell as subject to 
the Rule as well, and comply with the Rule's requirements in both 
segments of the telephone call.\190\
---------------------------------------------------------------------------

    \189\ Section 310.3(a) states ``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.'' (emphasis added). 
Similarly, Sec.  310.4(a) states ``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.'' (emphasis added). 
Section 310.5(a) states ``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.''
    \190\ The record suggests, however, that the opposite is true 
when upsells are appended to calls that are otherwise exempt from 
the Rule. In these instances, the upsells have been treated as part 
of the exempt telemarketing transaction and, thus, consumers are not 
receiving the protections the Rule requires when a consumer receives 
an outbound telephone call, despite the fact that upsells are 
similar to outbound calls from the consumer's perspective. See, 
e.g., PCIC-NPRM at 1-2. The Commission believes that the protections 
provided a consumer in an upsell should be the same as the 
protections accorded to consumers receiving an outbound telephone 
call, regardless of whether the upsell is appended to an exempt 
telemarketing transaction or to a transaction subject to the Rule. 
As noted above, consumer advocates and the FTC's law enforcement 
experience confirm that upselling can be equally or more 
problematic, and thus sellers and telemarketers engaged in upselling 
should be required to provide the basic disclosures mandated by the 
Rule. In addition, there is no evidence to suggest that upsells 
should not be subject to any other part of the Rule (other than the 
``do-not-call'' and calling time restrictions).
---------------------------------------------------------------------------

    The Commission also finds that consumers should have the Rule's 
billing protections in each of these transactions. CCC suggested that, 
at least in inbound calls that include upsells, consumers have ``the 
highest level of consumer protection because the consumer is 
specifically asked and consents to the additional goods or services 
being charged to the same billing source the consumer provided and/or 
accessed just moments before.''\191\ However, the Commission's and 
states' law enforcement experience does not support CCC's assertion 
that, by giving consent to the use of an account number in an initial 
transaction, the consumer in an upsell is afforded protection from 
deception or unauthorized billing.\192\
---------------------------------------------------------------------------

    \191\ CCC-NPRM at 12.
    \192\ Indeed, law enforcement experience indicates that the fact 
that the consumer has already provided or authorized use of his or 
her billing information in an initial transaction may actually 
result in greater risk of abuse during the second transaction. For 
example, in actions by the FTC and several states against Triad 
Discount Buying Service, Inc., and related entities, the Commission 
and the states alleged that the defendants crafted a marketing 
campaign designed to lure consumers to call solely for the purpose 
of upselling them. See FTC v. Smolev, No. 01-8922-CIV ZLOCH (S.D. 
Fla. 2001). Specifically, the Commission and states alleged that the 
defendants ran an advertising campaign for a free product, inviting 
consumers to call a toll-free number. When they called, consumers 
were asked to provide account information to pay for shipping and 
handling for the free product, and then were upsold a ``free trial'' 
in a membership club or buyers club, that was then charged, without 
the consumer's knowledge or consent, to the account provided by the 
consumer to pay for the shipping of the first product. See also 
NAAG-NPRM at 30, n.73 (citing, among others such cases, Illinois v. 
Blitz Media, Inc. (Sangamon County, No. 2001-CH-592) and New York v. 
Ticketmaster and Time, Inc., (Assurance of Discontinuance)).

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

[[Page 4598]]

Other recommendations

    Limitations to the definition of ``upselling.'' Some commenters 
suggested that the definition of ``upselling'' be limited to ``external 
upselling'' transactions (i.e., where there are two different sellers 
in the two transactions).\193\ They argued that any requirements that 
the Commission might apply to ``upselling'' should not include upsells 
made by or on behalf of the same seller.\194\ However, the Commission 
believes that law enforcement experience indicates that ``internal 
upsells'' (where both transactions are by or on behalf of the same 
seller) have as much potential for deception and abuse as other types 
of telemarketing transactions that are subject to the Rule's 
requirements.\195\ Therefore, the Commission has not adopted this 
suggestion.
---------------------------------------------------------------------------

    \193\ ERA-NPRM at 9; NCTA-NPRM at 14.
    \194\ Id.
    \195\ See NAAG-NPRM at 30, n.73, citing cases involving internal 
upsells, including but not limited to Illinois v. Blitz Media, Inc. 
(Sangamon County, Case No. 2001-CH-592); Triad Discount Buying 
Serv., Inc. [a/k/a Smolev] and related entities; and Minnesota v. 
Fleet Mortgage Corp., 158 F. Supp. 2d 962 (D. Minn. 2001).
---------------------------------------------------------------------------

    Other commenters argued that the definition of ``upselling'' should 
not include upsells by ``affiliates.''\196\ Still others made more 
specific requests to exempt banks, their affiliates and non-affiliated 
third parties who provide services on the banks' behalf or with whom 
the banks have joint marketing relationships;\197\ to exempt agents or 
affiliates of common carriers;\198\ and to exempt affiliates of 
insurance companies.\199\ However, once again, there is scant support 
justifying such an approach. On the contrary, the record as a whole and 
law enforcement experience indicate that upsells by affiliates and non-
affiliated third parties with whom there is a joint marketing 
relationship have as much potential for deception and abuse as other 
types of telemarketing transactions that are subject to the Rule's 
requirements.\200\
---------------------------------------------------------------------------

    \196\ ABIA-NPRM at 5; AFSA-NPRM at 15; NFC-NPRM at 6.
    \197\ ABIA-NPRM at 5; MBA-NPRM at 3.
    \198\ SBC-NPRM at 2, 5, 8.
    \199\ PCIC-NPRM at 1-2.
    \200\ See NAAG-NPRM at 30, n.73 (``States have taken actions 
against companies using preacquired information as part of an upsell 
of membership programs or magazines. See note 188. See also New York 
v. Ticketmaster and Time, Inc. (Assurance of Discontinuance)'').
---------------------------------------------------------------------------

    The Commission has made it very clear that the Rule does not apply 
to entities or activities that fall outside the Commission's authority 
under the FTC Act, such as banks, savings associations and federal 
credit unions; regulated common carriers, and the business of 
insurance. However, the Commission has also made it very clear that the 
exemption enjoyed by those entities does not extend to any third-party 
telemarketers who may make or receive calls on behalf of those exempt 
entities. As the Commission stated in the SBP for the original Rule:

The Commission is not aware of any reason why the Final Rule should 
create a special exemption for such companies where the FTC Act does 
not do so. Accordingly, the Final Rule does not include special 
provisions regarding exemptions of parties acting on behalf of 
exempt organizations; where such a company would be subject to the 
FTC Act, it would be subject to the Final Rule as well.\201\
---------------------------------------------------------------------------

    \201\ 60 FR at 43843.

    Clarification of ``seller'' in an upsell transaction. ERA and PMA 
recommended that the Commission clarify what is meant by ``seller'' in 
the context of upselling.\202\ First, ERA and PMA suggested that 
``seller'' be construed as the marketer who will submit the charge for 
payment against the consumer's account.\203\ As ERA stated:
---------------------------------------------------------------------------

    \202\ ERA-NPRM at 9-10; PMA-NPRM at 12-13. See also VISA-NPRM at 
9 (requesting clarification of the term in all transactions, not 
just those involving upselling).
    \203\ ERA-NPRM at 10; PMA-NPRM at 13.

[A] marketer might offer (and bill) a consumer for a product that it 
obtains on a wholesale basis from a manufacturer (in many instances, 
the marketer may not even take possession of the product, but rather 
have the manufacturer ship directly to the purchaser). Both the 
marketer and the manufacturer receive consideration in exchange for 
providing, or arranging for the other to provide, the product to the 
consumer. Thus, both entities are arguably `sellers.' However, only 
the marketer will bill the consumer for the sale. As such, there 
should be no need to identify both entities to the consumer. In fact 
it would likely be confusing to the consumer to do so.\204\
---------------------------------------------------------------------------

    \204\ ERA-NPRM at 11.

    The Commission has retained in the amended Rule the definition of 
``seller,'' which states that a ``seller'' is ``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.''\205\ The Commission believes 
that this definition makes clear that, for purposes of the Rule, a 
``seller'' is not necessarily the manufacturer of a product, nor the 
sole financial beneficiary from its sale. Rather, the definition of 
``seller'' is predicated upon a person's provision of goods or 
services--whether consummated, merely offered, or even simply 
``arranged for''-- to the customer. Therefore, in the case of an 
upselling transaction, or, indeed, any telemarketing transaction, the 
marketer or other entity who provides, offers to provide, or arranges 
for the provision of the goods or services that are the subject of the 
offer would be the ``seller'' for purposes of the Rule.
---------------------------------------------------------------------------

    \205\ Amended Rule Sec.  310.2(z).
---------------------------------------------------------------------------

    Second, both ERA and PMA, as well as a number of other commenters, 
suggested that the Commission ``clarify that affiliated entities do not 
constitute separate sellers.''\206\ To this end, ERA recommended 
looking to the Commission's Privacy of Consumer Financial Information 
Rule,\207\ while PMA and NRF suggested using the standard laid out by 
the FCC for ``do-not-call'' purposes.\208\ NCL and AARP disagreed. NCL 
stated:
---------------------------------------------------------------------------

    \206\ ERA-NPRM at 10. See also June 2002 Tr. II at 222 (ATA); 
PMA-NPRM at 13; SBC-NPRM at 9.
    \207\ The Privacy of Consumer Financial Information Rule, 16 CFR 
313.3(a), defines an affiliate as ``any company that controls, is 
controlled by or is under common control with another company.'' 
(quoted in ERA-NPRM at 11).
    \208\ The applicable definition in the FCC's regulations is 
found at 47 CFR 64.1200(e)(2)(v). PMA-NPRM at 13 (``Thus, we suggest 
that corporate affiliates be exempt in those situations where the 
consumer would reasonably expect such affiliates to be related to 
the original seller.''). See also June 2002 Tr. II at 217-18; and at 
226-28 (NRF).

We believe affiliates have to be treated as second sellers. They may 
be selling totally different products with different terms and 
conditions. Consumers don't have any way of knowing what is an 
affiliate of that company and what isn't, and ultimately it doesn't 
really matter to them because they need the same basic disclosures 
about who they're dealing with, what they're buying and the terms 
and conditions, whether it's entirely a different seller or an 
affiliate of the original one.\209\
---------------------------------------------------------------------------

    \209\ June 2002 Tr. II at 221-22; and at 228 (AARP).


[[Page 4599]]


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The Commission shares this viewpoint. As discussed above, the record in 
this matter, as well as law enforcement experience, indicate that 
upsells by affiliates and non-affiliated third parties with whom there 
is a joint marketing relationship have as much potential for deception 
and abuse as other types of telemarketing transactions that are subject 
to the Rule's requirements. For that reason, the Commission believes 
that affiliates should be treated as separate sellers for purposes of 
upsell transactions.

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

    Section 310.3 of the original 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; holds liable anyone who provides substantial assistance to 
another in violating the Rule; and prohibits credit card laundering in 
telemarketing transactions.
    In the NPRM, the Commission proposed amendments to require that 
disclosures made pursuant to this section be made ``truthfully;'' 
require additional disclosures regarding prize promotions and in the 
sale of credit card loss protection plans; prohibit misrepresentations 
in the sale of credit card loss protection plans; expand the reach of 
the express verifiable authorization provision to include all methods 
of payment lacking certain key consumer protections; and make certain 
changes pursuant to the USA PATRIOT Act, which extends the coverage of 
the Rule to include the inducement of a charitable solicitation.
    Based on the record in this proceeding, the Commission has 
determined to make additional modifications in the amended Rule. These 
changes, and the reasoning supporting the Commission's decisions, are 
set forth below.

Sec.  310.3(a)(1) -- Required disclosures

    Section 310.3(a)(1) of the original Rule requires the seller or 
telemarketer to disclose, in a clear and conspicuous manner, certain 
material information before a customer pays for goods or services 
offered.\210\ The NPRM proposed to make a minor modification to the 
wording, by adding the word ``truthfully'' to clarify that it is not 
enough that the disclosures be made; the disclosures must also be true. 
The Commission received no comment on this proposed change, and 
therefore has determined to retain this additional wording in amended 
Sec.  310.3(a)(1).
---------------------------------------------------------------------------

    \210\ See ARDA-NPRM at 5 (noting that ARDA members support the 
current disclosures required by this section).
---------------------------------------------------------------------------

    The few comments that the Commission received on Sec.  310.3(a)(1) 
in response to the NPRM focused primarily on the timing of the required 
disclosures. AARP argued that, to be meaningful, the disclosures 
required by this section must be given before payment is requested, not 
merely before it is ``collected.''\211\ According to AARP, ``[s]uch 
information is key to making truly informed buying decisions,'' and so 
all the necessary disclosures should be given before a consumer is 
requested to pay for goods and services.\212\ DOJ commented that the 
use of money-transmission services, rather than couriers, is 
increasingly popular in fraudulent telemarketing schemes, and 
recommended that the Commission amend the current footnote addressing 
the meaning of ``before the customer pays'' to state: ``Similarly, when 
a seller or telemarketer directs a customer to use a money-transmission 
service to wire payment, the seller or telemarketer must make the 
disclosures required by Sec.  310.3(a)(1) before directing the customer 
to take money to an office or agent of a money-transmission service to 
wire payment.''\213\
---------------------------------------------------------------------------

    \211\ AARP-NPRM at 8.
    \212\ Id.
    \213\ DOJ-NPRM at 2.
---------------------------------------------------------------------------

    In the SBP for the original Rule, the Commission noted that for a 
telemarketer to make the required disclosures ``before a customer 
pays,'' the disclosures must be made ``before the consumer sends funds 
to a seller or telemarketer or divulges to a telemarketer or seller 
credit card or bank account information.''\214\ In the original Rule's 
TSR Compliance Guide, the Commission further clarified that the 
disclosures required by Sec.  310.3(a)(1) must be made ``[b]efore a 
seller or telemarketer obtains a consumer's consent to purchase, or 
persuades a consumer to send any full or partial payment. . . .''\215\ 
The Guide goes on to say that ``[a] seller or telemarketer also must 
provide the required information before requesting any credit card, 
bank account, or other information that a seller or telemarketer will 
or could use to obtain payment.''\216\ The Commission believes that its 
statements to date on the meaning of the term ``before the customer 
pays'' are sufficiently clear and declines to modify this provision.
---------------------------------------------------------------------------

    \214\ 60 FR at 4384.
    \215\ TSR Compliance Guide at 11.
    \216\ Id.
---------------------------------------------------------------------------

Sec.  310.3(a)(1)(i) -- Disclosure of total costs

    Section 310.3(a)(1)(i) of the original Rule requires a seller or 
telemarketer to disclose the total costs to purchase, receive, or use 
the goods or services. As noted in the TSR Compliance Guide, ``[i]t is 
sufficient to disclose the total number of installment payments, and 
the amount of each payment, to satisfy this requirement.''\217\ Some 
commenters in the Rule Review urged the Commission to require, in sales 
involving monthly installment payments, the disclosure of the total 
cost of the entire contract, not just the amount of the periodic 
installment.\218\ In the NPRM, the Commission declined to modify the 
provision, but clarified that ``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.''\219\ The NPRM further noted that the best 
practice to ensure compliance with the clear and conspicuous standard 
governing all the Sec.  310.3(a)(1) disclosures is to ``do the math'' 
for the consumer, stating the total cost of the contract whenever 
possible.\220\ The Commission acknowledged that such a statement might 
not be possible in an open-ended installment contract, and stated that 
in such contracts, ``particular care must be taken to ensure that the 
cost disclosure is easy for the consumer to understand.''\221\
---------------------------------------------------------------------------

    \217\ Id. at 12.
    \218\ See 67 FR at 4502.
    \219\ Id.
    \220\ Id.
    \221\ Id. at n.92.
---------------------------------------------------------------------------

    In response to the NPRM, the Commission again received some 
comments urging that the Commission affirmatively mandate that, in 
installment sales contracts, the total cost of the contract be 
disclosed, rather than the number and amount of payments.\222\ For 
example, LSAP opined that ``it is illogical to maintain a provision 
that demands a subjective determination of whether or not a disclosure 
meets a `clear and conspicuous' standard when an objective and 
unambiguous standard

[[Page 4600]]

can be adopted.''\223\ NACAA suggested that the Commission require 
disclosure of the total cost of the contract, noting that consumers do 
not always have the time or ability to ``do the math'' during a 
telemarketing call.\224\ NCL concurred with LSAP and NACAA, and noted 
that since the seller or telemarketer would know the total contract 
price in an installment offer, it would impose no undue burden on 
industry members to mandate disclosure of the total contract 
price.\225\
---------------------------------------------------------------------------

    \222\ See, e.g., LSAP-NPRM at 6-8; NACAA-NPRM at 7-8; NCL-NPRM 
at 3-4; NCLC-NPRM at 13.
    \223\ LSAP-NPRM at 7.
    \224\ NACAA-NPRM at 7-8 (citing, as an example of the harm that 
would persist absent such a provision, the sale of purportedly 
``free'' magazines, for which consumers are billed exorbitant 
``shipping and handling'' fees).
    \225\ NCL-NPRM at 3-4.
---------------------------------------------------------------------------

    The Commission declines to adopt the recommendations to modify the 
total cost disclosure provision. The Commission believes that its 
interpretation, set forth in the NPRM, allows sellers and telemarketers 
the flexibility necessary to make a truthful and meaningful disclosure 
when goods or services are offered in conjunction with an open-ended 
installment agreement. The Commission's interpretation makes clear, 
however, that, at a minimum, the total number of payments and the 
amount of each must be clearly and conspicuously disclosed in order to 
satisfy the requirements of Sec.  310.3(a)(1)(i). Although the 
Commission continues to believe that the best practice is for the 
telemarketer or seller to disclose the full amount of payments under of 
the contract whenever possible, it declines to impose such a 
requirement, which would be unworkable in the context of open-ended 
contracts, such as negative option plans.\226\
---------------------------------------------------------------------------

    \226\ See 60 FR at 43846 (noting that the total cost of a 
contract cannot be ascertained in negative option or continuity 
plans).
---------------------------------------------------------------------------

    The Commission also declines to adopt the recommendation that the 
Commission explicitly state that for electricity sales, it is 
permissible to disclose the price per kilowatt hour.\227\ The 
Commission recognizes that a vast number of goods and services can be 
sold through telemarketing, and believes it unnecessary to specify, for 
each, the specific terms that must be disclosed. Rather, the Commission 
believes that the language of Sec.  310.3(a)(1)(i), which requires that 
the disclosure of total costs (among others) be made ``truthfully, and 
in a clear and conspicuous manner,'' provides sufficient guidance for 
sellers who must make these disclosures, without necessitating explicit 
approval from the Commission for each of the myriad variations of 
``total cost'' disclosures for the many kinds of goods and services 
sold through telemarketing. Therefore, Sec.  310.3(a)(1)(i) is retained 
unchanged in the amended Rule.
---------------------------------------------------------------------------

    \227\ See Green Mountain-NPRM at 7.
---------------------------------------------------------------------------

Sec.  310.3(a)(1)(ii) -- Disclosure of material restrictions

    Section 310.3(a)(1)(ii) requires the disclosure of ``[a]ll material 
restrictions, limitations, or conditions to purchase, receive, or use 
the goods or services that are the subject of the sales offer.'' In 
response to the Rule Review, NAAG recommended that this provision 
explicitly state that the illegality of the goods or services offered 
is a material term. NAAG's concern arose out of the numerous cross-
border foreign lottery scams in which U.S. citizens are offered the 
sale of foreign lottery chances.\228\ The Commission declined to modify 
the Rule, stating its position that the term ``material'' is 
``sufficiently clear and broad enough to encompass the illegality of 
goods or services offered.''\229\
---------------------------------------------------------------------------

    \228\ 67 FR at 4502-03.
    \229\ Id. at 4503.
---------------------------------------------------------------------------

    In response to the NPRM, DOJ supported NAAG's reasoning, and 
recommended that the Commission add to Sec.  310.3(a)(1)(ii) ``a 
specific and unambiguous reference to the illegality of goods and 
services that the seller or telemarketer is offering,'' noting that 
such an amendment would enhance law enforcement and consumer education 
efforts regarding foreign lottery scams.\230\ The Commission remains 
confident that the breadth of the term ``material,'' as used in the 
Rule, would necessarily encompass the underlying illegality of goods or 
services offered in telemarketing.\231\ Therefore, the Commission 
declines to modify the language in this provision and the amended Rule 
retains unchanged the original text of Sec.  310.3(a)(1)(ii).
---------------------------------------------------------------------------

    \230\ DOJ-NPRM at 3.
    \231\ As the Commission noted in the NPRM, the definition of 
``material'' under the Rule comports with the Commission's Deception 
Statement and established Commission precedent. See 67 FR at 4503.
---------------------------------------------------------------------------

Sec.  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, before a customer pays, 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. In the NPRM, 
the Commission proposed adding a disclosure that making a purchase will 
not improve a customer's chances of winning,\232\ which would make the 
TSR's disclosure provision consistent with the requirements for direct 
mail solicitations under the Deceptive Mail Prevention and Enforcement 
Act of 1999 (``DMPEA'').\233\ After reviewing the record in this 
matter, the Commission has determined to amend the Rule by adding this 
disclosure requirement to two provisions: in Sec.  310.3(a)(1) 
(governing all telemarketing calls), and in Sec.  310.4(d) (governing 
outbound telemarketing).\234\
---------------------------------------------------------------------------

    \232\ 67 FR at 4503. Although NCL originally made this 
suggestion with respect to Sec.  310.4(d), which governs 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 NCL-RR at 9. 
See also the discussion below in the section on sweepstakes 
disclosures within the analysis of Sec.  310.4(d).
    \233\ 67 FR at 4503. The DMPEA is codified at 39 U.S.C. 
3001(k)(3)(A)(II). See also ``The DMA Guidelines for Ethical 
Business Practice,'' revised Aug. 1999, at http://www.the-dma.org/
library/guidelines/dotherightthing.shtml23 (Article 
23, Chances of Winning). In this regard, it is noteworthy 
that the DMA'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.''
    \234\ See discussion below regarding the disclosure in Sec.  
310.4(d).
---------------------------------------------------------------------------

    As noted in the NPRM, the Commission believes that this disclosure 
will prevent consumer deception. 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.\235\ Such a message is likely

[[Page 4601]]

to influence these consumers' purchasing decisions, inducing them to 
purchase a product or service they otherwise would not purchase just so 
they can increase their chances of winning. For this reason, the 
Commission believes that entities using these promotions must disclose 
that a purchase will not enhance the chance of winning, to ensure that 
consumers are not deceived.
---------------------------------------------------------------------------

    \235\ See SEN. REP. NO. 106-102 (1999); and H. REP. NO. 106-431 
(1999). Law enforcement actions since enactment of DMPEA further 
support this conclusion. For example, Publishers Clearing House 
(``PCH'') 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 consumer's chances of winning, and 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 Ct., No. 99 CC 084409 (2002); 
Ohio ex rel. Montgomery v. Publishers Clearing House, Franklin 
County Ct. of Common Pleas, No. 00CVH-01-635 (2001 ). 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 had 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. Am. Family Publishers, King 
County Super. Ct., No. 99-09354-2 SEA (2000).
---------------------------------------------------------------------------

    Commenters who addressed this proposal generally were supportive of 
adding the disclosure.\236\ NAAG supported the additional disclosure, 
but asked the Commission to go further. First, NAAG suggested that any 
telemarketer using a prize promotion should be required to disclose the 
actual or estimated odds--not simply how the odds might be 
calculated.\237\ Second, NAAG recommended that the original Rule's 
definition of ``prize''\238\ be made consistent with state laws and 
regulations, and the several multi-state settlements with large 
promotional sweepstakes companies.\239\ Third, they recommended that 
the Commission track provisions in the recent settlements between the 
states and PCH, which would ensure that the means by which a consumer 
might enter a sweepstakes without making a purchase is not more 
difficult than if a purchase were made.\240\ Each of these suggestions 
is discussed below.
---------------------------------------------------------------------------

    \236\ ARDA-NPRM at 5; NAAG-NPRM at 54-55; NACAA-NPRM at 6-7; 
NCL-NPRM at 4; DOJ-NPRM at 3-4. See also June 2002 Tr. II at 105-15.
    \237\ NAAG-NPRM at 54. NACAA also recommended that the 
Commission require more specificity in the disclosure regarding the 
odds. NACAA-NPRM at 6-7; and discussion regarding the disclosure of 
odds, June 2002 Tr. II at 113-15. DOJ recommended that the 
Commission include a brief explanation in the Rule or in a footnote 
of what is meant by the phrase ``the odds of being able to receive a 
prize,'' and clarify that the disclosure must give the odds for each 
prize. DOJ-NPRM at 3-4.
    \238\ Original Rule Sec.  310.2(v).
    \239\ NAAG-NPRM at 54. NAAG recommended that ``prize'' be 
defined to be an item of value and that it not be an item that 
substantially all entrants in the promotion will receive.
    \240\ Id. at 54-55.
---------------------------------------------------------------------------

    As noted in the SBP for the original Rule, the Commission continues 
to believe that, in many instances, actual odds cannot be calculated in 
advance. In such circumstances, the Commission believes that requiring 
prize promoters to disclose ``estimated'' odds has greater potential 
for abuse than a disclosure of the method used to calculate those 
odds.\241\ Furthermore, in many instances, such a requirement to 
disclose odds would reveal that virtually every entrant gets a 
``prize.'' The Commission believes that the better course is to require 
prize promoters to disclose the method by which odds are calculated. 
With regard to the suggestions to revise the definition of ``prize'' 
and the ease of entry for non-purchasers, the record provides no 
evidence on why the difference between a ``prize'' and a ``free gift'' 
would be material to consumers. The Commission believes that its 
authority to reach deceptive or unfair acts or practices under the FTC 
Act has been sufficient to address any deceptive prize promotions that 
have not been reachable under the Rule.\242\ The Commission's 
requirements regarding prize promotion disclosures are not inconsistent 
and do not conflict with the more restrictive state laws. Therefore, 
the Commission declines to adopt NAAG's recommendations.
---------------------------------------------------------------------------

    \241\ Ironically, requiring accurate disclosure of the odds of 
winning also is likely to subject some sellers and telemarketers to 
liability under the Rule for activity that does not cause consumer 
injury, since it is hard to imagine what harm is caused to consumers 
by underestimating the odds of winning.
    \242\ See, e.g., FTC v. Landers, No. 100-CV-1582 (N.D. Ga. filed 
June 22, 2000); New World Bank Servs., Inc., No. CV-00-07225-GHK 
(C.D. Cal. filed July 5, 2001); Global Network Enters., Inc., No. 
00-625 (GET) (ANX) (C.D. Cal. 2001).
---------------------------------------------------------------------------

    PMA maintained that the disclosure that making a purchase would not 
improve a customer's chances of winning was unnecessary and that there 
was no evidence on the record to support its addition to the Rule.\243\ 
They suggested that the disclosure makes sense in the context of direct 
mail, but not in the types of representations more often found in 
telemarketing.\244\ Nonetheless, the PMA stated that, as a gesture of 
good faith, they would not oppose the change.\245\
---------------------------------------------------------------------------

    \243\ PMA-NPRM at 4-8.
    \244\ Id. See also June 2002 Tr. II at 104-05.
    \245\ PMA-NPRM at 5, 7. See also June 2002 Tr. II at 106, 108 
(PMA and ARDA, each stating that they do not oppose the disclosure). 
ARDA stated in its comment that, while it is inconvenient to include 
additional verbiage in a telephone call, it did not find the 
additional disclosure unduly burdensome. ARDA-NPRM at 5.
---------------------------------------------------------------------------

    Therefore, the Commission has determined that it is a deceptive 
telemarketing act or practice to fail to disclose before the customer 
pays, in any prize promotion, 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, 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.

Sec.  310.3(a)(1)(v) -- Required disclosure of material costs in prize 
promotions

    NACAA expressed concern that original and proposed Rule Sec.  
310.3(a)(1)(v) requires that a prize promoter disclose to consumers all 
``material costs or conditions to receive or redeem a prize that is the 
subject of the prize promotion'' when there should be no costs to 
receive a prize.\246\ NACAA suggests removing the ``material costs'' 
portion of subsection (v). The Commission agrees that there should be 
no costs to receive or redeem a prize. In fact, Sec.  310.3(a)(1)(iv) 
requires a disclosure that ``no purchase or payment is required to win 
a prize or to participate in a prize promotion.'' Moreover, Sec.  
310.3(a)(2)(v) prohibits misrepresentations ``that a purchase or 
payment is required to win a prize or participate in a prize 
promotion.'' Thus the Rule is unequivocal in forbidding conditioning a 
``prize'' on a payment or purchase. Section 310.3(a)(1)(v) is intended 
to further clarify that any incidental cost that a consumer must 
incur-- not merely a purchase or payment--must be disclosed in advance 
to avoid deception and to comply with the Rule. Despite NACAA's 
comment, the Commission does not believe there is any confusion 
regarding the role of this provision. Therefore, the Commission has 
determined to retain the original wording of this provision.
---------------------------------------------------------------------------

    \246\ NACAA-NPRM at 6-7 (pointing out that, if there are costs, 
then the ``prize offer'' becomes a sales pitch for add-ons, not a 
prize).
---------------------------------------------------------------------------

Sec.  310.3(a)(1)(vi) -- Required disclosures in the sale of credit 
card loss protection

    The telemarketing of credit card loss protection plans has been a 
persistent source of a significant number of complaints about 
fraud.\247\ Telemarketers of credit card loss protection plans 
represent to consumers that these plans will limit the consumer's 
liability if his credit card is lost or stolen.\248\ These 
telemarketers 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

[[Page 4602]]

does under the law.\249\ In fact, federal law limits this liability to 
no more than $50.\250\
---------------------------------------------------------------------------

    \247\ See, e.g., NCL-NPRM at 6.
    \248\ 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, who agrees to 
contact the consumers' credit card companies if the consumers' cards 
are lost or stolen.
    \249\ NCL-RR at 10. See, e.g., FTC v. Universal Mktg. Servs., 
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); S. Fla. 
Bus. Ventures, No. 99-1196-CIV-T-17F (M.D. Fla. filed May 24, 1999); 
Tracker Corp. of Am., No. 1:97-CV-2654-JEC (N.D. Ga. filed Sept. 11, 
1997).
    \250\ Under Sec.  133 of the Consumer Credit Protection Act, the 
consumer's liability for unauthorized charges is limited to $50 when 
there is a signature involved. For transactions where no signature 
was involved (e.g., where the transaction did not take place face-
to-face), the consumer has zero liability for unauthorized charges. 
15 U.S.C. 1643.
---------------------------------------------------------------------------

    In the NPRM, the Commission proposed two new provisions to address 
this practice. The first provision--Sec.  310.3(a)(1)(vi)--requires the 
seller or telemarketer of credit card loss protection plans to 
disclose, before the customer pays, the limit, pursuant to 15 U.S.C. 
Sec.  1643, on a cardholder's liability for unauthorized use of a 
credit card. Since many consumers appear to be unaware of the 
protection they have, the Commission reasoned that a disclosure of the 
limits of their liability would deter many consumers from paying for 
protection that duplicates the free protection they already have under 
federal law. The second provision--Sec.  310.3(a)(2)(viii)--prohibits 
sellers or telemarketers from misrepresenting that any customer needs 
offered goods or services to provide protections a customer already has 
pursuant to 15 U.S.C. Sec.  1643.\251\
---------------------------------------------------------------------------

    \251\ This approach parallels the Rule's treatment of cost and 
quantity of goods (Sec. Sec.  310.3(a)(1)(i) and 310.3(a)(2)(i)), 
material restrictions, limitations, or conditions (Sec. Sec.  
310.3(a)(1)(ii) and 310.3(a)(2)(ii)), refund policy (Sec. Sec.  
310.3(a)(1)(iii) and 310.3(a)(2)(iv)), and prize promotions 
(Sec. Sec.  310.3(a)(1)(iv) & (v) and 310.3(a)(2)(v)). In each case, 
material facts must be disclosed, and misrepresentations of those 
facts are prohibited. See additional discussion below regarding 
Sec.  310.3(a)(2)(viii).
---------------------------------------------------------------------------

    The Commission received little comment on these proposed 
provisions. Those commenters who addressed the disclosure provision 
strongly supported it, noting that complaints about the fraudulent sale 
of credit card loss protection plans have continued unabated since the 
original Rule became effective.\252\ In its NPRM comment, NCL reported 
that fraudulent solicitations for credit card loss protection plans 
ranked eighth among the most numerous complaints to the NFIC in 
2001.\253\ The Commission's complaint-handling experience is consistent 
with that of NCL, with credit card loss protection plans continuing to 
be a source of consumer complaints. In its comment, NCL pointed out 
that fraud in the sale of credit card protection plans is particularly 
pernicious because it usually involves blatant misrepresentations and 
scare tactics about consumers' liability for lost or stolen credit 
cards.\254\ Furthermore, the fraud is especially egregious because 
these schemes appear disproportionately to affect older consumers: in 
2001, NCL reported, 55 percent of the victims of credit card loss 
protection plans were age 60 or older, while that age group accounted 
for only 26 percent of telemarketing fraud victims overall.\255\ As 
noted in the NPRM, large numbers of complaints have prompted both the 
Commission and the state Attorneys General to devote substantial 
resources to bringing cases that challenge the deceptive marketing of 
credit card loss protection plans.\256\
---------------------------------------------------------------------------

    \252\ DOJ-NPRM at 4; LSAP-NPRM at 7-8; NAAG-NPRM at 55; NCL-NPRM 
at 6. See also June 2002 Tr. II at 104.
    \253\ NCL-NPRM at 6.
    \254\ Id.
    \255\ Id. In its Rule Review comment, NCL reported that in 1999, 
over 71 percent of the complaints about these schemes were from 
consumers over 50 years of age. NCL-RR at 10.
    \256\ See, e.g., FTC v. Consumer Repair Servs., Inc., No. 00-
11218 (C.D. Cal. filed Oct. 23, 2000); FTC v. Forum Mktg. Servs., 
Inc., No. 00 CV 0905C(F) (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 Servs., No. 6-00-CV-1410-ORL-28-B 
(M.D. Fla. filed Oct. 23, 2000); Capital Card Servs., Inc. No. CIV 
00 1993 PHX ECH (D. Ariz. filed Oct. 23, 2000); .FTC v. First 
Capital Consumer Membership Servs., Inc., No. 00-CV- 0905C(F) 
(W.D.N.Y. filed Oct. 23, 2000); FTC v. Universal Mktg. Servs., Inc., 
No. CIV-00-1084L (W.D. Okla. filed June 20, 2000); FTC v. Liberty 
Direct, Inc., No. 99-1637 (D. Ariz. filed Sept. 13, 1999); FTC v. 
Source One Publ'ns, 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); FTC v. NCCP Ltd., No. 99 CV-0501 
A(Sc) (W.D.N.Y. filed July 22, 1999); FTC v. S. Fla. Bus. Ventures, 
No. 99-1196-CIV-T-17F (M.D. Fla. filed May 24, 1999); FTC v. Bank 
Card Sec. Ctr., Inc., No. 99-212-Civ-Orl-18C (M.D. Fla. filed Feb. 
26, 1999); FTC v. Tracker Corp. of Am., No. 1:97-CV-2654-JEC (N.D. 
Ga. filed Sept. 11, 1997).
---------------------------------------------------------------------------

    NCL supported the Commission's decision to require disclosures and 
prohibit misrepresentations in the sale of credit card loss protection 
plans. However, NCL also recommended that the Commission go further and 
mandate requirements similar to those under the Credit Repair 
Organizations Act\257\--i.e., written disclosures regarding the 
consumer's rights, coupled with a written agreement or an agreement 
signed by the buyer who has three days to cancel.\258\ The Commission 
believes that disclosures coupled with the prohibition against 
misrepresentation are appropriate and sufficient remedies to cure the 
problems associated with deceptive sales of credit card loss protection 
plans. The likely outcome of enforcement of these remedies is that 
consumers will decline to purchase such plans once they know that they 
duplicate free protection the law already provides them. The Commission 
will continue to monitor complaints regarding the sale of these plans 
to ensure that these provisions are adequate to remedy this problem.
---------------------------------------------------------------------------

    \257\ 15 U.S.C. 1679.
    \258\ NCL-NPRM at 6.
---------------------------------------------------------------------------

    Therefore, the Commission has determined that it is a deceptive 
telemarketing act or practice to fail to disclose the limits on a 
cardholder's liability for unauthorized use of a credit card pursuant 
to 15 U.S.C. Sec.  1643, and has adopted Sec.  310.3(a)(1)(vi), to 
require that this information be disclosed.

Sec.  310.3(a)(1)(vii) -- Disclosures regarding negative option 
features

    The amended Rule adds a new provision, Sec.  310.3(a)(1)(vii), 
which requires sellers and telemarketers to disclose certain material 
information any time a seller or telemarketer makes an offer including 
any ``negative option feature'' as that term is defined under new Sec.  
310.2(t) of the amended Rule. This disclosure, like all of those listed 
in Sec.  310.3(a)(1), must be made before a customer pays for goods or 
services. This new provision requires disclosure of all material terms 
and conditions of the negative option feature.
    During the Rule Review, several commenters recommended that the 
Commission specifically address the problems associated with ``free'' 
or ``trial'' offers that include a negative option feature, 
particularly when the telemarketer already possesses the consumer's 
billing information.\259\ These offers frequently are presented to 
consumers as ``low involvement marketing decisions''\260\ in which they 
are simply ``previewing'' the product or service. However, the Rule 
Review record, as well as federal and state law enforcement experience, 
show that consumers frequently are confused about their obligations in 
these transactions, mistakenly believing that, because they did not 
provide any billing information to the telemarketer, they are under no 
obligation unless they take some additional affirmative step to consent 
to the purchase.\261\ As a result,

[[Page 4603]]

such scenarios have resulted in significant abuse as consumers discover 
they have been charged for something they did not realize they had been 
deemed to have consented to purchase.\262\
---------------------------------------------------------------------------

    \259\ See, e.g. NACAA-RR at 2; NAAG-RR at 11-12, 16-17; NCL-RR 
at 5-6.
    \260\ NAAG-RR at 11.
    \261\ 67 FR at 4501, citing FTC v. Triad Disc. Buying Serv., 
Inc., No. 01-8922 CIV ZLOCH (S.D. Fla. 2001); New York v. 
MemberWorks, Inc., Assurance of Discontinuance (Aug. 2000); 
Minnesota v. MemberWorks, Inc., No. MC99-010056 (4th Dist. Minn. 
June 1999); Minnesota v. Damark Int'l, Inc., Assurance of 
Discontinuance (Ramsey County Dist. Ct. Dec. 3, 1999); FTC v. S.J.A. 
Soc'y, Inc., No. 2:97 CM 472 (E.D. Va. filed May 31, 1997). To this 
list may be added several more law enforcement actions, including 
but not limited to actions by state Attorneys General against 
BrandDirect Marketing Corp. (Assurances of Discontinuance with the 
States of Connecticut and Washington); Cendant Membership Services 
(Consent Judgment with State of Wisconsin); Signature Fin. Mktg. 
(Assurance of Discontinuance with State of New York); Illinois v. 
Blitz Media, Inc. (Sangamon County, No. 2001-CH-592); New York v. 
Ticketmaster and Time, Inc. (Assurance of Discontinuance), and 
additional actions by New York and California against MemberWorks, 
and by New York against Damark Int'l. See NAAG-NPRM at 30, n.73.
    \262\ See 67 FR 4513-14, citing NAAG-RR at 11-12.
---------------------------------------------------------------------------

    In the NPRM, the Commission proposed a broad prohibition on the 
receipt or disclosure of a consumer's billing information from any 
source other than the consumer herself. This expansive approach would 
have obviated the need for a more narrowly-tailored remedy specifically 
addressing negative options.\263\ The Commission believed that without 
preacquired account information, telemarketers' ability to exploit the 
negative option scenario to bill charges to consumers' accounts without 
their knowledge or consent would have been eliminated. The seller or 
telemarketer would have been required to obtain the account information 
directly from the consumer, thus putting the consumer on notice that he 
is agreeing to purchase something.\264\
---------------------------------------------------------------------------

    \263\ Id. at 4514.
    \264\ Id. at 4512-14.
---------------------------------------------------------------------------

    Based on the entire record in this proceeding, however, the 
Commission has determined that a blanket prohibition on preacquired 
account telemarketing sweeps too broadly, curtailing much activity that 
has not generated a record of consumer harm. As explained in detail 
below in Sec.  310.4(a)(6) of this SBP, the Commission has refocused 
this aspect of the amended Rule on the core problem of preacquired 
account telemarketing, which is to ensure that a customer's consent is 
obtained before charges are billed to the customer's account, 
regardless of the source from which the seller or telemarketer obtained 
the customer's billing information. Therefore, the amended Rule 
contains a new provision, Sec.  310.4(a)(6), that prohibits charging a 
customer's account without the customer's express informed consent. As 
a result of the more narrowly-tailored approach to the problems 
associated with preacquired account telemarketing, a new solution to 
the problems associated with negative option features is also required.
    The amended Rule now takes a two-pronged approach to remedying the 
harms associated with offers involving negative option features, either 
alone or in combination with preacquired account telemarketing. 
Although the record shows that the greatest consumer injury occurs when 
these two practices occur together,\265\ each practice can, and often 
does, occur without the other,\266\ and both, alone or in combination, 
can be problematic for consumers. Thus, the amended Rule sets forth 
separate requirements specific to each practice--disclosure 
requirements for offers with a negative option feature, in Sec.  
310.3(a)(1)(vii); and, separately, consent requirements for offers 
where the telemarketer possesses preacquired account information, in 
Sec.  310.4(a)(6). The application of these two separate provisions 
depends on the details of the transaction, thus addressing with greater 
precision different potential telemarketing scenarios.
---------------------------------------------------------------------------

    \265\ See discussion of Sec.  310.4(a)(6) below.
    \266\ For example, the seller or telemarketer of a magazine or 
newspaper subscription, who does not have preacquired account 
information, may make an offer for a subscription that includes an 
automatic annual renewal by obtaining account information or payment 
directly from the consumer in the initial transaction. Or, as noted 
in the NPRM, a customer may have an ongoing relationship with a 
particular contact lens retailer, in which he expects the retailer 
to retain account information for future similar purchases, none of 
which involve a negative option feature. See 67 FR 4513, n.196.
---------------------------------------------------------------------------

    Commenters stressed one issue: the need for consumers to clearly 
understand and consent to the precise terms of the negative option 
feature of an offer.\267\ The problematic aspect of an offer with a 
negative option feature is that the consumer's inaction--not an 
affirmative action taken by the consumer--is deemed to signal 
acceptance (or continuing acceptance) of an offer for goods or 
services. By accepting the initial offer (e.g., to try a membership in 
a buying club service for 30 days, or to receive a daily newspaper for 
six months) and doing nothing further, the consumer actually contracts 
to pay for something more (e.g., an automatic annual membership fee or 
long-term newspaper subscription renewal). In these circumstances, it 
is crucial that consumers clearly understand the precise terms of such 
a negative option feature before they agree to accept the initial 
``free offer'' or purchase, since this agreement subjects them to 
continuing charges, often long-term, if they fail to understand that 
they must take action to decline the offer or terminate the agreement.
---------------------------------------------------------------------------

    \267\ NACAA-RR at 2; NAAG-RR at 11-12; NCL-RR at 5-6; NAAG-NPRM 
at 32-33. See also ERA-NPRM at 2-3, 16; June 2002 Tr. II at 209-10 
(ERA).
---------------------------------------------------------------------------

    Therefore, new Sec.  310.3(a)(1)(vii) requires that the following 
disclosures must be made if an offer includes any negative option 
feature, as that term is defined under Sec.  310.2(t): (1) the fact 
that the customer's account will be charged unless the customer takes 
an affirmative action to avoid the charge(s); (2) the date(s) the 
charge(s) will be submitted for payment; and (3) the specific steps the 
customer must take to avoid the charge(s).\268\ As noted above in the 
discussion of Sec.  310.2(t) defining ``negative option feature,'' that 
term is intended to reach any provision under which a consumer's 
failure to take affirmative action to reject the goods or services will 
be deemed by the seller to constitute acceptance (or continuing 
acceptance) of goods or services. Thus, the term includes, but is not 
limited to, ``free-to-pay conversions,'' automatic renewal offers, and 
continuity plans.\269\
---------------------------------------------------------------------------

    \268\ These disclosures are similar to those required in the 
Commission's Rule concerning ``Prenotification Negative Option 
Plans.'' See 16 CFR 425.2(a)(1).
    \269\ Each of these terms describes a form of negative option 
feature, as discussed in this SBP at Sec.  310.2(t), regarding the 
definition of ``negative option feature,'' and Sec.  310.2(o), 
regarding the definition of ``free-to-pay conversion.''
---------------------------------------------------------------------------

    The required material disclosures must be made truthfully, and in a 
clear and conspicuous manner, before a customer pays.\270\ Under the 
amended Rule's treatment of preacquired account telemarketing,\271\ 
``before a customer pays'' shall be construed as meaning before a 
customer provides express informed consent to be charged for the goods 
or services offered, and to be charged using a specifically identified 
account.\272\ Thus, Sec.  310.3(a)(1)(vii), and indeed, all of Sec.  
310.3(a)(1), must be read in conjunction with new Sec.  310.4(a)(6), 
which prohibits any seller or telemarketer from causing billing 
information to be submitted for payment, directly or indirectly, 
without the express informed consent of the customer.
---------------------------------------------------------------------------

    \270\ 16 CFR 310.3(a)(1).
    \271\ The Commission has determined to include provisions 
prohibiting the disclosure, for consideration, of unencrypted 
account information for use in telemarketing in Sec.  310.4(a)(5), 
and prohibiting unauthorized billing in Sec.  310.4(a)(6) of the 
amended Rule. As explained below in the discussion of these new 
provisions, these provisions address the harm caused by sellers or 
telemarketers who possess preacquired account information, as well 
as the broader abuse of charging a consumer's account without the 
consumer's express informed consent, regardless of the nature of the 
telemarketing transaction.
    \272\ See discussion of Sec.  310.4(a)(6) below.

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

[[Page 4604]]

Sec.  310.3(a)(2) -- Prohibited misrepresentations in the sale of goods 
or services

    Section 310.3(a)(2) in the original Rule prohibits a seller or 
telemarketer from misrepresenting certain material information in a 
telemarketing transaction, including: total cost; any material 
restrictions; 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.\273\
---------------------------------------------------------------------------

    \273\ See 16 CFR 310.3(a)(2).
---------------------------------------------------------------------------

    In the NPRM, the Commission proposed three changes to the 
provision. First, the phrase ``in the sale of goods or services'' was 
added to the section to clarify that these prohibited 
misrepresentations apply only in that context. This change was made 
because, pursuant to the mandate of the USA PATRIOT Act, the Commission 
proposed adding to the Rule Sec.  310.3(d), which delineates 
misrepresentations prohibited in the specific context of charitable 
solicitations. Second, Sec.  310.3(a)(2)(vii) was modified slightly to 
conform with proposed Sec.  310.3(d)(7) which is an almost identical 
provision, but in the charitable solicitation context. Finally, the 
Commission proposed an additional prohibited misrepresentation 
regarding credit card loss protection plans.\274\
---------------------------------------------------------------------------

    \274\ Proposed Rule Sec.  310.3(a)(2)(viii).
---------------------------------------------------------------------------

    The Commission received no comments regarding the first two 
changes, and thus retains these in the amended Rule.

Sec.  310.3(a)(2)(viii) -- Misrepresentations regarding credit card 
loss protection plans

    As discussed in detail above, the telemarketing of credit card loss 
protection plans has been a persistent source of a significant number 
of complaints about fraud and, as a result, has been the target of 
numerous law enforcement actions by both the Commission and the state 
Attorneys General.\275\ In the NPRM, the Commission proposed two new 
provisions to address this practice. The first provision, in Sec.  
310.3(a)(1)(vi), discussed above, requires that sellers or 
telemarketers of such plans disclose, before the customer pays, the 
limit, pursuant to 15 U.S.C. Sec.  1643, on a cardholder's liability 
for unauthorized use of a credit card. This provision is retained 
unchanged in the amended Rule.
---------------------------------------------------------------------------

    \275\ See note 256 above.
---------------------------------------------------------------------------

    In addition to advising consumers of their rights, the Commission 
also believes that additional protection is needed to curb the 
misrepresentations that are prevalent in the sale of credit card loss 
protection plans. Telemarketers often misrepresent various aspects of 
the credit card loss protection plan to consumers, especially the 
existing legal limits on consumer liability if their cards are lost or 
stolen.\276\ Therefore, the Commission proposed to add a second 
provision --Sec.  310.3(a)(2)(viii)--which prohibits sellers or 
telemarketers from misrepresenting that any customer needs offered 
goods or services to provide protections a customer already has 
pursuant to 15 U.S.C. Sec.  1643, which limits a cardholder's liability 
for unauthorized charges.\277\
---------------------------------------------------------------------------

    \276\ See discussion of Sec.  310.3(a)(1)(vi) above, and notes 
249 and 253.
    \277\ As noted above, this approach parallels the TSR's 
treatment of cost and quantity of goods (Sec. Sec.  310.3(a)(1)(i) 
and 310.3(a)(2)(i)), material restrictions, limitations, or 
conditions (Sec. Sec.  310.3(a)(1)(ii) and 310.3(a)(2)(ii)), refund 
policy (Sec. Sec.  310.3(a)(1)(iii) and 310.3(a)(2)(iv)), and prize 
promotions (Sec. Sec.  310.3(a)(1)(iv) & (v) and 310.3(a)(2)(v)). In 
each case, material facts must be disclosed, and misrepresentations 
of those facts are prohibited.
---------------------------------------------------------------------------

    The Commission received little comment on this proposed provision. 
Those commenters who addressed the Commission's proposal strongly 
supported the provision's method of addressing problems with these 
plans, noting that complaints about the fraudulent sale of credit card 
loss protection plans have continued unabated since the original Rule 
became effective.\278\ Therefore, the Commission has determined that it 
is a deceptive telemarketing act or practice to misrepresent that any 
customer needs particular goods or services in order to have 
protections provided pursuant to 15 U.S.C. Sec.  1643, and has adopted 
Sec.  310.3(a)(2)(viii), which prohibits a seller or telemarketer from 
misrepresenting that any consumer needs to purchase protections that 
they already have under 15 U.S.C. Sec.  1643.
---------------------------------------------------------------------------

    \278\ DOJ-NPRM at 4; LSAP-NPRM at 7-8; NAAG-NPRM at 55; NCL-NPRM 
at 6. See also June 2002 Tr. II at 104; and discussion of Sec.  
310.3(a)(1)(vi) above.
---------------------------------------------------------------------------

Sec.  310.3(a)(2)(ix) -- Misrepresentations regarding negative option 
feature offers

    The original Rule did not specifically require disclosures or 
prohibit misrepresentations regarding negative option features in 
telemarketing offers. However, as noted above, in the discussion of 
Sec.  310.3(a)(1)(vii), as a result of the more narrowly-tailored 
approach to the problems associated with preacquired account 
telemarketing, a newly focused approach to the problems related to 
negative option features is also required. This includes specific 
disclosure requirements, which are set forth in Sec.  310.3(a)(1)(vii) 
and explained above. Consistent with the structure of the Rule to date, 
and to ensure that the disclosures are not only made, but made 
truthfully, the amended Rule includes a mirroring provision to these 
disclosure requirements, at Sec.  310.3(a)(2)(ix), which prohibits 
misrepresentations regarding ``[a]ny material aspect of a negative 
option feature including, but not limited to, the fact that the 
customer's account will be charged unless the customer takes an 
affirmative action to avoid the charge(s), the date(s) the charge(s) 
will be submitted for payment, and the specific steps the customer must 
take to avoid the charge(s).''

Sec.  310.3(a)(3) -- Express verifiable authorization

    Section 310.3(a)(3) of the original Rule requires that a seller or 
telemarketer obtain express verifiable authorization in sales involving 
payment by demand drafts or similar negotiable paper.\279\ The Rule 
also provides that authorization is 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, upon request, tapes 
evidencing the customer's oral authorization, including the customer's 
receipt of the following information: 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.\280\
---------------------------------------------------------------------------

    \279\ The use of demand drafts, or ``phone checks,'' enables a 
merchant to obtain funds from a person's bank account without that 
person's signature on a negotiable instrument.
    \280\ See original Rule Sec.  310.3(a)(3). Section 
310.3(a)(3)(iii)(A) of the original Rule requires that all 
information required to be included in a taped oral authorization be 
included in any written confirmation of the transaction.
---------------------------------------------------------------------------

    In the NPRM, the Commission proposed to amend the express 
verifiable authorization provision to

[[Page 4605]]

require that the seller or telemarketer obtain the customer's express 
verifiable authorization in any telemarketing transaction where the 
method of payment lacks the protections provided by, or comparable to 
those available under, the Fair Credit Billing Act (``FCBA'') and the 
Truth in Lending Act (``TILA''). In addition, the proposed amendment 
would have required that the customer receive two additional pieces of 
information in order for authorization to be deemed verifiable: the 
name of the account to be charged and the account number, which would 
have been required to have been recited by either the customer or 
donor, or the telemarketer. The Commission also proposed to delete 
Sec.  310.3(a)(3)(iii), which allowed a seller or telemarketer to 
obtain express verifiable authorization by confirming a transaction in 
writing, provided the confirmation was sent to the customer prior to 
the submission of the customer's billing information for payment. 
Finally, the Commission proposed in the NPRM, pursuant to the USA 
PATRIOT Act, to bring charitable contributions within the coverage of 
the express verifiable authorization provision.\281\
---------------------------------------------------------------------------

    \281\ Proposed Rule Sec.  310.(3)(a)(3), 67 FR at 4542.
---------------------------------------------------------------------------

    Based on the record in this proceeding, the Commission has decided 
to modify the proposed express verifiable authorization provision. The 
amended Rule prohibits ``[c]ausing billing information to be submitted 
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, 
except when the method of payment used is a credit card subject to 
protections of the TILA and Regulation Z,\282\ or a debit card subject 
to the protections of the Electronic Fund Transfer Act (``EFTA'') and 
Regulation E.''\283\ This modified language draws a ``bright line'' to 
simplify compliance. The amended Rule retains the express written 
authorization and oral authorization provisions (Sec. Sec.  
310.3(a)(3)(i) and (ii) of the original and proposed Rules), with 
slight modifications, and has reinstated the provision of the original 
Rule allowing written confirmation, with certain additional 
requirements and limitations.
---------------------------------------------------------------------------

    \282\ TILA, 15 U.S.C. 1601 et seq. (including the FCBA 
amendments, at 15 U.S.C. 1637 et seq.), and Regulation Z, 12 CFR 
part 226.
    \283\ EFTA, 15 U.S.C. 1693 et seq., and Regulation E, 12 CFR 
part 205.
---------------------------------------------------------------------------

    In addition, certain modifications to this express verifiable 
authorization provision have been adopted in the amended Rule pursuant 
to the mandate of the USA PATRIOT Act. First, where the term 
``customer'' appeared in the original Rule, that term has been replaced 
in the amended Rule with the phrase ``customer or donor'' (including, 
where applicable, the plural form). Similarly, where the phrase ``goods 
or services'' had been used in the Rule, it has been replaced with the 
phrase ``goods or services or charitable contribution'' to reflect the 
expansion of the Rule to cover charitable solicitations. And, the term 
``telemarketing transaction'' has been substituted for the term ``sales 
offer,'' again to reflect the expansion of the provision to cover 
authorization in the context of a charitable solicitation.
    The Commission received numerous comments addressing the proposed 
amendments to Sec.  310.3(a)(3). In addition, the topic was the subject 
of extensive discussion at the June 2002 Forum.\284\ The major themes 
that emerged from the record are summarized below.
---------------------------------------------------------------------------

    \284\ See June 2002 Tr. III at 4-52.
---------------------------------------------------------------------------

    Express verifiable authorization for novel payment methods. In the 
NPRM, the Commission noted two separate rationales in support of the 
requirement that a customer's express verifiable authorization be 
obtained any time the payment method used lacks certain protections 
against unauthorized charges and fails to provide dispute resolution 
rights. First, the Commission stated its belief that the use of novel 
payment methods may lead to unauthorized billing.\285\ If consumers 
fail to understand that a telemarketer has the ability to place a 
charge using a novel payment method (such as utility or mortgage 
account billing), based on this misperception, they may be induced to 
divulge billing information that enables such charges. Second, the 
Commission noted that many emerging payment methods lack both dispute 
resolution rights and protection against unlimited liability for 
unauthorized charges.\286\ These two facts--that consumers can be 
charged unwittingly by means of novel payment methods and that the 
resulting injury due to unauthorized charges is magnified when dispute 
resolution procedures and liability limits are absent--persuaded the 
Commission that it was appropriate to require express verifiable 
authorization when protections pursuant or comparable to TILA and FCBA 
are absent.\287\
---------------------------------------------------------------------------

    \285\ See 67 FR at 4507. This concern was also articulated by 
the Commission in the original rulemaking in connection with the use 
of demand drafts as a payment method. 60 FR at 43850-51.
    \286\ See 67 FR at 4507.
    \287\ Id.
---------------------------------------------------------------------------

    Comments on the requirement for express verifiable authorization in 
novel payment method scenarios were many and varied. Some industry 
commenters--with the notable exception of DialAmerica--rejected the 
notion that novel payment methods should be subject to more stringent 
requirements under the Rule, arguing that, as long as the consumer has 
a clear understanding that he or she is purchasing a particular product 
or service and that the purchase will be charged to a particular 
account, nothing further should be required of the telemarketer.\288\ 
NACHA advocated scaling back the proposed express verifiable 
authorization requirement, which it argued was ``overly broad'' in its 
coverage of payment methods, such as debit cards, with protections 
comparable to TILA and FCBA.\289\ EFSC noted its concern that emerging 
payment methods would be disadvantaged because they would be subject to 
the express verifiable authorization provision.\290\
---------------------------------------------------------------------------

    \288\ See, e.g., Aegis-NPRM at 4; Green Mountain-NPRM at 27 
(``there is little danger that consumers will give their [debit 
card] account numbers to telemarketers without knowing that their 
accounts will be debited''); ITC-NPRM at 5; NATN-NPRM at 4; Noble-
NPRM at 4; NSDI-NPRM at 4; and Technion-NPRM at 5. But see June 2002 
Tr. III at 22 (DialAmerica representative noting that his company 
declines to use novel payment methods because it ``had experience 
with charging people's bank accounts and [ ] also [with] LEC 
billing, and they have not been good experiences.'').
    \289\ NACHA-NPRM at 2.
    \290\ EFSC-NPRM at 7. See also NATN-NPRM at 4; June 2002 Tr. III 
at 39. The Commission notes that it was in part because of this 
concern that the original Rule did not require written authorization 
in every instance for demand drafts. See 60 FR at 43850-51. The 
amended Rule's allowance for obtaining express verifiable 
authorization by any of three means, including written confirmation, 
should obviate concerns about the burden imposed on sellers who 
choose to accept novel payment methods. Further, the Commission 
believes, for the reasons stated above, that it is precisely when 
such novel methods--unfamiliar to the consumer and devoid of 
legally-mandated consumer protections--are used that express 
verifiable authorization of a consumer's acquiescence to the 
transaction is critical.
---------------------------------------------------------------------------

    NAAG, on the other hand, supported the Commission's proposed 
approach.\291\ Some consumer groups urged the Commission to take an 
even more stringent approach than it did in the NPRM, and require 
express verifiable authorization in all telemarketing transactions. For 
example, NCL argued that since most telemarketers use audio recordings 
to verify authorizations anyway, it would hardly be burdensome to 
require express verifiable authorization, which

[[Page 4606]]

can be evidenced by such a recording, in every instance.\292\ In 
support of this position, NCL offered statistics showing that 
complaints to the NFIC for 2001 show that 60 percent of the payments 
for fraudulent buyers club offers--a ``category in which nearly all of 
the consumers said they never agreed to purchase the service''--were 
made by credit card.\293\ According to NCL, even when the payment 
method used by consumers may be subject to legal protections, ``all 
consumers whose accounts will be billed should have the basic 
protections that such [express verifiable authorization] provides.\294\ 
LSAP concurred, suggesting that the Rule would better serve all 
consumers if express verifiable authorization were required in every 
purchase.\295\ Similarly, NCLC urged the Commission to extend the 
express verifiable authorization requirements to cover all 
transactions, or at least those not subject to the protection of FCBA 
and TILA.\296\
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    \291\ See NAAG-NPRM at 48.
    \292\ NCL-NPRM at 5.
    \293\ Id.
    \294\ Id. (noting that even when legal protections exist to 
protect consumers from unauthorized charges, consumers must still 
bear the burden to ``contest the charges in the required manner and 
time frame to assert their rights''); see also LSAP at 10.
    \295\ LSAP-NPRM at 9-11.
    \296\ NCLC-NPRM at 8.
---------------------------------------------------------------------------

    The Commission declines to require in every transaction that a 
seller or telemarketer obtain the express verifiable authorization of a 
customer or donor prior to submitting billing information for payment. 
As it made clear in the original rulemaking, the Commission believes 
that the burden of requiring express verifiable authorization is 
justified in limited circumstances; namely, when consumers are unaware 
that they may be billed via a particular method, when that method lacks 
legal protection against unlimited unauthorized charges, and when the 
method fails to provide dispute resolution rights.\297\ However, the 
Commission agrees that consumers could benefit from a more explicit 
Rule provision mandating what should be obvious: a transaction is valid 
only when the telemarketer has obtained the consumer's express informed 
consent to be charged, and to be charged using a particular account. 
Therefore, as is discussed in detail below, new Sec.  310.4(a)(6) of 
the Rule explicitly requires, in every telemarketing transaction, that 
the seller or telemarketer obtain the express informed consent of the 
customer or donor to be charged for the goods or services or charitable 
contribution that is the subject of the transaction. This more explicit 
treatment will achieve the goals of consumer groups without unduly 
burdening industry members with the recordkeeping required by the 
express verifiable authorization provision.
---------------------------------------------------------------------------

    \297\ See 60 FR at 43850-51. The Commission notes that despite 
its request for detailed evidence regarding the cost of obtaining 
express verifiable authorization and the prevalence of each of the 
three methods allowed by the original Rule, see, e.g., 67 FR 4537; 
June Tr. III at 32, there remains a dearth of specific record 
evidence regarding such costs. Industry commenters who did address 
the cost merely stated that creating and maintaining audio 
recordings of express verifiable authorization was ``expensive.'' 
See, e.g., Capital One-NPRM at 7; June Tr. III at 38 (CCC).
---------------------------------------------------------------------------

    The comments from consumer groups addressing the express verifiable 
authorization issue opposed the ``comparability'' standard set out in 
the proposed amended Rule, i.e., the provision which would have 
exempted from the requirement to obtain express verifiable 
authorization any payment method with protections comparable to those 
available under FCBA and TILA. Some commenters stated that it would be 
too difficult for merchants to determine, during the course of each 
telemarketing transaction, whether a given payment method had 
protections comparable to those available under TILA.\298\ NCL and NCLC 
argued that the impermanent nature of voluntary policies, such as the 
``zero liability'' guarantees made by MasterCard and VISA, makes them a 
poor substitute for legal protection.\299\ NCLC further argued that 
such an amendment would ``invite sham internal review 
procedures,''\300\ thereby making it deleterious to consumers, by 
placing the power of determining which transactions required express 
verifiable authorization in the hands of the merchant.\301\
---------------------------------------------------------------------------

    \298\ See NCLC-NPRM at 2, 4 (noting the exemption from express 
verifiable authorization for methods of payment with protections 
comparable to TILA and FCBA ``essentially sanctions an on-the-spot 
judgment made by telemarketers regarding a complex and much disputed 
legal issue. . .''). Some industry members also noted that the 
comparability standard was too vague to be useful. See, e.g., CMC-
NPRM at 12; EFSC-NPRM at 4 (noting that the vagueness could inhibit 
the use of novel payment methods).
    \299\ See NCL-NPRM at 5; NCLC-NPRM at 8.
    \300\ NCLC-NPRM at 7.
    \301\ See NCLC-NPRM at 4-5.
---------------------------------------------------------------------------

    Industry commenters, on the other hand, urged the Commission to 
clarify that ``comparable protection,'' whether in the form of a 
business rule or private contract, should be sufficient to relieve 
sellers and telemarketers of requirement to obtain express verifiable 
authorization.\302\ In this regard, some industry commenters noted the 
``zero liability'' protection for unauthorized charges provided by the 
two main issuers of debit cards, VISA and MasterCard, as a voluntary 
initiative.\303\ MasterCard and VISA noted that their respective ``zero 
liability policies'' provided greater protection to cardholders than is 
provided by federal law.\304\ Similarly, Fleet urged the Commission to 
take note of the unauthorized use liability provisions that VISA and 
MasterCard offer for debit cards.\305\ Other commenters requested that 
the Commission explicitly state that certain other protections are 
``comparable.''\306\
---------------------------------------------------------------------------

    \302\ See, e.g., ABA-NPRM at 7-8; BofA-NPRM at 6; Capital One-
NPRM at 7; Citigroup-NPRM at 10; DMA-NPRM at 56-57.
    \303\ Id.
    \304\ See MasterCard-NPRM at 4; VISA-NPRM at 5. The Commission 
notes, however, that the ``zero liability'' protection offered by 
MasterCard and VISA does not come into play in all circumstances. 
For example, MasterCard extends this protection only to a consumer 
whose account is in good standing and who has not reported two or 
more instances of unauthorized use in the past year. See http://www.mastercard.com/general/zero_liability.html. VISA offers its 
coverage only for ``VISA credit and debit card transactions 
processed over the VISA network,'' and allows the financial 
institution that issued the card to determine liability for 
transactions processed over other networks. See http://www.usa.visa.com/personal/secure_with_visa/zero_liability.html?it=f2_/personal/secure_with_visa/.
    \305\ See Fleet-NPRM at 5. See also KeyCorp-NPRM at 5; June Tr. 
III at 11 (DMA) (endorsing voluntary protections).
    \306\ See Capital One-NPRM at 7 (exempt transactions subject to 
the UCC); CMC-NPRM at 12 (state that protections under the Real 
Estate Settlement Procedures Act (``RESPA'') and EFTA are comparable 
to those under the FCBA and TILA); Fleet-NPRM at 5 (exempt 
transactions where the goods or services are subject to a ``liberal 
refund policy''); KeyCorp-NPRM at 5 (exempt transactions subject to 
the UCC); NACHA-NPRM at 2 (exempt transactions subject to the NACHA 
Rules); VISA-NPRM at 5 (exempt transactions subject to UCC when the 
revisions to Article 4 are complete). The Commission declines, at 
this time, to exclude from the express verifiable authorization 
requirement transactions subject to RESPA. While the Commission 
recognizes that RESPA provides important protections for consumers, 
it does not believe that most real estate transactions would be 
subject to the TSR at all. And, in instances of mortgage billing, 
which would be subject to the Rule, the Commission believes that 
consumers, unfamiliar with this method of billing for anything other 
than their mortgage payment, need the protections of the express 
verifiable authorization provision. The Commission also declines to 
exclude transactions subject to the UCC from the requirements of 
express verifiable authorization, but may revisit this issue when 
modifications to the UCC are completed. The Commission also declines 
to exempt transactions subject to the NACHA Rules or for which the 
seller provides a liberal refund policy, believing that it is 
preferable to limit exemptions and thus maintain a ``bright line'' 
rule to simplify compliance.
---------------------------------------------------------------------------

    Based on the record evidence, the Commission has decided to 
eliminate the ``comparability'' language from the express verifiable 
authorization provision. The comments made clear that it is far more 
desirable to

[[Page 4607]]

implement a ``bright line'' rule in this instance to avoid the costs to 
businesses and consumers of requiring a telemarketer to make a real-
time determination of whether a payment method provides adequate 
protection while on the telephone with a consumer. Moreover, the 
Commission is persuaded that the impermanent nature of voluntary 
consumer protections makes them ill-suited as a predicate for 
circumventing the express verifiable authorization provision.\307\ 
Therefore, the amended Rule requires express verifiable authorization 
in all transactions where payment is made by a method other than a 
debit card subject to Regulation E, or a credit card subject to 
Regulation Z.
---------------------------------------------------------------------------

    \307\ See June 2002 Tr. III at 29 (NCL) (noting receipt of 
complaints about the enforceability of these voluntary protections).
---------------------------------------------------------------------------

    Several industry commenters specifically urged the Commission to 
ensure that express verifiable authorization not be required when a 
consumer uses a debit card to pay for goods and services offered, or a 
charitable contribution solicited, through telemarketing. Commenters 
raised several arguments in support of this position. First, commenters 
noted that debit cards are not ``novel'' payment methods.\308\ 
Commenters contended that, on the contrary, debit cards are widely 
accepted and used by consumers, who understand that by providing their 
debit card number in a telemarketing transaction, the account with 
which the card is associated will be debited.\309\ Second, commenters 
argued that debit cards are subject to the protections of the EFTA and 
its implementing regulation, Regulation E, which provide similar, 
although not identical, protection to that available under TILA.\310\ 
Third, commenters argued that distant sellers cannot distinguish 
between a debit and credit card until, in the best case scenario, the 
consumer reads the entire number.\311\ Finally, commenters noted that 
VISA has an ``honor all cards'' policy that would prohibit a merchant 
from declining to accept VISA-branded debit cards if it accepted VISA-
branded credit cards.\312\ These commenters contended that the 
practical result of requiring express verifiable authorization for 
debit cards would be that express verifiable authorization would have 
to be obtained in all transactions--whether payment was made by credit 
or debit card, demand draft, or any other method.\313\
---------------------------------------------------------------------------

    \308\ See, e.g., ABA-NPRM at 6; DMA-NPRM at 57; and ERA-NPRM at 
47.
    \309\ See, e.g., Collier Shannon-NPRM at 16; Green Mountain-NPRM 
at 27; June 2002 Tr. III at 24 (ERA).
    \310\ See, e.g., ABA-NPRM at 2-7; AFSA-NPRM at 18-19; BofA-NPRM 
at 5-6; Citigroup-NPRM at 10; Collier Shannon-NPRM at 11; KeyCorp-
NPRM at 5; MasterCard-NPRM at 4; NACHA-NPRM at 2. Some commenters 
suggested that any method of payment subject to Regulation E be 
exempted from the express verifiable authorization requirements. See 
Citigroup-NPRM at 10 (exempt all electronic fund transfers, 
including wire transfers); EFSC (exempt automated clearinghouse 
(``ACH'') transactions, as well as other novel payments, such as 
prepaid smart cards). The Commission declines to exempt all 
electronic fund transfers subject to Regulation E. The record does 
not support exclusion of other methods of payment subject to 
Regulation E; and the Commission believes that, despite any consumer 
protections available, many emerging payment methods covered by 
Regulation E are still relatively unknown to consumers who will thus 
benefit from express verifiable authorization when these payment 
methods are used.
    \311\ BofA-NPRM at 6; Collier Shannon-NPRM at 6 (``Merchants who 
process credit and debit card transactions over the phone do not 
have the ability to differentiate between credit cards and debit 
cards.''); ERA-NPRM at 48; June 2002 Tr. III at 11 (DMA) (noting 
that ``it is impossible for a marketer to know whether it's a debit 
card or a credit card, in the best instance, until after the entire 
number has been given''); June 2002 Tr. III at 18 (NRF) (stating 
that ``remote sellers cannot distinguish a debit card from the 
credit card with any great degree of reliability pre-purchase'').
    \312\ June 2002 Tr. III at 19-20 (NRF) (noting that VISA and 
MasterCard ``have what's called an Honor-All-Cards rule'' that 
requires that merchants accept any card branded with these issuers' 
logos as a condition of being able to accept the VISA and MasterCard 
branded credit cards).
    \313\ Collier Shannon-NPRM at 6-7; June 2002 Tr. III at 11 (DMA) 
(noting that ``[i]n some instances you don't even know [whether a 
number provided by a consumer is for a debit or credit card] when 
the number is given, which would force marketers to have express 
verifiable authorization for everything. . .''). Some commenters 
argued that such a provision would have the effect of eliminating or 
reducing the use of debit cards as a form of payment. See Gannett-
NPRM at 1-2; Intuit-NPRM at 19.
---------------------------------------------------------------------------

    Based on the extensive record on this issue, and on the 
Commission's law enforcement experience, the Commission has determined 
to modify the express verifiable authorization provision in the amended 
Rule. The Commission is persuaded that debit cards should not be 
subject to the express verifiable authorization provision, based on 
their wide consumer acceptance and the fact that they are subject to 
the protections of the EFTA and Regulation E. The Commission believes 
that debit cards are so commonly used that it cannot persuasively be 
argued that consumers do not understand that when they provide their 
debit card account number to a telemarketer, their account can be 
debited by using that number.\314\ Moreover, the Commission is 
persuaded that the practical result of requiring express verifiable 
authorization when a consumer pays using a debit card would be to 
require it in all instances when a debit or credit card is used, 
because it is not currently possible to distinguish these methods in a 
distance transaction.\315\
---------------------------------------------------------------------------

    \314\ This is not to say, of course, that an unscrupulous 
telemarketer could not misrepresent the purpose for which it needed 
such an account number, leading to consumer injury. Section 
310.3(a)(4) of the Rule, which prohibits making a false or 
misleading statement to induce any person to pay for goods or 
services, would come into play in such situations. Moreover, the 
record and the Commission's consumer protection experience suggest 
that, while consumers do understand that their debit cards can be 
used as a method of payment, it is not clear that consumers 
understand the varying degrees of consumer protection afforded by 
credit versus debit cards. See June 2002 Tr. III at 24-25. The 
Commission has issued consumer education materials to reinforce the 
material differences in protection under federal law for debit and 
credit cards. See, e.g., FTC Facts for Consumers, Credit, ATM and 
Debit Cards: What to do if They're Lost or Stolen, http://www.ftc.gov/bcp/conline/pubs/credit/atmcard.htm.
    \315\ See note 311 above.
---------------------------------------------------------------------------

    Regulation E provides protections that are similar, though not 
identical, to those provided under TILA. Some commenters argued that 
express verifiable authorization should be required for debit cards 
because Regulation E's three-tiered liability scheme for unauthorized 
use, with increasing liability when the unauthorized use is reported 
after two business days, is less advantageous for consumers than the 
TILA protections, which cap a consumer's losses, in all instances, at 
$50.\316\ The Commission believes that this disparity will not 
disadvantage consumers who face unauthorized charges pursuant to a 
telemarketing transaction. Both Regulation Z and Regulation E provide 
that, in a situation where the consumer retains control of the card, no 
liability shall attach; Regulation Z does so unconditionally,\317\ 
while Regulation E provides such protection on condition that the 
consumer reports the unauthorized charge within 60 days of transmittal 
of the consumer's statement.\318\ The Commission believes that, despite 
the reporting requirement imposed by Regulation E, consumers who face 
unauthorized charges due to telemarketing fraud have important 
fundamental protections whether they use a debit or credit card. The 
Commission will continue its campaign to educate consumers about their 
varying obligations in reporting unauthorized charges involving both 
debit and credit cards, and will monitor the effectiveness of this 
provision from

[[Page 4608]]

the implementation of the amended Rule through the next Rule Review, 
making any modifications as necessary.
---------------------------------------------------------------------------

    \316\ Compare Regulation E, 12 CFR 205.6(b) to Regulation Z, 12 
CFR 226.12(b).
    \317\ See Regulation Z, 12 CFR 226.12(b)(2)(iii), Official Staff 
Interpretation, Suppl. I.
    \318\ See Regulation E, 12 CFR 205.6(b)(3). The 60-day 
notification period is somewhat flexible. Section 205.6(b)(4) notes 
that ``[i]f the consumer's delay in notifying the financial 
institution was due to extenuating circumstances, the institution 
shall extend the [time limit] to a reasonable period.''
---------------------------------------------------------------------------

     The record reflects a variety of viewpoints on whether dispute 
resolution rights are essential to the determination of whether a 
payment method should be excluded from the requirement of obtaining 
express verifiable authorization.\319\ The Commission continues to 
believe that dispute resolution protection is a key predicate for 
excluding a payment method from coverage under the express verifiable 
authorization provision, to ensure that consumers are not unduly 
burdened during the investigation of any claim of unauthorized billing. 
The Commission believes that, although the substantive dispute 
resolution protections of Regulation E are somewhat less extensive than 
those of Regulation Z,\320\ the core protections provided by Regulation 
E--allowing a consumer to report an unauthorized electronic fund 
transfer and to receive a provisional credit of the disputed amount 
within ten business days of the financial institution's receipt of such 
notice--will afford sufficient basic protection to consumers who choose 
to use debit cards to pay for goods or services or charitable 
contributions in telemarketing transactions.
---------------------------------------------------------------------------

    \319\ See ABA-NPRM at 5, 7 (encouraging the Commission to delete 
from the express verifiable authorization provision the requirement 
that any exempt payment mechanism include dispute resolution 
procedures); Collier Shannon-NPRM at 11-15 (noting that the dispute 
resolution protections under Regulations E and Z are similar).
    \320\ For example, unlike Regulation Z, Regulation E does not 
provide that a consumer may assert against a financial institution 
all claims (other than tort) and defenses arising out of the 
transaction and relating to the failure to resolve the dispute. See 
Regulation Z, 12 CFR 226.12(c). However, Collier Shannon argued 
that, in some instances, Regulation E provides greater consumer 
dispute resolution rights. For example, Collier Shannon noted that 
investigations under Regulation E must be completed within ten days 
of the financial institution's receipt of the consumer's complaint, 
or a provisional credit must be issued. Collier Shannon also noted 
that the coverage of the regulations diverges in some instances 
because some of the dispute resolution protections available under 
Regulation Z only make sense in the context of a credit transaction, 
such as the provision that a creditor may not seek to collect funds 
or issue a negative statement on a consumer's credit report). See 
Collier Shannon-NPRM at Appendix F. The Commission notes, in regard 
to the argument made by Collier Shannon regarding the shorter time 
period allowed for investigations under Regulation E, that a shorter 
time frame is entirely appropriate because the funds at issue are 
the consumer's, not the funds of a credit card lender.
---------------------------------------------------------------------------

    Furthermore, the Commission notes that its decision not to require 
express verifiable authorization for payments made by debit card is 
based in part on the practical reality that it is currently impossible 
for merchants to distinguish credit cards from debit cards, 
particularly in distance transactions. The Commission believes that the 
appropriate balance of protecting consumers without unduly burdening 
industry is best met by excluding debit cards from the requirements of 
the express verifiable authorization provision, for to do otherwise 
would result in requiring express verifiable authorization for all 
credit card payments, an unnecessary and costly burden.\321\ The core 
dispute resolution protection provided by Regulation E, in conjunction 
with its critical protection against unauthorized charges, will provide 
a vital safety net for consumers who choose to pay by debit card. Thus, 
the Commission has determined that express verifiable authorization 
will be required only in instances when the payment method is not a 
credit card subject to the protections of Regulation Z or a debit card 
subject to the protections of Regulation E.\322\
---------------------------------------------------------------------------

    \321\ See June 2002 Tr. III at 11 (DMA) (noting that requiring 
express verifiable authorization in all instances would be ``highly 
expensive.'').
    \322\ Cendant requested that the Commission explicitly note in 
the Rule that the marketer can rely upon the statement by the 
consumer identifying the type of billing mechanism that the customer 
is using to pay. Cendant-NPRM at 9. The Commission believes that its 
modified approach, exempting from the express verifiable 
authorization provision both credit and debit cards, obviates the 
need for such a statement to be included in the Rule.
---------------------------------------------------------------------------

    Express written authorization. Section 310.3(a)(3)(i) of the 
proposed Rule states that authorization will be deemed verifiable if it 
is by ``express written authorization . . . which includes the 
customer's or donor's signature.'' The footnote to this section of the 
Rule notes that ``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.''
    The Commission received few comments on this provision overall. 
AARP reiterated its long-standing position that all express verifiable 
authorizations should be in writing.\323\ The Commission maintains its 
position that to require written authorization in every instance would 
unduly burden sellers and telemarketers, potentially impede the growth 
of new payment mechanisms, and not provide meaningful benefits to 
consumers above and beyond those ensured by the other two means of 
obtaining authorization under the Rule. Therefore, the Commission 
declines to require written authorization of a transaction in every 
instance. Another commenter requested clarification that a signed check 
would meet the requirements of Sec.  310.3(a)(3)(i) of the amended 
Rule.\324\ The original Rule's express verifiable authorization only 
pertained to demand drafts; and, as the Commission noted in the TSR 
Compliance Guide, ``[a]ny form of written authorization from a consumer 
is acceptable,'' including ``a `voided' signed check.''\325\ While the 
language of the amended Rule is arguably broad enough to cover payment 
methods such as check and money order, the customer's or donor's signed 
check or money order would, in every instance, be sufficient to serve 
as written authorization pursuant to 310.3(a)(3)(i).
---------------------------------------------------------------------------

    \323\ AARP-NPRM at 7.
    \324\ Tribune at 7.
    \325\ TSR Compliance Guide at 19.
---------------------------------------------------------------------------

    A handful of commenters addressed the interplay between the E-SIGN 
Act\326\ and the Rule. One industry commenter urged that the Commission 
explicitly state that the E-SIGN Act governs transactions under the 
TSR,\327\ and another requested the amended Rule expressly adopt the 
definitions of ``electronic record'' and ``electronic signature'' used 
in the E-SIGN Act.\328\ In particular, commenters expressed concern 
over the Commission's use of the term ``verifiable''\329\ as a modifier 
in discussing what would constitute a valid signature under the Rule. 
While the Commission declines at this time to expressly incorporate the 
E-SIGN Act's definitions into the Rule, it has determined that deleting 
the term ``verifiable'' from the amended Rule will alleviate the 
concerns expressed by industry, without compromising the protections 
afforded to consumers.\330\
---------------------------------------------------------------------------

    \326\ Electronic Signatures in Global and National Commerce Act 
(``E-SIGN Act''), Pub. L. No. 106-229, 106th Cong. 2d Sess., 114 
Stat. 464 (2000), codified at 15 U.S.C. Sec.  7001 et seq.
    \327\ EFSC-NPRM at 9-10.
    \328\ Intuit-NPRM at 22.
    \329\ 67 FR 4542. In the NPRM, the Commission noted, in a 
footnote to Sec.  310.3(a)(3)(i), that ``[f]or 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.'' (emphasis added).
    \330\ The Commission believes that the remaining language 
regarding signatures makes plain that sellers and telemarketers who 
choose to obtain express verifiable authorization using the express 
written authorization method, and who wish to use digital or 
electronic signatures, will need to comply with applicable federal 
law and state contract law. The Commission believes, by way of 
example, that a seller or telemarketer who obtained a signature that 
would be valid under the E-SIGN Act's standards would meet its 
burden under this provision of the Rule.
---------------------------------------------------------------------------

    NCLC suggested that the Rule incorporate the procedures set forth 
in Sec.  101(c) of the E-SIGN Act for using electronic records to 
provide a consumer with written disclosures

[[Page 4609]]

required by the Rule.\331\ Under Sec.  101(c), the consumer must, among 
other things, affirmatively consent to such use of electronic records 
and acknowledge that he or she has the hardware and software necessary 
to access the requisite information electronically. The Commission is 
deferring any determination at this time as to the specific manner in 
which the Rule should incorporate these statutory procedures until it 
has clearer evidence or experience from which to develop an appropriate 
and effective regulatory interpretation, consistent with the E-SIGN 
Act, to ensure that written disclosures required under the Rule are 
provided clearly and conspicuously to consumers if and when a seller or 
telemarketer uses electronic means to provide such disclosures.\332\
---------------------------------------------------------------------------

    \331\ NCLC-NPRM at 3.
    \332\ See generally FTC and Dept. of Commerce, Report to 
Congress on the Electronic Signatures in Global and National 
Commerce Act: The Consumer Consent Provision in Section 
101(c)(1)(C)(ii), June 2001 (noting that nearly all participants in 
a workshop held to discuss the provision agreed that further study 
of the provision and its role in the marketplace was necessary). See 
also E-SIGN Act Sec.  104 (preserving agency authority to interpret 
Sec.  101).
---------------------------------------------------------------------------

    Finally, NCLC suggested that the Commission require that the 
information set forth in Sec.  310.3(a)(3)(ii)(A)-(G), be required when 
the written method of express verifiable authorization is used.\333\ 
The Commission declines to adopt this suggestion because the record 
does not support the argument that such a requirement is necessary in 
instances when the consumer controls the method of payment, and 
provides written authorization, including a signature, to the seller or 
telemarketer prior to the submission for payment of the consumer's 
billing information.
---------------------------------------------------------------------------

    \333\ NCLC-NPRM at 10-11.
---------------------------------------------------------------------------

    Oral authorization. The proposed Rule modified and expanded the 
list of information that must be recited in order for oral 
authorization to be deemed verifiable. In particular, the proposed Rule 
added the requirement that the specific billing information of the 
customer or donor, including the name of the account and the account 
number that will be used to collect payment for the transaction, must 
be identified as part of the express verifiable authorization process. 
Finally, certain wording changes were proposed to address the expansion 
of the express verifiable authorization provision to cover not just 
demand drafts, but all methods of payment that lacked specific 
protections under TILA and FCBA. In addition, the information was 
reorganized.\334\
---------------------------------------------------------------------------

    \334\ See Proposed Rule Sec.  310.3(a)(3)(ii)(A)-(D), (F)-(G). 
For example, the term ``draft,'' used in the original provision, was 
replaced with the phrase ``debit(s), charge(s), or payment(s)'' in 
the proposed version, to reflect that methods of payment other than 
demand draft would now be covered by the Rule. For the same reason, 
and because of the mandate of the USA PATRIOT Act, the term 
``payor's'' was replaced by the phrase ``customer's or donor's.''
---------------------------------------------------------------------------

    In Sec.  310.3(a)(3)(ii) of the amended Rule, the Commission has 
retained the proposed oral authorization provision, with three minor 
wording changes. First, the broader term ``other billing entity'' 
replaces the term ``credit card company,'' which was included in the 
proposed Rule as an example of an entity to whom a seller or 
telemarketer would need to make available a recording of a customer's 
or donor's express oral authorization. Second, the phrase 
``authorization of payment for goods or services or charitable 
contribution'' is inserted to reflect the expansion of this provision 
to reach charitable solicitations. Third, the term ``sales offer'' has 
been replaced with ``telemarketing transaction.'' These last two 
changes are intended to conform this provision to the mandate of the 
USA PATRIOT Act.
    Few comments were prompted by this section generally, or by any of 
the specific proposed disclosures required to satisfy the oral 
authorization provision. One commenter noted that the audio recording 
method of obtaining express verifiable authorization may require the 
consent of the customer or donor in states that require two-party 
consent to record telephone calls.\335\ The Commission notes that 
determining compliance with state law taping requirements has been and 
will continue to be the responsibility of those sellers and 
telemarketers who choose to use this method of authorization. Another 
commenter asked the Commission to state explicitly that ``a 
telemarketer cannot circumvent a writing requirement [such as required 
by EFTA for recurring drafts] by holding up the express oral 
authorization in the [TSR].''\336\ Clearly, compliance with the EFTA 
and compliance with the TSR are separate obligations, and to the extent 
that an entity is subject to both regulations, it must determine how 
best to comply with both. Therefore, the Commission declines to modify 
the Rule to include such guidance.
---------------------------------------------------------------------------

    \335\ Worsham-NPRM at 6.
    \336\ NCLC-NPRM at 11.
---------------------------------------------------------------------------

    Another commenter, ARDA, requested that Sec.  310.3(a)(3)(ii)(A), 
which requires disclosure of the number of debits, charges or payments, 
be modified. ARDA requested that the parenthetical phrase ``if more 
than one'' be reinstated in the Rule to ensure that this disclosure is 
only made in instances where there will be multiple debits, charges, or 
payments; to do otherwise, ARDA argued, would be a burden on industry 
to state what would likely be presumed by consumers--that is, that only 
a single payment will be required.\337\ The Commission agrees that the 
benefit to consumers of disclosing that there will only be a single 
payment does not outweigh the burden on sellers and telemarketers to 
have to make such a disclosure. Therefore, the Commission has 
reinstated the phrase ``(if more than one)'' at the end of Sec.  
310.3(a)(3)(ii)(A). No comments in the record suggest modification of 
proposed Sec.  310.3(a)(3)(ii)(C) (requiring disclosure of the amount 
of the debit(s), charge(s), or payment(s)); (D) (disclosure of the 
customer's or donor's name); (F) (the disclosure of a telephone number 
for customer or donor inquiry); or (G) (the date of the customer's or 
donor's oral authorization). Therefore, these sections are retained in 
the amended Rule without alteration.
---------------------------------------------------------------------------

    \337\ ARDA-NPRM at 5-6.
---------------------------------------------------------------------------

    Proposed Sec.  310.3(a)(3)(ii)(B) required that ``the date of the 
debit(s), charge(s), or payment(s)'' be recited for oral authorization 
to be deemed verifiable. This proposal drew criticism from members of 
industry, including MasterCard and KeyCorp, who noted that, in many 
instances, telemarketers would not possess this information, and 
suggested that the frequency of the payment could be recited 
instead.\338\ The Commission agrees that in at least some instances the 
exact date of payment--that is, the date on which the charge will 
appear on a customer's or donor's billing statement or be debited from 
a customer's or donor's account--may be unknown at the time of the 
transaction. Therefore, the amended Rule provision requires instead 
that the seller or telemarketer recite the date on which the debit(s), 
charge(s), or payment(s) will be submitted for payment. The Commission 
believes that this piece of information is, or without much burden can 
be, known to a seller or telemarketer, and that providing this date to 
the customer or donor will supply a means for determining approximately 
when such debit(s), charge(s), or payment(s) will be posted to the 
customer's or donor's account.
---------------------------------------------------------------------------

    \338\ MasterCard-NPRM at 6-7; KeyCorp-NPRM at 5.
---------------------------------------------------------------------------

    Several commenters also expressed concern about the requirement, in 
Sec.  310.3(a)(3)(ii)(E), that, as part of oral authorization, a 
customer or donor

[[Page 4610]]

receive his or her specific billing information, including the name of 
the account and the account number to be charged.\339\ These commenters 
stated that there are dangers inherent in having a telemarketing sales 
representative recite or receive from the consumer the consumer's full 
account number over the telephone.\340\
---------------------------------------------------------------------------

    \339\ See, e.g., AFSA-NPRM at 17-18; CCC-NPRM at 12 
(recommending Sec.  310.3(a)(3)(ii)(E) be deleted entirely); 
DialAmerica-NPRM at 27 (noting its support for the disclosure of the 
account name); Fleet-NPRM at 6; KeyCorp-NPRM at 5; MasterCard-NPRM 
at 5 (noting that if the provision is not deleted, the amended Rule 
should at least exempt from compliance entities subject to the 
privacy provisions of the GLBA); Wells Fargo-NPRM at 3.
    \340\ See, e.g., KeyCorp-NPRM at 5; MasterCard-NPRM at 5. These 
commenters expressed concern about identity theft and unauthorized 
charges occurring as a result of the express disclosure of this 
information. Several commenters noted that consumers are disinclined 
to provide their account numbers in telemarketing, in part due to 
the success of consumer protection education campaigns that have 
stressed that a consumer should only provide his or her account 
number in telemarketing if the consumer knows the seller with whom 
he or she is dealing. See, e.g., Bank One-NPRM at 4; Cendant-NPRM at 
7; Household Auto-NPRM at 2-3; VISA-NPRM at 6-7. Some commenters 
noted that marketers will not have such account numbers in some 
instances, such as in preacquired account telemarketing involving a 
joint marketing program, and thus will be unable to ensure the 
customer's ``receipt'' of this information. See, e.g., Household 
Auto-NPRM at 4; NEMA-NPRM at 8-10 (noting that the `` receipt'' 
language directly contradicts the NEMA's guidelines to ensure that 
the customer ``disclose'' such information before processing a 
charge, and will result in duplicative information being exchanged); 
Green Mountain-NPRM at 26 (requesting an exemption because the 
energy industry is highly regulated). As discussed below, the 
Commission decided to delete the requirement that the account number 
be disclosed, and therefore the Commission anticipates that this 
will ameliorate the concern about preacquired account telemarketing. 
In every instance, the seller or telemarketer should be able to tell 
the customer or donor the name of the billing vehicle and enough 
other information to ensure that the customer or donor knows what 
account will be used to collect payment. As to NEMA's and, to some 
extent, Green Mountain's concern about redundancy, it is true that 
in a non-preacquired account call, some information, such as the 
customer's or donor's billing information, will initially be unknown 
to the telemarketer. It is equally true that some of the information 
a customer must receive under Sec.  310.3(a)(3)(ii) is known only to 
the telemarketer, such as the date a charge will be submitted for 
payment and a customer or donor service number. The Commission 
believes that, for payment methods that are novel and lacking in 
certain consumer protections, it is critical for the customer to 
authorize the payment. If a seller or telemarketer chooses the 
express oral authorization method, then it is incumbent upon them to 
ensure that a consumer receives this information, even if redundant, 
as part of the recorded authorization.
---------------------------------------------------------------------------

    On the other hand, comments from consumer groups were generally 
supportive of the expanded disclosures required as a predicate for oral 
authorization to be deemed verifiable. NCL noted that billing disputes 
are prevalent in connection with deceptive or abusive telemarketing, 
and complaints about such disputes often arise when a consumer has been 
duped into providing his or her billing information for some bogus 
purpose, such as ``verification,'' or to enable the seller purportedly 
to deposit sweepstakes winnings to the consumer's account.\341\ NCL 
also noted that consumers may provide their account information in 
conjunction with a payment for a particular item, but then be billed 
for additional goods or services that they did not authorize.\342\ 
Based on its experience, NCL ``believes that it is important to verify 
both the account that will be billed and the fact that the consumer is 
agreeing to purchase specific products or services using that 
account.''\343\ NAAG concurred, stating that the proposed Rule's 
express requirements to recite the account name and number would be 
beneficial to consumers who, as law enforcement experience 
demonstrates, may otherwise be unaware of this critical 
information.\344\
---------------------------------------------------------------------------

    \341\ NCL-NPRM at 4.
    \342\ Id.
    \343\ Id.
    \344\ NAAG-NPRM at 48-49.
---------------------------------------------------------------------------

    Based on the record, the Commission has decided to modify the 
proposed provision to limit the required amount of information about an 
account that must be received by a customer or donor to comply with the 
express verifiable authorization provision. The amended Rule requires 
that the customer or donor receive ``billing information, identified 
with sufficient specificity that the customer or donor understands what 
account will be used to collect payment for the goods or services or 
charitable contribution.''\345\ This more flexible standard takes into 
account concern about identity theft, but still mandates that the 
customer receive information sufficient to understand what account is 
being used to process payment for the transaction. It will allow 
telemarketers the option to state, for example, the name and the last 
four digits of the account to be charged, rather than the full account 
number.
---------------------------------------------------------------------------

    \345\ Amended Rule Sec.  310.3(a)(3)(ii)(E). The requirement 
that the account be identified with sufficient specificity that the 
customer or donor understands what account will be used to collect 
payment mirrors the provision in amended Rule Sec.  
310.4(a)(6)(ii)(A), requiring that, in telemarketing transactions 
involving preacquired account information, a seller or telemarketer 
obtain express informed consent by identifying the account to be 
charged with specificity such that the customer or donor understands 
what account will be charged.
---------------------------------------------------------------------------

    Written confirmation. The Commission received several comments 
regarding its proposal to delete Sec.  310.3(a)(3)(iii) from the Rule. 
This section of the original Rule allows a seller or telemarketer to 
obtain express verifiable authorization by sending written confirmation 
of the transaction to the customer prior to submitting the customer's 
billing information to be charged. In general, industry commenters 
opposed the Commission's proposal to delete this provision from the 
Rule, arguing that, contrary to the evidence presented during the Rule 
Review, this method of authorization is commonly used in 
telemarketing.\346\ Aegis noted that there is nothing ``inherently 
fraudulent, abusive, or problematic'' with this method of obtaining 
express verifiable authorization, and urged the Commission to retain 
it.\347\ Industry commenters urged the Commission to retain this 
provision, especially because it provides a low-cost alternative to 
recording a customer's oral authorization.\348\
---------------------------------------------------------------------------

    \346\ See, e.g., ARDA-NPRM at 5 (noting that the written 
confirmation method may actually increase in popularity if the 
additional requirements during oral authorization are adopted in a 
final Rule); ARDA-Supp. at 1 (noting that the Rule should allow for 
flexibility given the rapid technological changes in payment 
methods); CCC-NPRM at 14 (asserting that ``this method is readily 
available, straightforward, reliable and is currently used by many 
marketers.''); CNHI-NPRM at 1 (noting that eliminating this method 
would place newspapers at ``an unfair competitive disadvantage''); 
EFSC-NPRM at 8; NAA-NPRM at 16 (``many newspapers regularly and 
legitimately used this method'' and would incur considerable expense 
using the written or oral authorization methods instead).
    \347\ Aegis-NPRM at 4. Accord Noble-NPRM at 4 (arguing there is 
nothing inherently fraudulent about this method of authorization); 
PMA-NPRM at 20 (suggesting that the record does not support 
elimination of this method of authorization); Technion-NPRM at 5 
(arguing there is nothing ``wrong with'' this method of 
authorization).
    \348\ See, e.g., Capital One-NPRM at 8; Gannett-NPRM at 1; 
Intuit-NPRM at 19-20; MPA-NPRM at 27; PMA-NPRM at 20 (urging that 
this method be retained in part to reduce costs for inbound call 
centers who, under proposed revisions to address upselling, would 
need to conduct express verifiable authorization and may not be 
equipped to do so by taping); June 2002 Tr. III at 40-42 (CCC, 
noting that written confirmation ``is the cheapest way of 
effectuating a transaction;'' ERA, stating that reinstating the 
written confirmation method will ``help balance the additional 
costs'' incurred due to the expansion of the express verifiable 
authorization requirement).
---------------------------------------------------------------------------

    Consumer groups and law enforcement officials expressed their 
support for deleting this provision from the Rule, or modifying it to 
ensure that consumers are better protected when this method is 
used.\349\ NAAG, for example, noted the potential danger inherent in 
the written confirmation provision as it is worded in the original 
Rule. Specifically, NAAG opined that consumers are likely to overlook a 
confirmation that appears to be yet

[[Page 4611]]

another piece of ``junk mail,''\350\ and recommended that the Rule be 
amended to specifically require that any confirmation document sent 
pursuant to this method of authorization be clearly and conspicuously 
labeled as such.\351\ NAAG also suggested that, if reinstated, the 
written confirmation method should not be considered a ``verifiable'' 
means of obtaining consumers' authorization in circumstances when the 
consumer is already vulnerable, such as when the goods or services to 
be paid for are offered in conjunction with a ``free-to-pay 
conversion'' or ``negative option feature,'' or when the seller or 
telemarketer has preacquired account information prior to the 
initiation of the call.\352\ MPA suggested that perhaps this method 
could be reinstated if used in the sale of goods or services for which 
a liberal refund policy exists.\353\ NAAG raised the concern that there 
might exist a material inconsistency between the disclosures made in 
the sales portion of the call and those sent as part of a post-call 
confirmation.\354\
---------------------------------------------------------------------------

    \349\ See, e.g., NAAG-NPRM at 49.
    \350\ Id. (noting that such confirmations ``tend to go unnoticed 
or unrecognized by consumers, thereby failing in their function of 
`authorizing' a payment'').
    \351\ Id.
    \352\ See June 2002 Tr. III at 42-43 (NAAG).
    \353\ Id. at 44 (MPA).
    \354\ Id. at 48-49 (NAAG).
---------------------------------------------------------------------------

    In response to this range of comment, the Commission has decided to 
reinstate the written confirmation method of obtaining express 
verifiable authorization, with certain modifications. After balancing 
the concerns enunciated by consumer groups against industry's strongly-
stated desire to reinstate this economical means of obtaining express 
verifiable authorization, the Commission has determined to modify the 
provision to enhance the likelihood that consumers will receive these 
written confirmations in a timely manner and will recognize the 
confirmations as important documents that should not be thrown away 
unopened. The amended Rule continues to require that the written 
confirmation disclose all of the information contained in Sec.  
310.3(a)(3)(ii)(A)-(G), as well as a statement of the procedures by 
which the customer can obtain a refund from the seller or telemarketer 
or charitable organization in the event the confirmation is inaccurate. 
However, the amended Rule requires that the written confirmation be 
``clearly and conspicuously labeled'' as such, on the outside of the 
envelope in which it is sent, and that it be sent to the customer by 
first class mail\355\ prior to the submission for payment of the 
customer's or donor's billing information.\356\ The Commission will 
continue to monitor the use of the post-sale written confirmation 
method of express verifiable authorization and may revisit this issue 
in a subsequent Rule Review should circumstances warrant.
---------------------------------------------------------------------------

    \355\ The requirement that such confirmations be sent via first 
class mail should cause industry to incur no additional expense. 
According to the DMA representative at the June 2002 Forum, federal 
postal regulations require that such confirmations be sent via first 
class mail. See June 2002 Tr. III at 45; see also June 2002 Tr. III 
at 47 (CCC) (noting that company practice is to ensure that written 
confirmations are clearly and conspicuously labeled). This change to 
the Rule, then, will merely echo the postal regulations, which 
require that personalized business correspondence be sent via first 
class mail. See 39 CFR 3001.68, App. A.
    \356\ The Commission has declined, at this time, to follow the 
suggestion by Capital One that the written confirmation method 
should be reinstated, ``provided that the confirmation is delivered 
30 days prior to submission for payment, and the customer is 
permitted to repudiate the sale within that time by calling a toll-
free number,'' because the record provides too little evidence to 
suggest that these additional protections are necessary to prevent 
consumer injury. See Capital One-NPRM at 8.
---------------------------------------------------------------------------

    The amended Rule also proscribes the use of the post-sale method of 
authorization when the goods or services that are the subject of the 
transaction are offered in conjunction with a ``free-to-pay 
conversion'' feature and preacquired account information. The record is 
replete with evidence, detailed in the section below discussing new 
Sec.  310.4(a)(6), that ``free-to-pay conversion'' offers, particularly 
when coupled with the use of preacquired account information, have 
often resulted in unauthorized charges to consumers.\357\ Given this 
evidence, coupled with NAAG's observation that ``[a] consumer who does 
not believe they entered into a transaction would be less likely to 
even open mail from a company whose offer he or she had recently 
`declined,'''\358\ the Commission will require that authorization in 
such situations must be obtained pursuant to either Sec.  
310.3(a)(3)(i) or (ii).
---------------------------------------------------------------------------

    \357\ See discussion of amended Rule Sec.  310.4(a)(6), below. 
See also June 2002 Tr. III at 42-43 (NAAG).
    \358\ NAAG-NPRM at 49.
---------------------------------------------------------------------------

Sec.  310.3(a)(4) -- Prohibition of false and misleading statements to 
induce the purchase of goods or services or a charitable contribution

    The only proposed modification of this provision in the NPRM was to 
expand it, pursuant to the mandate of the USA PATRIOT Act, to encompass 
misrepresentations made to induce a charitable contribution.\359\ The 
Commission received few comments on this section, and none opposing 
this proposed expansion.\360\ Therefore, the Commission adopts the 
wording of proposed Sec.  310.3(a)(4) unchanged in the amended Rule.
---------------------------------------------------------------------------

    \359\ Proposed Rule Sec.  310.3(a)(4). See 67 FR 4508.
    \360\ See, e.g., Make-A-Wish-NPRM, passim (detailing complaints 
received by Make-A-Wish, which does not solicit donations by 
telephone, regarding fraudulent telemarketers claiming or implying 
that they are calling from or affiliated with Make-A-Wish).
---------------------------------------------------------------------------

Sec.  310.3(b) -- Assisting and facilitating

    Section 310.3(b) of the original Rule prohibits a person from 
providing substantial assistance or support to any seller or 
telemarketer when that person knows or consciously avoids knowing that 
the seller or telemarketer is violating certain provisions of the Rule. 
During the Rule Review, the Commission received comments from consumer 
protection and law enforcement groups who argued that the ``conscious 
avoidance'' standard adopted in the original Rule should be modified to 
a ``knew or should have known standard.''\361\ The Commission noted 
that it continued to support the ``conscious avoidance'' standard, 
believing that such a standard is appropriate ``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.''\362\ Although 
the provision was retained in the proposed Rule without amendment, its 
coverage was expanded to cover assisting and facilitating in the 
solicitation of charitable contributions pursuant to the USA PATRIOT 
Act. The Commission invited additional comment on, and proposed 
alternatives to, the assisting and facilitating standard.\363\
---------------------------------------------------------------------------

    \361\ See 67 FR at 4508-09.
    \362\ Id. at 4509.
    \363\ Id.
---------------------------------------------------------------------------

    In response to the NPRM, VISA noted that although this provision 
was retained unchanged in the proposed Rule, ``the expanded scope of 
the Proposed Rule, including provisions that conflict with the GLBA 
privacy rules, could require financial institutions to police the 
activities of third parties, many of whom are themselves regulated 
entities.''\364\ The Commission believes that the modifications to the 
preacquired account telemarketing provisions in the amended Rule 
obviate the concerns expressed by VISA.\365\
---------------------------------------------------------------------------

    \364\ VISA-NPRM at 12.
    \365\ See discussion of amended Rule Sec. Sec.  310.4(a)(5) and 
(6) below.
---------------------------------------------------------------------------

    ARDA expressed its support for retaining the ``conscious 
avoidance'' standard, endorsing the rationale

[[Page 4612]]

enunciated by the Commission in the NPRM for the heightened knowledge 
requirement.\366\ But AARP reiterated its concern that the conscious 
avoidance standard places too high a burden on law enforcement, and 
urged the Commission to substitute a ``knew or should have known'' 
standard for the assisting and facilitating provision.\367\ NACAA also 
urged the Commission to adopt a ``knew or should have known'' standard 
in the amended Rule.\368\ NAAG made a similar recommendation, noting 
that the current standard results in ``both federal and state 
authorities [being] unduly hampered in trying to reduce telemarketing 
fraud.''\369\ NAAG also noted that this provision is critical in 
addressing the participation of those United States-based entities, 
such as sellers of victim lists, fulfillment house operators, and 
credit card launderers, who provide necessary assistance to fraudulent 
telemarketers, many of whom have begun operating from outside the 
country.\370\
---------------------------------------------------------------------------

    \366\ ARDA-NPRM at 6.
    \367\ AARP-NPRM at 8.
    \368\ NACAA-NPRM at 8.
    \369\ NAAG-NPRM at 56.
    \370\ Id. (suggesting that liability for those who assist and 
facilitate is particularly important when the fraudulent 
telemarketer holds no assets in the United States).
---------------------------------------------------------------------------

    The Commission declines, on the record evidence, to lower the 
standard for assisting and facilitating under the Rule. The Commission 
continues to believe the ``conscious avoidance'' standard is the 
appropriate one in instances when liability to pay redress or civil 
penalties rests on another person's violation of the Rule. Further, the 
Commission believes the ``conscious avoidance'' standard is one that 
can be met in situations where third parties provide substantial 
assistance to fraudulent telemarketers. As stated in the original SBP, 
this standard ``is intended to capture the situation where actual 
knowledge cannot be proven, but there are facts and evidence that 
support an inference of deliberate ignorance.''\371\ In the 
hypothetical situations posed in NAAG's comment, the Commission 
believes it would be possible to demonstrate such ``deliberate 
ignorance'' on the part of, for example, a fulfillment house that ships 
only inexpensive prizes on behalf of a telemarketer about whom it 
receives numerous complaints. The Commission itself has brought several 
cases successfully using the assisting and facilitating provision, and 
has found the provision to be a useful tool in combating fraudulent 
telemarketing.\372\
---------------------------------------------------------------------------

    \371\ 60 FR at 43852.
    \372\ See 67 FR at 4509, n.155. See also FTC v. Allstate Bus. 
Distrib'n. Ctr., Inc., No. 00-10335AHM (CTX) (C.D. Cal. 2001); FTC 
v. Sweet Song Corp., No. CV-97-4544 LGB (Jgx) (C.D. Cal. 1997); FTC 
v. Walton (d/b/a Pinnacle Fin. Servs.), No. CIV98-0018 PCT SMM (D. 
Ariz. Jan. 1998).
---------------------------------------------------------------------------

Sec.  310.3(c) -- Credit card laundering

    In the NPRM, the Commission retained the original Rule provision 
addressing credit card laundering, but noted that the coverage of the 
provision in the proposed Rule would expand to cover credit card 
laundering in the solicitation of charitable contributions, pursuant to 
the mandate of the USA PATRIOT Act.\373\ Although the proposed Rule was 
issued with this provision unmodified, the Commission expressed concern 
that 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).''\374\
---------------------------------------------------------------------------

    \373\ See 67 FR at 4509.
    \374\ Id.
---------------------------------------------------------------------------

    Having received no comment regarding the credit card laundering 
provision generally, or regarding the Commission's specific concerns, 
the Commission has determined to retain this provision in its original 
form. The Commission will continue to monitor its effectiveness, 
however, and may reconsider modifications at the next Rule Review.

Sec.  310.3(d) -- Prohibited deceptive acts or practices in the 
solicitation of charitable contributions

    Pursuant to Sec.  1011(b)(1) of the USA PATRIOT Act, the Commission 
proposed in the NPRM to include in the Rule new prohibited 
misrepresentations in the solicitation of charitable 
contributions.\375\ The amended Rule retains Sec.  310.3(d) unchanged, 
with the following exceptions. First, the phrase ``after any 
administrative or fundraising expenses are deducted'' has been deleted 
from Sec.  310.3(d)(4). The Commission believes that the provision is 
clearer absent this qualifying phrase, and thus has stricken it in the 
amended Rule. Second, Sec.  310.3(d)(6), the prohibited 
misrepresentation regarding advertising sales has been deleted. As 
discussed below, in the section addressing Sec.  310.6(b)(7), the 
Commission has determined to exempt from the Rule's coverage business-
to-business calls to induce a charitable solicitation. As a result, the 
prohibition against misrepresentations regarding the sale of 
advertising, which would occur in a business-to-business context, is no 
longer necessary. Finally, proposed Sec.  310.3(d)(7), prohibiting 
misrepresentations regarding a charitable organization's or 
telemarketer's affiliation with, or endorsement or sponsorship by, any 
person or government entity, is renumbered in the amended Rule as Sec.  
310.3(d)(6).
---------------------------------------------------------------------------

    \375\ Id. at 4509-10 (discussing the reasoning behind the 
prohibited misrepresentations included in proposed Rule Sec.  
310.3(d)).
---------------------------------------------------------------------------

    Section 310.3(d) prohibits misrepresentations regarding certain 
material information that a telemarketer might choose to convey to a 
donor to induce a charitable contribution.\376\ The goal of the 
prohibition on these misrepresentations is to ensure that donors 
solicited for charitable contributions are not deceived, a purpose 
squarely in line with the mandate of the USA PATRIOT Act, which 
directed the Commission to include ``fraudulent charitable 
solicitations'' in the deceptive practices prohibited by the TSR.\377\ 
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.\378\ As set forth in the NPRM, the Commission believes that 
if any of the items listed in this section are misrepresented, donors 
are likely to be misled, as false representations of material facts are 
likely to mislead.\379\ Moreover, the Commission's enforcement 
experience shows that often such representations are express, and 
therefore presumptively material. If implied, such representations are 
still likely to influence a donor's decision whether to contribute. 
Therefore, ``misrepresentation of any of these [] categories of 
material information is deceptive, in violation of section 5 of the FTC 
Act.''\380\
---------------------------------------------------------------------------

    \376\ Amended Rule Sec.  310.3(d)(1)-(7).
    \377\ USA PATRIOT Act Sec.  1011(b)(1).
    \378\ See Cliffdale Assocs., Inc., 103 F.T.C. 110, 165, appeal 
dismissed sub nom., Koven v. FTC, No. 84-5337 (11th Cir. 1984).
    \379\ See Thompson Med. 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).
    \380\ 67 FR at 4510.
---------------------------------------------------------------------------

    In response to the NPRM, some commenters expressed their general 
support for the USA PATRIOT Act amendments, which extended the Rule's 
coverage to for-profit telemarketers soliciting charitable donations. 
AARP, for example, noted its support for the general purposes of the 
USA PATRIOT Act, stating that the amendments would

[[Page 4613]]

prevent fraudulent charitable solicitations while still allowing 
``legitimate fundraising appeals.''\381\ Similarly, NCL noted that the 
new provisions in the TSR regarding for-profit fundraisers will be 
``very helpful in curbing deceptive and abusive practices.''\382\
---------------------------------------------------------------------------

    \381\ AARP-NPRM at 4.
    \382\ NCL-NPRM at 2.
---------------------------------------------------------------------------

    Very few comments were received specifically on Sec.  310.3(d) of 
the proposed Rule. One such comment, from NCL, noted that ``[t]he 
proposed list of prohibited practices covers most of the common abuses 
that are reported by consumers and businesses.''\383\ NCL did suggest 
adding an additional prohibited misrepresentation on ``sound-alikes,'' 
or the use of a name similar or identical to that of a legitimate 
charity in an attempt to benefit from that charity's good will.\384\ 
Similarly, Make-A-Wish proposed prohibiting misrepresentations of the 
``identity'' of the entity on whose behalf the charitable solicitation 
is being sought.\385\ NAAG and NASCO suggested that the Commission 
clarify that proposed Sec.  310.3(d)(7), which prohibits 
misrepresentations regarding ``[a] seller's or telemarketer's 
affiliation with, or endorsement or sponsorship by, any person or 
government entity,'' would prohibit misrepresentations of a seller's or 
telemarketer's affiliation with any charity.\386\ The Commission 
believes that proposed Sec.  310.3(d)(7), renumbered as Sec.  
310.3(d)(6) in the amended Rule, is broad enough to prohibit the 
``sound-alike'' misrepresentation NCL raised, as well as to prohibit a 
misrepresentation regarding one's affiliation with any charity. 
Therefore, the Commission declines to add a further misrepresentation 
to specifically address the ``sound-alike'' scenario, or add the 
``identity'' of the charity to the prohibited misrepresentations.
---------------------------------------------------------------------------

    \383\ Id. at 5.
    \384\ Id.
    \385\ Make-A-Wish-NPRM at 5.
    \386\ NAAG-NPRM at 53. See also NASCO-NPRM at 7.
---------------------------------------------------------------------------

    NAAG and NASCO also proposed one further modification: the addition 
of a prohibited misrepresentation of ``[t]he address or location of the 
charitable organization, and where the organization conducts its 
activities.''\387\ NAAG stated that the addition of such a provision 
would ensure that telemarketers do not misrepresent that the charities 
on whose behalf they are soliciting are ``local'' or that their 
activities are local, since the local character of a charity or its 
programs often is material to prospective donors. According to NAAG, 
because many prospective donors prefer to support organizations that 
will benefit their own community, fundraisers sometimes take advantage 
of that sentiment by using a local post office box or other local 
address as their return address, to make it seem as if the charity is 
based close to the donors.\388\
---------------------------------------------------------------------------

    \387\ NAAG-NPRM at 53.
    \388\ Id.
---------------------------------------------------------------------------

    The Commission believes that any misrepresentation of the 
charitable organization's location, or the location where the funds are 
to be used, would likely violate Sec.  310.3(d)(3), which prohibits 
misrepresentation of the ``purpose for which any charitable 
contribution will be used.'' Therefore, the Commission declines to 
include a specific prohibited misrepresentation regarding the address 
or location of a charity.

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.''\389\ The Act does not define 
the term ``abusive telemarketing act or practice.'' It directs the 
Commission to include in the TSR provisions prohibiting 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.''\390\ The Act does not 
limit the Commission's authority to address abusive practices beyond 
these three practices legislatively determined to be abusive.\391\ 
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.
---------------------------------------------------------------------------

    \389\ 15 U.S.C. 6102(a)(1) (emphasis added).
    \390\ 15 U.S.C. 6102(a)(3).
    \391\ See KENNETH CULP DAVIS & RICHARD J. PIERCE, JR., 
ADMINISTRATIVE LAW TREATISE Sec.  3.2 (3d 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 Res. Def. 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.''\392\ 
Similarly, by directing that the Commission regulate the times when 
telemarketers could make unsolicited calls to consumers in the second 
enumerated item,\393\ Congress recognized that telemarketers' right to 
free speech is in tension with consumers' right to privacy within the 
sanctity of their homes, but that a balance must be struck between the 
two that meshes with consumers' expectations while not unduly burdening 
industry. 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\394\ also relates to privacy, in that it 
requires the consumer be given information promptly that will enable 
him to decide whether to allow the infringement on his 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 rein in 
these tactics lie at the heart of Sec.  310.4 of the TSR.
---------------------------------------------------------------------------

    \392\ 15 U.S.C. 6102(a)(3)(A) (emphasis added).
    \393\ 15 U.S.C. 6102(a)(3)(B).
    \394\ 15 U.S.C. 6102(a)(3)(C).
---------------------------------------------------------------------------

    The practices not specified as abusive in the Act, but determined 
by the Commission to be abusive and thus 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

[[Page 4614]]

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.\395\ In the SBP for the original 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.''\396\ 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 . 
. . .''\397\
---------------------------------------------------------------------------

    \395\ ``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. 103-20 at 8 
(1993).
    \396\ 60 FR at 30415.
    \397\ Id.
---------------------------------------------------------------------------

    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,\398\ and gives the 
Commission discretion in exercising this authority.\399\
---------------------------------------------------------------------------

    \398\ 15 U.S.C. 6102(a)(1). 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.
    \399\ 15 U.S.C. 6102(a)(1).
---------------------------------------------------------------------------

    As noted above, some of the practices 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\400\ and codified in the FTC Act.\401\ This 
approach constitutes a reasonable exercise of authority under the 
Telemarketing Act, and provides an appropriate framework for several 
provisions of the original Rule. 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.
---------------------------------------------------------------------------

    \400\ 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 Int'l 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 Co., 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).
    \401\ 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.\402\ 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,\403\ and in each case 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.
---------------------------------------------------------------------------

    \402\ Id.
    \403\ During 1995 and 1996, the Commission brought or settled 
lawsuits against numerous individuals and companies involved in 
nearly a dozen recovery room operations. See, e.g., FTC v. Meridian 
Capital Mgmt., No. CV-S-96-63-PMP (RLH) (D. Nev. filed Nov. 20, 
1996). The Commission's efforts against recovery rooms have borne 
fruit. The volume of consumer complaints concerning recovery rooms 
logged into the FTC Telemarketing Complaint System in 1996 plummeted 
to 153--less than one-fifth the record high volume of 869 complaints 
recorded in 1995. See ``1995-1996 Staff Summary of FTC Activities 
Affecting Older Americans'' (Mar. 1998). Complaints about 
``recovery'' schemes have continued to decline dramatically, from a 
number three ranking in 1995 to a number twenty-five ranking in 
1999, while complaints about credit repair have remained at a 
relatively low level since 1995 (steadily ranking about number 
twenty-three or twenty-four in terms of number of complaints 
received by the NFIC). NCL-RR at 11. The Commission continues to 
take action against fraudulent credit repair schemes; for example, 
in August 2000, the FTC, the Department of Justice and forty-seven 
other federal, state and local law enforcement and consumer 
protection agencies surfed the Web looking for illegal scams that 
promise consumers that they can restore their creditworthiness for a 
fee. Over 180 websites were put on notice that their credit repair 
claims may violate state and federal laws. See ``Surf's Up for Crack 
Down on ``Credit Repair'' Scams,'' FTC press release dated Aug. 21, 
2000). Unfortunately, complaints about advance fee loan schemes rose 
from a number fifteen ranking in 1995 to the number two ranking in 
1998, with about 80 percent of the advance fee loan companies 
reported to the NFIC located in Canada. NCL-RR at 12. RR Tr. at 378. 
The Commission and the state Attorneys General continue to launch 
law enforcement ``sweeps'' targeting corporations and ind ividuals 
that promise loans or credit cards for an advance fee, but never 
deliver them. A sweep was announced June 20, 2000, involving 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. Fin. Servs. of N. Am., 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 Serv., 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 Servs., 
Inc., Civil No. 00-CV-0905C(F) (W.D.N.Y. filed Oct. 23, 2000).
---------------------------------------------------------------------------

Sec.  310.4(a) -- Abusive conduct generally

    Section 310.4(a) of the original Rule sets forth specific conduct 
that is considered to be an ``abusive telemarketing act or practice'' 
under the Rule. None of the comments in the Rule Review recommended 
that changes be made to the original wording of Sec. Sec.  310.4(a)(1)-
(3); nor had the Commission's enforcement experience revealed any 
difficulty with these provisions that would warrant amendment.\404\ 
Although one

[[Page 4615]]

commenter suggested amendments to Sec.  310.4(a)(4), the Commission 
determined that no amendment was needed to the language of that 
provision.\405\ Therefore, the language in these provisions was 
unchanged in the proposed Rule.
---------------------------------------------------------------------------

    \404\ 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. Section 310.4(a)(3) 
prohibits requesting advance payment for the recovery of money lost 
by a consumer in a previous telemarketing transaction.
    \405\ 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 in its Rule Review 
comment that the number of complaints it received about such advance 
fee loan schemes had risen steeply in the five years since the Rule 
was promulgated. NCL also speculated that consumers may be confused 
about whether and under what circumstances fees are legitimately 
required for different types of loans, as evidenced by the numerous 
complaints about advance fee credit cards. NCL-RR at 11. The 
Commission noted in the NPRM its belief that the language of Sec.  
310.4(a)(4) already prohibits such advance fee credit card offers 
via telemarketing and that numerous federal and state law 
enforcement efforts have been directed at such offers. See 
discussion at 67 FR at 4510.
---------------------------------------------------------------------------

    As noted in the NPRM, however, the 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 telemarketer to engage in [the 
conduct specified in subsections (1) through (6) of this provision of 
the Rule].''\406\ The proposed Rule modified the definitions of 
``telemarketing,'' and, by association, ``telemarketer,'' to encompass 
the solicitation of charitable contributions. Consequently Sec.  
310.4(a) of the proposed Rule would have applied to all telemarketers, 
including those engaged in the solicitation of charitable 
contributions. 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. As noted in the NPRM, the 
Commission believes it unlikely that Sec. Sec.  310.4(a)(2)-(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. Sections 310.4(a)(1), (5), (6), (7) and (8) 
of the proposed Rule, however, addressed practices that are not 
necessarily confined to telemarketing to induce purchases of goods or 
services. They therefore may have had an impact upon telemarketers 
engaged in the solicitation of charitable contributions.
---------------------------------------------------------------------------

    \406\ Original and amended Rule Sec.  310.4(a).
---------------------------------------------------------------------------

    The Commission received many comments discussing the proposed 
modifications to Sec.  310.4(a), and significant time was devoted to 
these issues at the June 2002 Forum. A summary of the major points on 
the record regarding the proposed amendments is provided below.

Sec.  310.4(a)(1) -- Threats and intimidation

    Section 310.4(a)(1), unchanged in the proposed Rule, specifies that 
it is an abusive telemarketing practice to engage in threats, 
intimidation, or the use of profane or obscene language. None of the 
comments in response to the NPRM recommended that changes be made to 
the wording of Sec.  310.4(a)(1), although ICFA did request 
clarification of the term ``intimidation,'' arguing that ``a person 
could potentially claim to have been `intimidated' simply because a 
pre-need caller suggested meeting to discuss funeral 
arrangements.''\407\ The Commission believes that under the language of 
the Rule, which focuses on the telemarketer's behavior, to ``engage in 
. . . intimidation'' could not reasonably be extended to cover the 
situation where a telemarketer merely invites a consumer to discuss 
funeral arrangements, even if the person called finds the prospect of 
funeral planning an ``intimidating'' one. Rather, as the Commission 
noted in the TSR Compliance Guide, this provision is meant to prohibit 
``intimidation, including acts which put undue pressure on a consumer, 
or which call into question a person's intelligence, honesty, 
reliability or concern for family.''\408\ The Commission believes 
further clarification is unnecessary, and thus declines to include in 
the amended Rule a definition of ``intimidation.'' Therefore, the 
language in this provision remains unchanged in the amended Rule. 
However, the USA PATRIOT Act expansion of the TSR brings within the 
ambit of this provision telemarketers soliciting charitable 
contributions.
---------------------------------------------------------------------------

    \407\ ICFA-NPRM at 3.
    \408\ TSR Compliance Guide at 23 (noting that ``[r]epeated calls 
to an individual who has declined to accept an offer may also be an 
act of intimidation'').
---------------------------------------------------------------------------

Sec.  310.4(a)(2) -- Credit repair

    Section 310.4(a)(2) prohibits requesting or receiving a fee or 
consideration for goods or services represented to improve a person's 
creditworthiness until: 1) the time frame within which the seller has 
represented that the promised services will be provided has expired; 
and 2) the seller has provided the consumer with evidence that the 
services were successful--that is, that the consumer's creditworthiness 
has improved. No change to this section was incorporated in the 
proposed Rule, except to note its expanded coverage as a result of the 
USA PATRIOT Act.\409\ The only comment received in response to the NPRM 
was from DBA, which requested that debt collectors be specifically 
exempted from compliance with this section.\410\ As DBA itself noted, 
debt collection activities do not fall within the Rule's ambit in any 
event because they are outside the definition of 
``telemarketing.''\411\ Therefore, it is unnecessary to exempt debt 
collectors from compliance with this provision.
---------------------------------------------------------------------------

    \409\ 67 FR at 4512 (noting that ``[i]t is unlikely that [this 
section] will have any significant impact on telemarketers engaged 
in the solicitation of charitable contributions. . .'').
    \410\ DBA-NPRM at 2-4.
    \411\ Id.
---------------------------------------------------------------------------

Sec.  310.4(a)(5) -- Disclosing or receiving, for consideration, 
unencrypted consumer account numbers for use in telemarketing

    The Commission has added a new provision, Sec.  310.4(a)(5), which 
specifies that it is an abusive practice and a violation of the Rule to 
disclose or receive, for consideration, unencrypted consumer account 
numbers for use in telemarketing.
    As mentioned above, since the original Rule was promulgated, 
consumer concern over encroachments on their privacy has become 
widespread. One response to privacy concerns was passage of the 
GLBA\412\ and its related regulations,\413\ under which financial 
institutions, and the third parties with which they do business, may 
provide consumer account information to other third parties only in 
encrypted form for marketing purposes. To do otherwise is not only a 
violation of the GLBA and its related regulations,\414\ but is 
construed by consumers as a breach of the financial institution's 
promise to consumers to keep the consumer's account information 
confidential and secure.\415\
---------------------------------------------------------------------------

    \412\ Gramm-Leach-Bliley Act, see note 64 above.
    \413\ See 16 CFR 313.65 (2000) (FTC's Privacy Regulation). See 
also 17 CFR 160; 12 CFR 332; 12 CFR 715; 12 CFR 40; 12 CFR 573; and 
17 CFR 248.
    \414\ See, e.g., 12 CFR 313.12.
    \415\ See AARP-Supp. at 2 (describing the results of a survey 
AARP conducted in which the majority of consumers reported that they 
did not believe telemarketers could or should freely share their 
account information). See also Dave Finlayson (Msg. 491) (``I will 
cease doing business with any firm which gives out my personal 
private information.''); BL (Msg. 1175) (``I also agree that they 
should not get a credit card or other account number except from the 
consumer who chooses to deal with them. . . . This should include 
not SELLING (not just sharing as stated in our newspaper article) 
these numbers.''); Anonymous (Msg. 3457) (``This is not what any 
reasonable person would consider ``public information.'. . . Why 
would ANYONE consider this information that they can ``share'' 
without the customer's express permission?'').

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

[[Page 4616]]

    Indeed, trading in unencrypted consumer account numbers has been 
uniformly condemned by virtually all parties who participated in this 
rulemaking proceeding. Although there was substantial debate regarding 
the Commission's proposal for a blanket prohibition on the transfer or 
receipt of consumers' billing information (i.e., ``preacquired account 
information''),\416\ there was no disagreement among commenters and 
forum participants about the notion that trafficking in lists of 
consumer account numbers was improper, in many cases illegal, and 
should be a violation of the Rule.\417\ As ERA explained during the 
forum:
---------------------------------------------------------------------------

    \416\ Over 50 of the major organizational commenters addressed 
the issue of preacquired account telemarketing, as did over 200 
consumer commenters. In addition, a session of the June 2002 Forum 
was dedicated to the topic, and generated extensive discussion. See 
June 2002 Tr. II at 116-212.
    \417\ See, e.g., ERA/PMA-Supp. at 14-15; PMA-NPRM at 14; June 
2002 Tr. II at 183 (ERA). See also ATA-Supp. at 6; NCTA-NPRM at 12 
(``[T]he trafficking of customer account information by unscrupulous 
telemarketers is a legitimate concern.''). Also, the GLBA prohibits 
this practice on the part of financial institutions. 15 U.S.C. 
6802(d); and see, e.g. 12 CFR 313.12.

[I]f there is a transfer of consumer information without knowledge 
of and prior to the consumers' consent, which would encompass, for 
example, your scenario where a list is compiled and a marketer 
[sold] its list with its credit card numbers to another marketer 
without telling the consumers on that list that they sold the list 
of account numbers, I think everyone at this table would agree . . . 
that this is a violation. . . . We've said in our comments that we 
would agree to a ban on that. Legitimate marketers don't do that. 
They don't sell consumer credit card numbers for money.\418\
---------------------------------------------------------------------------

    \418\ June 2002 Tr. II at 183.

    Given that there is no legitimate reason to purchase unencrypted 
credit card numbers, the Commission believes there is a strong 
likelihood that telemarketers who engage in this practice will misuse 
the information in a manner that results in unauthorized charges to 
consumers. This conclusion is consistent with the Commission's law 
enforcement experience.\419\ Consumers cannot avoid the injury because 
they likely are unaware that their credit card numbers have been 
purchased and that a telemarketer possesses that information when they 
receive a telemarketing call. In addition, there is no evidence on the 
record of any countervailing benefits to consumers or competition by 
trafficking in lists of account numbers. As a result, the Commission 
concludes that the practice of selling unencrypted lists of credit card 
numbers is likely to cause substantial and unavoidable consumer injury 
in the form of unauthorized charges without any countervailing 
benefits. Thus, the Commission has determined to add Section 
310.4(a)(5). This provision is consistent with the basic prohibition in 
the GLBA, and in essence, extends the ban on this practice beyond 
financial institutions and ensures that all sellers and telemarketers 
subject to the TSR are prohibited from this practice.
---------------------------------------------------------------------------

    \419\ See, e.g., FTC v. J.K. Publ'ns, Inc., 99 F. Supp. 2d 1176 
(C.D. Cal. 2000) (in which, outside the telemarketing context, 
defendant purchased unencrypted lists of consumer account numbers, 
which it used to charge consumers, purportedly for visits to adult 
websites, despite the fact that many of those charged did not even 
own computers). In addition, given the evidence that preacquired 
account telemarketing involving encrypted account information can 
result in unauthorized charges (as discussed in more detail below), 
the Commission believes that there is an even greater likelihood of 
consumer injury when telemarketers have purchased consumers' actual 
credit card numbers before contacting consumers about an offer.
---------------------------------------------------------------------------

    The prohibition in Sec.  310.4(a)(5) is not limited to compilation 
and disclosure of lists of account numbers. Rather, any disclosure (or 
receipt) of unencrypted account information violates the Rule, unless 
the disclosure is for purposes of processing a payment for a 
transaction to which the consumer has consented after receiving all 
disclosures and other protections of the Rule. A seller or telemarketer 
could not, for example, provide or receive account numbers one at a 
time in order to circumvent this provision. Nor could a telemarketer 
obtain account information from consumers on behalf of one seller, and 
then retain it for sale or disclosure to another seller in another 
telemarketing campaign.\420\
---------------------------------------------------------------------------

    \420\ See, e.g., FTC v. Capital Club, No. 94-6335 (D.N.J. 1994). 
According to the FTC complaint in that case, two companies, National 
Media and Media Arts, which marketed products through infomercials, 
allegedly sold or rented their customer lists to third-party service 
companies that sold products and services such as memberships in 
shopping and travel clubs. The lists contained customers' names, 
addresses, and telephone numbers, as well as their credit-card 
types, account numbers and expiration dates. The lists were provided 
to the service companies without the customers' knowledge or 
authorization. Some of the Capital Club defendants' roles included 
maintaining the lists, marketing them to the service companies, and 
conducting telemarketing calls on behalf of the service companies, 
according to the complaint. Industry representatives at the June 
2002 Forum registered agreement that the Capital Club scenario would 
run afoul of a ban on trafficking in consumer account information. 
See June 2002 Tr. II at 193 (ERA) (``[T]hat's exactly the scenario 
that we're talking about that would be prohibited because when that 
third-party telemarketer retained that account information, it did 
so as an agent for the seller, so it was not that telemarketer's 
account information to begin with. They were capturing that for the 
seller on whose behalf that call was made, so if that telemarketer 
were then to call a consumer without knowledge and prior consent and 
use that credit card information again, that would be the kind of a 
transfer prior to and without consumer consent that we're talking 
about.'')
---------------------------------------------------------------------------

    By ``unencrypted,'' the Commission means the actual account number, 
or lists of actual account numbers, or encrypted information with a key 
to unencrypt the data.\421\ ``Consideration'' is not limited to cash 
payment for a list of account numbers. ``Consideration'' can take a 
variety of forms, including receiving a percentage of every ``sale'' 
using the unencrypted account information.
---------------------------------------------------------------------------

    \421\ This, too, is consistent with the financial privacy 
regulations issued pursuant to the GLBA. See 12 CFR 313.12(c)(1) 
(``An account number, or similar form of access number or access 
code, does not include a number or code in an encrypted form, as 
long as you do not provide the recipient with a means to decode the 
number or code.'') (emphasis added).
---------------------------------------------------------------------------

    This provision allows processing a properly obtained payment for 
goods or services pursuant to a transaction. In addition, pursuant to 
the USA PATRIOT Act's expansion of the TSR to cover charitable 
solicitations, the provision also allows for the disclosure or receipt 
of a donor's account number to process a payment for a charitable 
contribution pursuant to a transaction. By ``transaction,'' the 
Commission means a telemarketing transaction that complies with all 
applicable sections of the Rule, including new Sec.  310.4(a)(6), 
discussed below, which prohibits any seller or telemarketer from 
causing a charge to be placed against a customer's or donor's account 
without that customer's or donor's express informed consent to the 
charge.\422\
---------------------------------------------------------------------------

    \422\ See amended Rule Sec.  310.4(a)(6) and discussion of that 
provision, below.
---------------------------------------------------------------------------

Sec.  310.4(a)(6) -- Causing a charge to be submitted for payment 
without the consumer's express informed consent

    In the NPRM, the Commission proposed a prohibition on ``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.''\423\ This proposed provision was prompted 
by extensive comments during the Rule Review concerning the severity 
and the scope of harm to consumers related to

[[Page 4617]]

preacquired account telemarketing.\424\ The proposal also arose from 
the Commission's law enforcement experience in this area, as well as 
that of the states, which demonstrates the consumer harm that can 
result from this practice.\425\ The comments received in response to 
the NPRM, however, demonstrate that much preacquired account 
telemarketing does not necessarily give rise to consumer injury--
specifically, unauthorized charges--and in fact may benefit consumers. 
With this in mind, the Commission has focused more narrowly on the 
tangible harm, and has crafted precise solutions to the specific abuses 
evident in instances involving preacquired account information.
---------------------------------------------------------------------------

    \423\ Proposed Rule Sec.  310.4(a)(5), 67 FR at 4543.
    \424\ See 67 FR at 4512-14.
    \425\ See, e.g., FTC v. Smolev, No. 01-8922 CIV ZLOCH (S.D. Fla. 
2001); FTC v. Technobrands, Inc., No. 3:02 cv 00086 (E.D. Va. 2002); 
NAAG-NPRM at 30, n.73; Illinois-Supp. passim.
---------------------------------------------------------------------------

    Section 310.4(a)(6) of the amended Rule is one of a number of 
provisions that collectively address the harm caused by certain forms 
of preacquired account telemarketing. The scope of this section, 
however, extends beyond the context of preacquired account 
telemarketing to any instance where the seller or telemarketer causes a 
charge to be submitted for payment without first obtaining the express 
informed consent of the customer or donor to be charged, and to be 
charged using a particular account or payment mechanism. This 
provision, along with several new definitions (amended Rule Sec.  
310.2(o) ``free-to-pay conversion,'' Sec.  310.2(t) ``negative option 
feature,'' and Sec.  310.2(w) ``preacquired account information''), a 
new provision requiring specific disclosures of material information in 
any telemarketing transaction involving a negative option feature 
(amended Rule Sec.  310.3(a)(1)(vii)), and a new provision prohibiting 
misrepresentations regarding any material aspect of a negative option 
feature (amended Rule Sec.  310.3(a)(2)(ix)), together are designed to 
address in a more narrowly-tailored manner the problem originally 
targeted by the blanket prohibition against receiving account 
information from any person other than the consumer or disclosing that 
information for use in telemarketing.
    The blanket prohibition proposed in the NPRM, and the issue of 
preacquired account telemarketing generally, received substantial 
comment. Consumer groups and law enforcement agencies strongly 
supported the proposal, citing continued evidence of substantial 
consumer injury resulting from abusive preacquired account 
telemarketing practices.\426\ Their comments strongly criticized a 
distinctive feature of preacquired account telemarketing--that is, that 
it fundamentally changes the customary bargaining relationship between 
seller and consumer by giving the seller the means to bill charges to 
the consumer's account without the consumer divulging his or her 
account number to evidence consent to the transaction.\427\
---------------------------------------------------------------------------

    \426\ AARP-NPRM at 6-7; AARP-Supp. at 4; EPIC-NPRM at 9; Horick-
NPRM at 1 (endorsing EPIC's NPRM comment); NAAG-NPRM at 30-41; NCLC-
NPRM at 12-13. See also Covington-Supp. at 2-5; and NCL-NPRM at 6 
(``Checks and money orders are no longer the most common methods of 
payment in telemarketing complaints made to the NFIC. As NCL noted 
earlier, demand drafts, credit cards, debit cards, utility bills, 
and other types of accounts are increasingly used for payments. 
Sometimes consumers contend that they never provided their account 
numbers to the telemarketers; many of these complaints say they 
never even heard of the companies before they received their bills 
or bank statements.'').
    \427\ NAAG-NPRM at 30; NCL-NPRM at 7. See also Covington-Supp. 
at 2-5.
---------------------------------------------------------------------------

    Industry commenters opposed the proposed provision, making a number 
of legal and factual arguments. Several industry members suggested that 
without specific legislative authority, the Commission could not 
prohibit the transfer of account information under the TSR.\428\ A few 
commenters argued that the Commission lacked record evidence sufficient 
to support the proposed prohibition.\429\ It bears noting that, 
although business and industry representatives acknowledged during the 
Rule Review that the practice of preacquired account telemarketing was 
quite common, maintaining that it was ``very important'' to them, they 
provided scant information that would help to quantify the benefits 
conferred by this practice or better explain how these benefits might 
outweigh the substantial consumer harm it can cause.\430\ By contrast, 
the record of consumer injury arising from preacquired account 
telemarketing scenarios was extensive at the time of the Rule 
Review.\431\
---------------------------------------------------------------------------

    \428\ ATA-NPRM at 18 (arguing that, because the Telemarketing 
Act made no reference to preacquired account telemarketing, the 
Commission cannot regulate it); Cendant-NPRM at 6 (similar argument 
to ATA); CCC-NPRM at 8; DMA-NPRM at 41-42 (arguing that the 
Commission lacks authority under Telemarketing Act to establish a 
law violation based on unfairness standard); ERA-NPRM at 20 (same 
argument as DMA); Green Mountain-NPRM at 29-31; Household Auto-NPRM 
at 5; PMA-NPRM at 16 (same argument as DMA and ERA). Contrary to 
these assertions, the Commission has the authority to define and 
restrict deceptive and abusive telemarketing acts or practices, 
pursuant to the Telemarketing Act. Moreover, the Commission has 
analyzed proposed Rule provisions addressing abusive practices under 
the FTC Act's unfairness standard to narrow, not expand, the scope 
of activities brought under the purview of the statute. 67 FR at 
4511. The unfairness standard requires that several specific 
elements be met before an act or practice may be deemed ``unfair'' 
under the FTC Act. See 15 U.S.C. 45(n) and discussion of Sec.  
310.4(a) above. If anything, the Commission is taking a more 
conservative approach in analyzing what constitutes an ``abusive 
practice'' than is required under the Telemarketing Act.
    \429\ DMA-NPRM at 39, 41; Household Auto-NPRM at 5; MPA-NPRM at 
21-22.
    \430\ See 67 FR at 4512-14; and June 2002 Tr. II at 211-12 (E. 
Harrington) (``One of the reasons that the Commission has proposed a 
prohibition is because it looked very carefully at the record of the 
request for justification for the practice and found it is sorely 
wanting. Why this needs to happen, in other words, has been a real 
mystery to us, why it is that companies should be permitted to get 
account information from third parties and have it at the time that 
they call a prospective customer, charge that account information 
and oftentimes not obtain consent for that.'').
    \431\ See 67 FR at 4512-14. Moreover, the evidence continues to 
mount as the Commission and states continue to bring law enforcement 
actions involving these practices. See, e.g., NAAG-NPRM at 30, n.73; 
Minnesota-Supp. passim; Illinois-Supp. passim.
---------------------------------------------------------------------------

    Three arguments echoed throughout virtually all industry comments 
received in response to the NPRM. First, financial institutions, as 
well as other industry members, argued that the proposal was 
unnecessary or improper in light of the enactment of the GLBA and the 
various regulations thereunder.\432\ Specifically, these commenters 
argued that the issue of releasing account information for marketing 
purposes already has been dispositively addressed in the GLBA and its 
implementing regulations, with a different result from that proposed by 
the Commission in the TSR.\433\

[[Page 4618]]

Commenters noted that the various privacy regulations under the GLBA 
prohibit sharing account numbers with telemarketers, but provide 
exceptions for encrypted information, sale of an entity's own product 
through an agent, and co-branding and affinity programs. Thus, they 
argued, ``since the proposed Rule fails to include these exceptions, it 
is inconsistent with the GLBA regulations, rendering the regulations 
irrelevant.''\434\ NAAG challenged these arguments, pointing out that 
the goals of the GLBA and the TSR are very different. NAAG expressed 
the view that the GLBA did not address the economic injury to consumers 
caused by preacquired account telemarketing, as it was focused on the 
privacy of account information; thus there is no conflict between the 
regulations, as they are aimed at different consumer harms.\435\ 
According to NAAG:
---------------------------------------------------------------------------

    \432\ Advanta-NPRM at 3; Allstate-Supp. at 2; ABA-NPRM at 8; 
ABIA-NPRM at 1; AFSA-NPRM at 11-12; AmEx-NPRM at 4-5; ATA-Supp. at 
5; Assurant-NPRM at 6; BofA-NPRM at 7; Bank One-NPRM at 2-3; Capitol 
One-NPRM at 8; Cendant-NPRM at 6-7; CBA-NPRM at 9; Citigroup-NPRM at 
8-9; CCC-NPRM at 9; CMC-NPRM at 13; Discover-NPRM at 5-6; E-Commerce 
Coalition-NPRM at 2; Eagle Bank-NPRM at 4; FSR-NPRM at 7-8; Fleet-
NPRM at 4-5; Household Auto-NPRM at 5; Household Bank-NPRM at 2, 7-
9; Household Finance-NPRM at 2, 5; HSBC-NPRM at 3; KeyCorp-NPRM at 
4; MasterCard-NPRM at 7; MBA-NPRM at 3; MBNA-NPRM at 5; Metris-NPRM 
at 2-4; NRF-NPRM at 21; PCIC-NPRM at 2; VISA-NPRM at 6; Wells Fargo-
NPRM at 3; Letter from Reps. Ney, Sandlin, Jones, Cantor, and Shows 
to Chairman Timothy Muris, dated Apr. 15, 2002; Letter from Sens. 
Hagel, Johnson, and Carper to Chairman Timothy Muris, dated Apr. 17, 
2002. See also Letter from Rep. Manzullo to Chairman Timothy Muris, 
dated Apr. 12, 2002 (suggesting that the blanket prohibition on 
transferring or receiving billing information ``seems excessive''); 
and Letter from Sen. Inhofe to Chairman Timothy Muris, dated Mar. 
22, 2002 (same).
    \433\ ABA-NPRM at 8; BofA-NPRM at 7; Bank One-NPRM at 2-3; CBA-
NPRM at 9; Discover-NPRM at 5. See also CMC-NPRM at 14 ( ``We see no 
reason why financial institutions should be subject to any more 
stringent rules in connection with the use of consumer information 
for telemarketing purposes than for other purposes, and for this 
reason, we think the Rule should impose no more stringent limits on 
the sharing of billing information than the GLBA and the 
Commission's privacy rule impose.'').
    \434\ ABA-NPRM at 8. See also ABIA-NPRM at 2 (arguing that the 
proposed provision ``would . . . disrupt a coordinated body of 
federal and state privacy laws and regulations enacted since passage 
of GLBA''); AFSA-NPRM at 11; AmEx-NPRM at 4; BofA-NPRM at 7; Bank 
One-NPRM at 3; Cendant-NPRM at 6-7; CMC-NPRM at 13.
    \435\ NAAG-NPRM at 41-43.

The essential characteristic of [preacquired account telemarketing] 
is the ability of the telemarketer to charge the consumer's account 
without traditional forms of consent. . . . The key is how the 
agreement between a company controlling access to a consumer's 
account and the telemarketer who preacquired the ability to charge a 
consumer's account affects the bargaining power between the 
telemarketer and the consumer. GLBA and implementing regulations do 
not address this relationship. . . . [Indeed as] a result of the 
[GLBA and implementing regulations] . . . vendors . . . can still 
send through charges to consumers' accounts without consumers giving 
their credit card numbers. . . . This allows the same [preacquired 
account telemarketing] process to continue. . . .\436\
---------------------------------------------------------------------------

    \436\ Id. at 43. Accord Covington-Supp. at 2-5.

    Another common theme in industry comments on this issue was that 
the use of preacquired account information in telemarketing provides 
protection for consumers from identity theft perpetrated by individual 
telemarketing agents, and assuages consumers' concerns about divulging 
their account information.\437\ According to one such commenter, having 
consumers provide billing information over the telephone:
---------------------------------------------------------------------------

    \437\ ABA-NPRM at 8; AmEx-NPRM at 5; Assurant-NPRM at 4; BofA-
NPRM at 7; Bank One-NPRM at 3-4; Capital One-NPRM at 9; Cendant-NPRM 
at 7; Household Auto-NPRM at 2, 5; Household Bank-NPRM at 2, 7; 
Household Finance-NPRM at 2, 7; MasterCard-NPRM at 7; MPA-NPRM at 
24; Metris-NPRM at 2, 5-7; NRF-NPRM at 20; Time-NPRM at 8-9; VISA-
NPRM at 6-7; Wells Fargo-NPRM at 3. See also June 2002 Tr. II at 
124-25 (CCC); Id. at 133 (PMA) and 194-95 (DialAmerica).

will actually operate to introduce account numbers into broader 
circulation. As customers provide account numbers, employees of 
telemarketers, processors and others in the distribution chain may 
have access to them. This practice will actually increase the 
chances for unauthorized use. . . . Sophisticated encryption 
processes keep account numbers out of circulation, and out of the 
hands of potential unauthorized users.\438\
---------------------------------------------------------------------------

    \438\ AmEx-NPRM at 8. Accord Assurant-NPRM at 5; Bank One-NPRM 
at 3-4. Additionally, several commenters suggested that the blanket 
prohibition was ``inconsistent with the longstanding and well 
considered advice [of the Commission and other consumer protection 
groups and law enforcement agencies] that they not release their 
account numbers to telemarketers. . . .'' MasterCard-NPRM at 7. 
Accord BofA-NPRM at 7; Bank One-NPRM at 3. See also ABA-NPRM at 8; 
Metris-NPRM at 6. In fact, the Commission's advice has not been to 
refuse to divulge account information in any telemarketing 
transaction, but rather only to divulge such information when the 
seller is known to the consumer. See, e.g., ``Facts for Consumers: 
Are You a Target of ... Telephone Scams,'' http://www.ftc.gov/bcp/confine/pubs/tmarkg/target.htm; and ``Consumer Alert: Customized 
Cons Calling,'' http://www.ftc.gov/bcp/confine/pubs/alerts/consalrt.htm. Moreover, the reason for this advice is not to avoid 
identity theft, but to protect consumers from fraudulent 
telemarketers selling bogus goods or services. Id. In the identity 
theft context, the danger identified by the Commission and discussed 
in its publications is not the potential misuse of account 
information that a consumer has provided in the course of a sale of 
goods or services, but rather ``pretexting''--i.e., the practice of 
eliciting a consumer's personal information under false pretenses, 
such as claiming to be from the consumer's bank, calling to confirm 
the consumer's account information. See ``Pretexting: Your Personal 
Information Revealed,'' http://www.ftc.gov/bcp/confine/pubs/credit/pretext.htm.

A number of commenters pointed out that the GLBA implementing 
regulations assume the confidentiality benefits of transferring 
encrypted account information so that consumers would not have to 
provide such information during the marketing transaction.\439\ Other 
commenters noted some contradiction in industry's identity theft 
argument, suggesting it is illogical to assert that a telemarketer 
cannot be trusted with a consumer's account information, but that same 
telemarketer can be trusted to tell the seller truthfully that the 
consumer has provided express informed consent to the purchase, absent 
obtaining any part of the account number from the consumer.\440\ One 
such commenter further suggested that the best protection against 
individual telemarketers perpetrating identity theft is proper 
screening, training, monitoring and supervision of salespeople.\441\ In 
addition, the vast majority of non-cash transactions in both 
telemarketing and face-to-face retail situations entail the consumer's 
disclosure of his or her account number to the seller's 
representative.\442\ The record does not reveal any reason to support 
the notion that the risk of identity theft is any different in these 
transactions than in transactions where the seller has opted to make 
use of preacquired account information.
---------------------------------------------------------------------------

    \439\ Bank One-NPRM at 4; Cendant-NPRM at 7; Household Auto-NPRM 
at 2-3; Metris-NPRM at 5; E-Commerce Coalition-NPRM at 3; VISA-NPRM 
at 6-7.
    \440\ June 2002 Tr. II at 130-31 (AARP), 143 (NAAG), and 205 
(NCL). Indeed, in both their Rule Review and NPRM comments, NAAG 
provided several examples of instances where obviously confused 
elderly consumers were charged for products or services using 
preacquired account information, despite no clear evidence of 
consent during the telemarketing call. NAAG-RR at 11 and Exs. 2 - 4 
attached thereto; NAAG-NPRM at 32, and Ex. B attached thereto. See 
also Synergy Global-NPRM at 1-2 (comments from a former teleservices 
agent stating that he was encouraged by his superiors to ``falsify 
sales in an attempt to artificially inflate the statistics compiled 
nightly'').
    \441\ NCL-NPRM at 7.
    \442\ NAAG-RR at 10. Indeed, NEMA described its own current 
procedures, under the Uniform Business Practices guidelines created 
for the retail energy market, whereby it obtains complete billing 
information directly from each customer as proof of the customer's 
intent to switch utility providers. NEMA-NPRM at 8-9.
---------------------------------------------------------------------------

    The third recurring theme in industry comments on this issue was 
the existence of a variety of efficiencies for both sellers and 
consumers. Among the most common examples cited was avoiding error in 
the transmission of account numbers from consumer to telemarketer, as 
either the consumer misstates or the telemarketer miskeys the account 
number.\443\ Another benefit cited by numerous industry commenters was 
the reduction of time on the telephone to complete the transaction in 
the initial call,\444\ particularly in

[[Page 4619]]

upsells.\445\ As DMA noted, ``it is a significant benefit to consumers 
for second businesses in an upsell to obtain and use information such 
as address and credit card information. This eliminates the need for a 
consumer to have to restate the information just provided. Transfer of 
information in such scenarios with informed consent is inherently 
efficient for both the merchant and the consumer.''\446\ The final 
benefit cited in several comments was that preacquired account 
telemarketing helped consumers by enabling them to avoid the 
inconvenience of having to pull out their wallets in order to make a 
purchase.\447\ This alleged benefit was sharply questioned by consumer 
advocates, who argued that whatever time savings or convenience may 
accrue from the use of preacquired account information does not offset 
the potential harm from its use.\448\ The record makes clear, in fact, 
that it is the very act of pulling out a wallet and providing an 
account number that consumers generally equate with consenting to make 
a purchase, and that this is the most reliable means of ensuring that a 
consumer has indeed consented to a transaction.\449\
---------------------------------------------------------------------------

    \443\ ABA-NPRM at 8; Assurant-NPRM at 3-4; BofA-NPRM at 7; 
Cendant-NPRM at 7; Cox-NPRM at 33; Metris-NPRM at 7.
    \444\ See, e.g., MPA-NPRM at 24 (``The Commission must also not 
underestimate the economic efficiencies such practices afford to 
businesses. . . . It is estimated that requiring consumers to 
retrieve and repeat their entire account number and verifying this 
information will increase the length of the call substantially, with 
one provider estimating an increase of 35 seconds and additional 
evidence suggesting that increase could be 60 seconds or more.'') 
See also Cox-NPRM at 33; Metris-NPRM at 6-7; NCTA-NPRM at 12; 
Tribune-NPRM at 8. MPA's argument on this point is somewhat 
contradicted by its recommended alternative to the prohibition, 
express verifiable authorization, which involves additional expense, 
regardless of the method of express verifiable authorization 
selected. See MPA-NPRM at 26-29. NCL challenged this proposition, 
suggesting that, on the contrary, ``[r]equiring telemarketers to ask 
for [the consumer's account number] would benefit both parties by 
helping to confirm a consumer's intention to make the purchase and 
the correct account that will be used for that purchase, reducing 
the potential for billing disputes later.'' NCL-NPRM at 7.
    \445\ Associations-Supp. at 5-6; DMA-NPRM at 40. See also PMA-
NPRM at 18-19; Time-NPRM at 8.
    \446\ DMA-NPRM at 40. See also Time-NPRM at 8.
    \447\ Assurant-NPRM at 6; June 2002 Tr. II at 125 (CCC).
    \448\ See, e.g., June 2002 Tr. II at 131 (AARP) (``To imply that 
. . . it's more inconvenient for the consumer to get their credit 
card than to have an unknown source debit their account without 
their knowledge, I don't think any consumer would ever agree with 
that statement.'')
    \449\ Covington-Supp. at 2-5:
    ``The Commission is also correct that the best way to be certain 
that a consumer really wants to make a purchase is to see if the 
consumer is willing to reach into a purse or pocket, open a wallet, 
take out a credit card, and read from it. When that happens, there 
is nothing ambiguous about what's taking place; there can be no 
misunderstanding. . . . Even during a chaotic dinner hour, a 
consumer cannot open a wallet, pull out a credit card, and read from 
it without knowing that he or she is making some kind of purchase. . 
. . This short-hand method for consumers to signal assent to a deal 
leaves complete control of the transaction in the hands of the 
consumer while preventing the industry burden from being any greater 
than necessary.''
    Indeed, this conclusion derives from the actual experience of a 
telemarketing firm that engages in preacquired account 
telemarketing. See Letter from Stephen Calkins to the FTC, dated 
October 28, 2002 (``Calkins Letter''). This firm attempted to cure 
the high customer return rates generated by this practice in several 
ways, including adjusting the disclosures and reading at least four 
digits of the account number to the consumers during the call. Id. 
at 2. The firm found that none of these attempted cures ensured that 
consumers ``knowingly consented'' to the purchase while maintaining 
a competitive level of sales. Id. at 1-2. Only when the firm began 
requesting a portion of the account number from the consumer herself 
did complaint rates drop significantly, without an unacceptable drop 
in sales. According to the commenter, ``Sales were about 25% lower 
than when the telemarketer read those digits to the consumer, but 
consumers really understood that they were making purchases . . . . 
My client believes that consumer complaints pertaining to their 
intent to purchase dropped, and that his seller clients now 
experience an acceptable level of product returns.'' Id. at 2-3. See 
also June 2002 Tr. II at 139-44 (NAAG); NACAA-NPRM at 6 (``That the 
consumer has to provide this information to the seller provides a 
check on the transaction, and an assurance that the consumer does 
indeed wish to enter the transaction.''); Vermont-Supp. passim and 
attachment. AARP commissioned a survey by telephone on June 14-19, 
2002, among a nationally representative sample of 1,240 respondents 
18 years of age and older. Participants were asked a handful of 
questions, such as, ``Often telemarketers ask you to buy something 
with a credit card or debit card. Do you think telemarketers are 
able to cause charges to your credit card or debit card without 
getting your credit or debit card numbers directly from you?'' Only 
30 percent of respondents stated that they were aware that 
telemarketers have the ability to cause a charge to their credit or 
debit card accounts without getting the account numbers from them. 
AARP-Supp. at 2. That number was higher in the instance of upsells, 
but still less than half of the respondents understood that it was 
possible to be charged without providing account information to a 
seller or telemarketer. Id. Additionally, the majority (80 percent) 
of respondents stated that they thought telemarketers should only be 
able to cause charges to their credit or debit card accounts if the 
consumers expressly provide their account numbers to the seller or 
telemarketer. Id. at 4; Vermont-Supp. at 2-3. The survey addresses a 
fairly complex issue in broad terms. For example, it does not tease 
out the specific instances where a consumer might actually have an 
expectation that the seller will retain and reuse the consumer's 
account information, such as the contact lens seller who, with the 
consumer's permission, retains the consumer's account information to 
facilitate quarterly lens purchases. The results do, however, 
provide insight into the general expectations of consumers when 
engaging in telemarketing transactions.
---------------------------------------------------------------------------

    As it stated in the NPRM, the Commission still believes that 
whenever preacquired account information enables a seller or 
telemarketer to cause charges to be billed to a consumer's account 
without the necessity of persuading the consumer to demonstrate his or 
her consent by divulging his or her account number, the customary 
dynamic of offer and acceptance is inverted. In such a case, what is 
customarily under the sole control of the consumer--whether to divulge 
one's account number, thereby determining whether to accept the offer 
and how to pay for it--is now in the hands of the seller or 
telemarketer.\450\ This reversal in the traditional paradigm is not one 
that is generally expected or favored by consumers, who consistently 
state that, as a general proposition, they do not believe it is or 
should be possible for them to be charged if they do not provide their 
account number in a transaction.\451\ The Commission understands this 
to mean that, generally speaking, consumers believe they ordinarily 
signal their consent to an offer by providing their account information 
to the seller or telemarketer.
---------------------------------------------------------------------------

    \450\ State law enforcers, consumers and consumer groups, as 
well as some industry members, consistently voiced concerns over the 
shift of control over a transaction from the consumer to the seller 
or telemarketer, and noted consumer disbelief that purchases could 
actually be made without their ever disclosing payment information. 
See 67 FR at 4513; June 2002 Tr. II at 130-32 (AARP); Covington-
Supp. at 2, 5; EPIC-NPRM at 9; NAAG-RR at 10-11; NAAG-NPRM 30-31; 
June 2002 Tr. II at 139-44 (NAAG). But see CMC-NPRM at 13 
(questioning this proposition).
    \451\ See 67 FR at 4513; AARP-Supp. at 4 (see note 449 above, 
describing survey showing that the majority of consumers do not 
believe their accounts can, or should, be charged by telemarketers 
without obtaining the account number directly from the consumers); 
June 2002 Tr. II at 131-32 (AARP); EPIC-NPRM at 9; NAAG-RR at 10-11; 
NAAG-NPRM 30-31; Vermont-Supp. at 2-3. As Minnesota explained during 
the June 2002 Forum:
    ``In a preacquired situation, the consumer doesn't have that 
control because we have shorthand ways of signaling consent in our 
society. We aren't many lawyers out there. Josh, who . . . has a 
trade school degree and comes home from a job and Esther is sitting 
on the couch at 85 years old doesn't understand all this. . . . They 
just get a call from somebody. What they know is I've got to sign my 
name, I've got to give somebody my credit card or in the context of 
a telemarketing transaction, I have to read my account number to the 
person or I have to pay cash, and what this does is by circumventing 
those forms of consent, it makes it impossible for consumers to 
control the transactions.''
    June 2002 Tr. II at 140. See also James Andris (Msg. 171) (``Our 
mortgage company has been deducting a monthly premium, via our 
mortgage payment, to a 3rd party insurance policy. I have written a 
letter demanding refunds for the payments for 16 months. We, my wife 
and I, never gave written or verbal permission for such payments to 
either parties [sic].''); Albert Bruce Crutcher (Msg. 229) (``I also 
favor not allowing my credit card and account numbers to be given 
out by anyone other than ME!!''); Harold D. Howlett (Msg. 300) (``Do 
not allow telemarketers to obtain and use credit card or other 
account information from anyone except the consumer. . . .''); 
Carole & Cory Walker (Msg. 810) (``Every year we have at least one 
unauthorized charge to our card and we are extremely cautious with 
our information.'').
---------------------------------------------------------------------------

    Although some commenters argue that this shift in the normal 
paradigm of offer and acceptance is, in and of itself, inherently 
unfair,\452\ the record overall suggests that, in general, it is not 
preacquired account telemarketing per se that is harmful, but rather 
the abuse of preacquired account information that causes the harm.\453\ 
Commenters persuasively note that there are many transactions involving 
preacquired account information that are beneficial to, indeed 
sometimes expected by, consumers. For example, as noted in the NPRM, 
``a customer who places

[[Page 4620]]

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.''\454\ Similarly, a customer who provides his account 
number to make a purchase in an initial telemarketing transaction may 
be frustrated to have to repeat that account information to consummate 
certain upsell transactions, particularly when the upsell is offered by 
the same telemarketer. In that case, there may be an expectation that 
the telemarketer will have retained, and be able to reuse, the account 
information the customer provided only moments ago.\455\ As another 
commenter pointed out during the Rule Review, the key to such 
transactions 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 reused for an additional purchase, 
should the consumer consent to that purchase.\456\
---------------------------------------------------------------------------

    \452\ See, e.g., EPIC-NPRM at 9; NAAG-NPRM at 30; NCL-NPRM at 6-
7.
    \453\ ERA-NPRM at 16; Household Auto-NPRM at 5; PMA-NPRM at 17. 
Other commenters asserted that using preacquired account information 
is not inherently fraudulent. See Allstate-Supp. at 2; Associations-
NPRM at 4; ATA-NPRM at 19; ATA-Supp. at 5-6; ERA/PMA-Supp. at 10; 
ITC-NPRM at 5; NCTA-NPRM at 11; Noble-NPRM at 3; NATN-NPRM at 3; 
NSDI-NPRM at 3; PMA-NPRM at 13-16; Technion-NPRM at 4; TRC-NPRM at 
3; Time-NPRM at 7.
    \454\ 67 FR at 4513.
    \455\ See, e.g., June 2002 Tr. II at 196 (Time) (``[T]he catalog 
clients that we deal with that are . . . selling our magazines on 
our behalf . . . tell us that the cost would be loss of sales of the 
catalog products because the customers would just be so annoyed 
about having to give the credit card number again that they just 
gave.'')
    \456\ 67 FR at 4513, n.196.
---------------------------------------------------------------------------

    The record shows that the specific harm resulting from the use of 
preacquired account telemarketing is manifested in unauthorized 
charges.\457\ These may appear not only on consumers' credit card or 
checking accounts, but also on mortgage statements and other account 
sources not traditionally used to pay for purchases.\458\ Of course, 
unauthorized charges are not exclusively associated with preacquired 
account telemarketing. The Commission has brought numerous law 
enforcement actions against sellers and telemarketers alleging 
violations of the FTC Act for the unfair practice of billing 
unauthorized charges to consumers' accounts in a variety of contexts 
not involving preacquired account information, including but not 
limited to: advanced fee credit card offers,\459\ sweepstakes,\460\ 
vacation or travel packages,\461\ credit card loss protection 
offers,\462\ and magazine subscriptions.\463\ Thus, in essence, 
preacquired account telemarketing has proven in certain circumstances 
to be an additional, but not the only, vehicle for imposing 
unauthorized charges on consumers in telemarketing transactions.
---------------------------------------------------------------------------

    \457\ In its supplemental comment, Minnesota argued that 
evidence gathered in its law enforcement actions showed that 
consumers consistently stated that they had not authorized charges 
arising out of preacquired account telemarketing, particularly when 
the offers involved ``free-to-pay conversion'' features:
    ``The data we have reviewed in our investigations uniformly 
supports our impression that underlying the high cancellation rates 
with preacquired account telemarketing is consumer sentiment that 
the charges were unauthorized. In addition to the survey of Fleet 
Mortgage Corporation customer service representatives presented in 
the prior NAAG Comments [see NAAG-NPRM at 31-32], an investigation 
of a subsidiary of another of the nation's largest banks revealed a 
similar pattern. During a thirteen month period, this bank processed 
173,543 cancellations of membership clubs and insurance policies 
sold by preacquired account sellers. Of this number of 
cancellations, 95,573, or 55 percent, of the consumers stated 
unauthorized billing as the reason for the request to remove the 
charge. The other primary reason given for canceling (by 56,794 
customers, or 32% of the total) was a general ``request to cancel'' 
code that may have also included many consumers claiming 
unauthorized charges.''
    Minnesota-Supp. at 4.
    \458\ NAAG-NPRM at 31 (``Fleet Mortgage Corporation, for 
instance, entered into contracts in which it agreed to charge its 
customer-homeowners for membership programs and insurance policies 
sold using preacquired account information. If the telemarketer told 
Fleet that the homeowner had consented to the deal, Fleet added the 
payment to the homeowner's mortgage account.'')
    \459\ See, e.g., FTC v. Corporate Mktg. Solutions, No. CIV-02 
1256 PHX RCB (D. Ariz. filed July 8, 2002); FTC v. Capital Choice, 
No. 02-21050-CIV-Ungaro-Benages (S.D. Fla. filed Apr. 15, 2002); FTC 
v. Fin. Servs. of N. Am., No. 00792 (GEB) (D.N.J. filed June 9, 
2000); FTC v. SureCheK Sys., Inc., No. 1:97-CV-2015-JTC (N.D. Ga. 
filed July 9, 1997); FTC v. Thornton Communications, Inc., No. 1 97-
CV-2047 (N.D. Ga. filed July 14, 1997).
    \460\ See, e.g., FTC v. New World Servs., Inc., No. CV-00-625 
(GLT) (C.D. Cal. filed July 5, 2000); FTC v. Hold Billing, Ltd., No. 
SA-98-CA-0629-FB (W.D. Tex. filed July 15, 1998).
    \461\ See, e.g., FTC v. Lubell, No. 3-96-CV-80200 (S.D. Iowa 
filed Dec. 1996); FTC v. Disc. Travel, No. 88-113-CIV-FtM-15C (M.D. 
Fla. filed Aug. 8, 1988); Citicorp Credit Servs., 116 F.T.C. 87 
(1993).
    \462\ See, e.g., FTC v. Andrews, No. 6:00-CV-1410-ORL-28-B (M.D. 
Fla. filed Oct. 2000); FTC v. First Capital Consumer Membership 
Servs., No. 00 CV 0905C(F) (W.D.N.Y. filed Oct. 23, 2000); FTC v. 
Consumer Repair Servs., Inc., No. 00-11218 CM(RZx) (C.D. Cal. filed 
Oct. 23, 2000); FTC v. Capital Card Servs., No. CV 00 1993 PHX EHC 
(D. Ariz. filed Oct. 23, 2000); FTC v. Forum Mktg. Servs., No. 
00CV0905C(F) (W.D.N.Y. filed Oct. 26, 2000); FTC v. 1306506 Ontario, 
Ltd., No. 00-CV-906 (W.D.N.Y filed Oct. 23, 2000); FTC v. OPCO Int'l 
Agencies, Inc., No. CO1-2053R (W.D. Wash. filed Feb. 2001).
    \463\ See, e.g., FTC v. Diversified Mktg. Servs. Corp., No. 
1:96-CV-615-FM. (W.D. Okla. filed Mar. 12, 1996); FTC v. Windward 
Mktg., No. 1:9 6-CV-615-FM. (N.D. Ga. filed May 26, 1996); FTC v. 
S.J.A. Soc'y, No. X97 0061 (E.D. Va. filed May 1997).
---------------------------------------------------------------------------

    One of the problems, therefore, with the proposed prohibition on 
receiving billing information from a source other than the consumer or 
sharing it with others for the purposes of telemarketing is that it 
fails to remedy patterns of unauthorized billing that occur even though 
preacquired account information is not used. As our cases amply 
demonstrate, the practice unequivocally meets the criteria for 
unfairness, and therefore violates Section 5 of the FTC Act.\464\ Yet 
until now, the Rule has not specified that unauthorized billing is an 
abusive practice and a Rule violation.\465\ The Commission therefore 
has decided to add Sec.  310.4(a)(6) to correct that deficiency. The 
new provision specifies that it is an abusive practice and a violation 
of the Rule to cause a charge to be submitted for payment, directly or 
indirectly, without the express informed consent of the customer or 
donor. This prohibition is not limited to instances of unauthorized 
charges resulting from preacquired account telemarketing. Rather, this 
provision is applicable whenever a seller or telemarketer subject to 
the Rule causes a charge to be submitted against a customer's or 
donor's account without obtaining the customer's or donor's express 
informed consent to do so. This broader prohibition on unauthorized 
billing is supported by the Commission's extensive law enforcement 
record of instances of unauthorized billing in telemarketing 
transactions.
---------------------------------------------------------------------------

    \464\ See discussion and note 400 above of Sec.  310.4 
generally, and 67 FR at 4511, regarding the Commission's 
determination that, in specifying practices as abusive when they do 
not directly implicate the privacy concerns embodied in the 
Telemarketing Act, it will demand that the practice meet the 
criteria for unfairness codified in Sec.  5(n) of the FTC Act, 15 
U.S.C. 45(n).
    \465\ Section 310.3(a)(4) specifies that it is a deceptive 
practice to make ``a false or misleading statement to induce any 
person to pay for goods or services.''
---------------------------------------------------------------------------

    Section 310.4(a)(6) also specifies that, in every transaction, the 
seller or telemarketer must obtain the consumer's express informed 
consent to be charged for the goods or services or charitable 
contribution, and to be charged using the identified account. 
``Express'' consent means that consumers must affirmatively and 
unambiguously articulate their consent. Silence is not tantamount to 
consent; nor does an ambiguous response from a consumer equal 
consent.\466\ Consent is ``informed'' only when customers or donors 
have received all required material disclosures under the Rule, and can 
thereby gain a clear understanding that they will be charged, and of 
the payment mechanism that will be used to effect the charge. Of 
course, the best evidence of ``consent'' is consumers' affirmatively 
stating that they do agree to purchase the goods or services (or make 
the donation), identifying the account they have selected to make the 
purchase, and providing part or all of that account number to the 
seller or

[[Page 4621]]

telemarketer for payment purposes (not for purposes of 
``identification,'' or to prove ``eligibility'' for a prize or offer, 
for example). But in most instances, the Commission leaves it up to 
sellers to determine what procedures to employ in order to meet the 
requirement for obtaining express informed consent. As explained below, 
however, in certain particularly problematic scenarios, the Commission 
does impose specific procedures.
---------------------------------------------------------------------------

    \466\ See Electronic Retailing Association, GUIDELINES FOR 
ADVANCE CONSENT MARKETING, http://www.retailing.org/regulatory/publicpolicy_consent.html (``ERA Guidelines'').
---------------------------------------------------------------------------

    Having treated the overall problem of unauthorized billing in new 
Sec.  310.4(a)(6), the Commission has included additional subsections 
to address problems particularly associated with preacquired account 
telemarketing. As noted in the NPRM, evidence shows that, at least to 
date, unquestionably the greatest risk of harm (i.e., unauthorized 
charges) to consumers is associated with telemarketing involving the 
combination of preacquired account information with an offer involving 
a ``free-to-pay conversion.''\467\ NAAG describes the ``free-to-pay 
conversion'' offer (which it refers to as an ``opt-out free trial'' 
offer) as the ``constant companion'' of the preacquired account 
telemarketer in state law enforcement efforts to date.\468\ Indeed, as 
of the date of this notice, all of the law enforcement actions taken by 
the Commission and by the states that involved telemarketing using 
preacquired account information also involved an offer with a ``free-
to-pay conversion'' feature.\469\
---------------------------------------------------------------------------

    \467\ The Commission has inserted a definition of ``free-to-pay 
conversion'' at Sec.  310.2(o) of the amended Rule, which states 
that ``free-to-pay conversion'' means: ``in an offer or agreement to 
sell or provide any goods or services, a provision under which a 
customer receives a product or service for free for an initial 
period and will incur an obligation to pay for the product or 
service if he or she does not take affirmative action to cancel 
before the end of that period.'' See discussion of Sec.  310.2(o) 
above.
    \468\ NAAG-NPRM at 32. Accord AARP-NPRM at 6. CCC attempted to 
counter this finding by presenting the results of a survey, 
conducted on behalf of MemberWorks, in April of 2001 by the Luntz 
Research Companies (the ``Luntz Survey''). CCC-NPRM at 10; June 2002 
Tr. II at 127; MemberWorks-Supp. passim. In the survey, the caller 
told the consumer that the caller would read an offer, and would ask 
for the consumer's reaction. So, it was clear to the consumer that 
he or she was not buying anything, and instead that the consumer 
should listen carefully to the terms of the offer so that he or she 
could answer the caller's questions. Then, the caller read a script 
involving a ``free-to-pay conversion'' feature (the script was not 
submitted with the survey results for the public record). The caller 
then asked several questions about what the consumer just heard. CCC 
argued that the results of this survey showed that 85 percent of the 
respondents said the billing methods were understandable, and that 
the seller was acting fairly. CCC-NPRM at 10. Examination of the 
Luntz survey in greater detail suggests that the survey does little 
to support these assertions. First, in fact, none of the respondents 
said that the billing methods were understandable. According to the 
survey, 52 percent of the respondents said the billing methods were 
``mostly'' understandable, while 33 percent said they were 
``somewhat'' understandable, and 13 percent said they were not 
understandable. This means that at least 46 percent of the 
respondents did not even ``mostly'' understand the way in which they 
would be billed after listening carefully to a sales offer involving 
preacquired account information and a ``free-to-pay conversion'' 
feature. See MemberWorks-Supp. at 1. In addition, after asking 
whether the billing methods were understandable, the callers asked 
two questions structured in ways that strongly suggested the desired 
result: first they asked, ``And if you agree to join, and receive a 
welcome kit with all of the rules in writing, who is responsible if 
you forget to cancel and are billed,'' then ``If the company tells 
you three times on the telephone call and then tells you twice in 
writing that you can cancel your program membership anytime, but if 
you don't cancel, you will be charged, is the company acting fairly 
or not.'' Id. (emphasis added). Moreover, regardless of the merits 
of the survey results, they do little to offset the extensive 
evidence of consumer injury from this practice, the continuing flow 
of complaints into the offices of consumer groups and law 
enforcement officials at both the state and federal levels, and the 
AARP survey evidence of consumer perceptions and opinions about 
preacquired account telemarketing. See notes 424-25 and 449 above.
    \469\ For example, MemberWorks, Inc. (Assurances of 
Discontinuance with the States of Nebraska and New York; Consent 
Judgments with the States of California and Minnesota) (primarily 
``free-to-pay conversion'' membership clubs); BrandDirect Mktg. 
Corp. (Assurances of Discontinuance with the States of Connecticut 
and Washington) (``free-to-pay conversion'' membership clubs); 
Cendant Membership Servs. (Consent Judgment with State of Wisconsin) 
(same); Signature Fin. Mktg. (Assurance of Discontinuance with State 
of New York) (same); Damark Int'l, Inc. (Assurances of 
Discontinuance with States of Minnesota and New York) (``free-to-pay 
conversion'' buyers club); Illinois v. Blitz Media, Inc., No. 2001-
CH-592(Sangamon County) (``free-to-pay conversion'' membership 
club); New York v. Ticketmaster and Time, Inc. (Assurance of 
Discontinuance) (``free-to-pay conversion'' magazine subscription); 
Triad Discount Buying Service (sued by 29 states and the Commission) 
(``free-to-pay conversion'' membership clubs); Minnesota v. U.S. 
Bancorp, Inc., No. 99-872 (Consent Judgment, D. Minn) (account 
information provider to seller/telemarketer of ``free-to-pay 
conversion'' membership/buyers clubs); Minnesota v. Fleet Mortgage 
Corp., 158 F. Supp. 2d 962 (D. Minn. 2001) (same, plus insurance 
packages); FTC v. Technobrands, Inc.; No. 3:02-cv-00086 (E.D. Va. 
2002) (``free-to-pay conversion'' membership clubs); U.S. v. 
Prochnow, No. 1:02-cv-917-JLF (N.D. Ga. 2002) (inbound calls from 
direct mail solicitations, upsold ``free-to-pay conversion'' 
membership clubs).
---------------------------------------------------------------------------

    It is noteworthy that the coupling of preacquired account 
information with a ``free-to-pay conversion'' offer is not limited to 
outbound telephone calls. In FTC v. Smolev,\470\ for example, the 
defendants were alleged to have lured consumers to call by offering an 
inexpensive lighting product in general media advertisements, obtaining 
account information from the consumer in the initial transaction, and 
then upselling a ``free-to-pay conversion'' buyers club 
membership.\471\ In fact, the majority of companies that have been 
targeted by state or FTC law enforcement action market their ``free-to-
pay conversion'' products or services via upsells, sometimes 
exclusively, and other times also using outbound telephone calls.\472\
---------------------------------------------------------------------------

    \470\ (a/k/a Triad Disc. Buying Serv.) No. 01-8922 CIV ZLOCH 
(S.D. Fla. 2001).
    \471\ Thus, the assertion of some commenters that ``the 
potential for abuse or confusion as to where the [account] 
information was obtained does not exist in upsells,'' see, e.g., 
ANA-NPRM at 6, is not supported by the record, at least in the 
context of offers with a ``free-to-pay conversion'' feature, as was 
the case in Smolev.
    \472\ Unfortunately, the argument made by several commenters 
that the abusive use of preacquired account information is limited 
to a discrete number of bad actors (see ATA-NPRM at 19; ERA-NPRM at 
16; MPA-NPRM at 23-24) is not supported by the record. Law 
enforcement actions alleging injuries caused by abuses of 
preacquired account telemarketing have been brought against well-
known, national companies and financial institutions, including but 
not limited to: U.S. Bancorp, Fleet Mortgage Corporation, 
MemberWorks, Ticketmaster, and Time. See NAAG-NPRM at 30, n.73.
---------------------------------------------------------------------------

    Consequently, the Commission has determined that in any transaction 
involving both preacquired account information and a ``free-to-pay 
conversion,'' the evidence of abuse is so clear and abundant that 
comprehensive requirements for obtaining express informed consent in 
such transactions are warranted.\473\ Specifically, Sec.  
310.4(a)(6)(i) provides that a seller or telemarketer making an offer 
involving both preacquired account information and a ``free-to-pay 
conversion'' must (1) obtain from the customer, at a minimum, the last 
four digits of the account number to be charged; (2) obtain from the 
customer his or her express agreement to be charged for the goods or 
services and to be charged using the account for which the consumer 
provided the four digits; and (3) make and maintain an audio recording 
of the entire telemarketing transaction. Thus, in every instance where 
the combination of preacquired account information and ``free-to-pay 
conversion'' is involved in a telemarketing transaction, the customer 
must be required to reach into his or her wallet, and provide at least 
a portion of the account number to be charged.\474\ It

[[Page 4622]]

must be clear that the customer is providing that account number to 
authorize a purchase. This means that, at a minimum, the disclosures 
required in Sec.  310.3(a)(1) in general, and also Sec.  
310.3(a)(1)(vii) in particular, must be provided to the customer before 
the customer provides express informed consent--which, in the case of 
preacquired account telemarketing and a ``free-to-pay conversion'' 
feature, means before the customer provides account information and 
express agreement to be charged for the goods or services on the 
account provided. It must also be clear that the customer agrees that 
the charge be placed on the account whose digits the customer provided. 
The Commission expects that, to comply with this requirement, the 
seller or telemarketer shall expressly identify the account to be 
charged, and inform the customer that it possesses the customer's 
account number already, or has the ability to charge that account 
without obtaining the full account number from the customer.
---------------------------------------------------------------------------

    \473\ NAAG recommended prohibiting the use of preacquired 
account information, even if that information was previously 
obtained by the same seller or telemarketer from the consumer, in 
solicitations involving a ``free-to-pay conversion'' feature. NAAG-
NPRM at 39. The Commission declines to adopt this recommendation at 
this time, and is confident that the solution adopted will provide 
consumers the information and command over these transactions they 
need to protect themselves from unauthorized charges.
    \474\ See note 449 above. Moreover, industry's argument that 
there is no evidence of problems where there is a transfer of 
account information ``after consent'' is belied by the record of law 
enforcement actions in this area. See, e.g., FTC v. Smolev, No. 01-
8922 CIV ZLOCH (S.D. Fla. 2001). In fact, in virtually all of the 
state and federal law enforcement actions in this area, consumers 
stated that they did not recognize the billing entity or understand 
how that seller obtained their account information. See notes 450-51 
above.
---------------------------------------------------------------------------

    Finally, the Commission is requiring that the entire sales 
transaction be recorded. The record evidence shows that it is not 
adequate in offers involving both preacquired account information and 
``free-to-pay conversions'' to record a portion of the call that 
allegedly includes some or all of the required disclosures regarding 
cost and payment.\475\ Often, what law enforcement efforts have gleaned 
is that the necessary disclosures are grouped together during the 
``verification'' process, at the end of a lengthy telemarketing pitch 
during which consumers are led to reasonably believe that they are not 
committing to a purchase. As one commenter explained:
---------------------------------------------------------------------------

    \475\ NAAG-NPRM at 32-33 (discussing ineffectiveness of 
verification).

[C]onsumers are led to believe that they are agreeing to accept 
materials in the mail, preview a program along with a free gift, or 
the like. As one telemarketer explicitly stated in its scripts: 
`we're sending you the information through the mail, so you don't 
have to make a decision over the phone.' Only at the tail end of a 
lengthy call does the telemarketer obliquely disclose that the 
consumer's preacquired account will be charged. By this time, many 
consumers have already concluded that they understood the deal to 
require their consent only after they review the mailed materials. . 
. . Preacquired account telemarketing verification taping typically 
is preceded by statements suggesting that the taping is 'to prevent 
clerical error' and critical information is revealed in ways that 
many consumers will not grasp at the end of a conversation.\476\
---------------------------------------------------------------------------

    \476\ Id.

    Thus, not only the material terms provided the consumer, but also 
the context and manner in which the offer is presented are vital to 
determining that the consumer's consent is both express and informed. 
Moreover, consumers' confusion about the nature of ``free-to-pay 
conversion'' offers--particularly in the context of preacquired account 
telemarketing--is evidenced by the steady stream of complaints, as well 
as evidence uncovered in law enforcement actions by the states.\477\ 
Further, the record contains compelling evidence of cancellation 
patterns for membership programs offered on a ``free-to-pay 
conversion'' basis in preacquired account telemarketing transactions. 
As explained by the Minnesota Attorney General,
---------------------------------------------------------------------------

    \477\ See Illinois-NPRM at 2 (In Illinois' lawsuit against Blitz 
Media, Inc., the attorney general initially received 146 consumer 
complaints. After initiating the litigation, the Illinois attorney 
general found that approximately 45,000 Illinois consumers had been 
enrolled in Blitz Media's buyers club, but only about 8,000 of them 
remain ``active'' members of the buyers club, since the rest had 
discovered these charges and cancelled the membership, or initiated 
a chargeback, claiming the charge was unauthorized.).

[c]onsumers canceling within the 30-day free trial period likely 
indicate that [they] understood (either during the phone call or 
with the follow-up material or both) the terms of the deal. If all 
consumers understood the free trial offer, one would expect to see a 
significant cancellation rate within the 30 day free trial offer 
period followed by a scattered pattern of later cancellations. The 
data we have reviewed [from two financial institutions of 
cancellation dates relative to date of enrollment for Minnesota 
consumers charged by the institutions as a result of preacquired 
account telemarketing transactions involving a ``free-to-pay 
conversion''] suggest this is not the typical pattern. . . . The 
overall pattern of [the data from each institution] is strikingly 
similar. The largest concentration of cancellations occurs 
immediately after the free trial period but coincident with the 
first account charge for the service. The cancellation rate in the 
free trial period is less than half the cancellation rate in the 31-
90 day period, when consumers have been billed for the service. This 
result is consistent with the pattern of consumer complaints 
alleging unauthorized charges received by Attorneys General and with 
the data suggesting that most consumers cancel these charges because 
they believe they are unauthorized.\478\
---------------------------------------------------------------------------

    \478\ Minnesota-Supp. at 4-5. One industry commenter submitted 
the results of a telephone survey, which it asserted showed that 
consumers do, in fact, understand the terms of these ``free-to-pay 
conversion'' features. See note 469 above. The data received in 
litigation from the institutions participating in these 
telemarketing campaigns, however, belies the purported conclusions 
of this survey. See note 457 above.

Consequently, to ensure that the consent provided by the consumer is 
not only ``express'' but is also ``informed'' in this limited, but 
problematic, context of ``free-to-pay conversion'' features in 
preacquired account telemarketing offers, the amended Rule requires 
that an audio recording of the entire transaction, from start to 
finish, be created and maintained. A handful of commenters argued that 
such audio recording would be prohibitively expensive, particularly in 
the inbound context, where some sellers and telemarketers have not 
traditionally recorded the telemarketing calls.\479\ Given the narrow 
category of calls to which this requirement applies, and the rapidly 
growing use of inexpensive and efficient digital audio recording 
technology,\480\ the Commission believes that this requirement will not 
pose a significant burden to sellers and telemarketers who freely 
choose to market their goods or services using a ``free-to-pay 
conversion'' feature and preacquired account information. Moreover, the 
record is compelling that any incremental costs to industry of these 
requirements are likely outweighed by the benefit to consumers of 
curtailing the practice as it is currently employed in the marketplace.
---------------------------------------------------------------------------

    \479\ ERA/PMA-Supp. at 3, 7 (``We understand from certain of our 
members that imposing the record keeping requirement[s] on inbound 
[upsells] may require substantial investments of money and resources 
to develop the systems necessary to comply with these 
requirements.'').
    \480\ See generally Contract Digital Recorder, by Data-Tel Info 
Solutions, at http://www.datatel-info.com/digicorder.html 
(describing affordable digital recording system for telemarketing 
operations); Veritape Call Centre-Case Study 2, at http://www.veritape.com/veritape/vtcccase.htm (describing a US call center 
that saved $70,000 annually by switching from analog taping process 
to digital recording); Ron Elwell, Streamlining Call Center 
Operations, Teleprofessional, Sept. 1998, at 130-34 (discussing 
``how CTI-enabled digital recording technology is helping call 
centers of all types be more productive and profitable''); 
Teleprofessional, Inc., CCPN's System Owner Shootout, CALL CENTER 
PRODUCT NEWS, Fall 1998, at 52-54, 56 (explanations by several 
telemarketers' systems professionals of savings and efficiencies 
experienced using improved digital recording and monitoring 
systems); Michael Binder, The Evolution of Digital Recording in the 
Call Center, TELEMARKETING & CALL CENTER SOLUTIONS, Nov. 1997, at 
38. Cf. Duncan Furness, Choosing a Tape Technology, COMPUTER 
TECHNOLOGY REVIEW, Nov. 2000, at 40.
---------------------------------------------------------------------------

    In addition to the requirements noted above, in any telemarketing 
transaction involving preacquired account information (but not a 
``free-to-pay conversion'' feature), Sec.  310.4(a)(6)(ii) specifically 
requires that the seller or telemarketer (1) at a minimum, identify the 
account to be charged with

[[Page 4623]]

sufficient specificity for the customer or donor to understand what 
account will be charged, and (2) obtain from the customer or donor his 
or her express agreement to be charged for the goods or services and to 
be charged using the account number identified during the transaction. 
Again, the Commission intends this to mean that the telemarketer 
expressly inform the customer that the seller or telemarketer already 
has the number of the customer's specifically identified account or has 
the ability to charge that account without getting the account number 
from the customer.
    The Commission has taken a targeted approach in the amended Rule, 
focusing on the tangible harm caused by the practices identified as 
problematic in the rulemaking proceeding. It bears noting, however, 
that the Commission recognizes preacquired account telemarketing as an 
emerging practice, one that will receive close attention from the 
Commission, and, no doubt, the state Attorneys General. The Commission 
wishes to emphasize that, particularly in transactions involving 
``free-to-pay conversion'' offers, so long as preacquired account 
information is involved, there exists that fundamental shift in the 
bargaining relationship discussed above, and therefore potential for 
abuse.\481\ While the Commission is confident that the majority of 
industry members will abide by the new provisions, and that doing so 
will provide consumers the information and control needed to shield 
them from the abuses encountered in the past with these transactions, 
it also notes that the best practice in such circumstances is to ensure 
that the seller or telemarketer does not have the ability to cause a 
charge to a consumer's account without getting the account number from 
the consumer herself. This practice would, in effect, be self-
enforcing, as the control over the transaction (absent 
misrepresentations by the telemarketer) would truly be with the 
consumer, where it belongs. Should it become apparent that the remedies 
imposed by the amended Rule are insufficient, or that preacquired 
account telemarketing practices have evolved further in such a way as 
to cause additional harm to consumers, the Commission will not hesitate 
to revisit its approach to the practice and revise the Rule 
accordingly.
---------------------------------------------------------------------------

    \481\ NAAG-NPRM at 30; Covington-Supp. at 4-5.
---------------------------------------------------------------------------

Other Recommendations

    Other than those commenters who suggested deleting the prohibition 
entirely,\482\ industry commenters' primary recommendation was to 
substitute the express verifiable authorization provision of Sec.  
310.3(a)(3), or some variation on a disclosure and ``consent'' 
requirement,\483\ for the proposed blanket prohibition on the transfer 
of billing information.\484\ The general theme was that disclosures and 
``consent'' were sufficient to remedy the harm being caused consumers 
by the misuse of preacquired account information. It is unclear what 
these commenters mean by ``consent'' in this context, as they also 
recommended that sellers and telemarketers be permitted to use any of 
the three existing avenues for achieving express verifiable 
authorization, including providing consumers a written confirmation 
after terminating the telephone call. In the context of ``free-to-pay 
conversions,'' the record shows, in no uncertain terms, that 
disclosures are not sufficient to prevent widespread consumer 
injury.\485\ Most sellers and telemarketers have been telling consumers 
at some point in the conversation, in greater or lesser detail, that 
they will be charged at some point for the goods or services being 
offered on a ``free-to-pay conversion'' basis; but, as noted above, 
these disclosures come late in the conversation, and do not resonate 
with consumers who understand ``free'' to mean ``free'' and that to 
obligate oneself to purchase something, the buyer must provide a 
payment mechanism to the seller.\486\ Often, these disclosures come in 
writing in a ``membership package'' sent to the consumer some time 
after the call. Law enforcement experience has shown that these 
disclosures are meaningless to consumers--who either never receive the 
packets, or assume they are junk mail and discard them.\487\ Moreover, 
in any telemarketing transaction, but most especially in preacquired 
account telemarketing, it is imperative that the seller or telemarketer 
ensure that the consumer actively, and unequivocally, provides his or 
her consent to be charged, and to be charged using a particular payment 
mechanism. The Commission has determined, therefore, that prohibiting 
unauthorized charges, and laying out what is required to obtain express 
informed consent in certain circumstances, is the most appropriate 
solution not only to the harm caused by preacquired account 
telemarketing abuses, but also by other exploitative billing methods in 
telemarketing.
---------------------------------------------------------------------------

    \482\ ABA-NPRM at 8-9; ABIA-NPRM at 4; CMC-NPRM at 9-10; MBNA-
NPRM at 6.
    \483\ See, e.g., DMA-NPRM at 39-40 (specific to upselling) (the 
Commission ``should instead require that notice of transfer of 
billing information be disclosed to the consumer and that consent be 
given by the consumer prior to the transfer'').
    \484\ See ATA-NPRM at 20; ATA-Supp. at 5-6; CCC-NPRM at 11-12; 
ERA-NPRM at 24-25; ERA/PMA-Supp. at 11-15; ITC-NPRM at 5; MPA-NPRM 
at 26-29; MPA-Supp. at 5-6; NATN-NPRM at 3 (Supporting ERA 
Guidelines and recommendation); Noble-NPRM at 3 (same); NSDI-NPRM at 
3 (same); PMA-NPRM at 19 (same). See also Associations-Supp. at 6.
    \485\ Review of taped verifications obtained as evidence in the 
Commission's law enforcement actions and in similar state actions 
convincingly demonstrates the inadequacy of disclosures in this 
context.
    \486\ See NCL-NPRM at 7 (``Merely requiring telemarketers to 
disclose that they have already obtained the billing account 
information from another source or that they may share that 
information with other marketers would not provide consumers with 
adequate protection from abuse. Express verifiable authorization to 
use the billing account information is not enough in these instances 
because it comes into play after the fact; it does not give 
consumers prior knowledge of or control over who has their account 
information.'').
    \487\ See discussion of Sec.  310.3(a)(3)(iii) above.
---------------------------------------------------------------------------

Sec.  310.4(a)(7) -- Failing to transmit caller identification 
information

    Section 310.4(a)(7) of the amended Rule addresses transmission of 
caller identification (``Caller ID'') information. This section 
prohibits any seller or telemarketer from ``failing to transmit or 
cause to be transmitted the telephone number, and, when made available 
by the telemarketer's carrier, the name of the telemarketer, to any 
caller identification service in use by a recipient of a telemarketing 
call.'' A proviso to this section states that it is not a violation to 
substitute the actual name of the seller or charitable organization on 
whose behalf the call is placed for the telemarketer's name, or to 
substitute the seller's customer service number or the charitable 
organization's donor service number that is answered during regular 
business hours for the number the telemarketer is calling from or the 
number billed for making the call. Full compliance with the Caller ID 
provision will be required by January 29, 2004.
    The record includes several key principles supporting the 
Commission's decision to adopt this approach to Caller ID information. 
First, transmission of Caller ID information is not a technical 
impossibility, as some commenters had argued or implied. Second, 
telemarketers are able to transmit this information at no extra cost, 
or minimal cost. Third, consumers will receive substantial privacy 
protection as a result of this provision.\488\ Fourth, consumers and 
telemarketers will both benefit from the increased accountability in 
telemarketing that will result from this

[[Page 4624]]

provision.\489\ Fifth, law enforcement groups will benefit from a vital 
new resource from the required transmission of Caller ID information in 
telemarketing.\490\
---------------------------------------------------------------------------

    \488\ EPIC-NPRM at 11-12.
    \489\ Make-A-Wish-NPRM at 6; Associations-Supp. at 7; 
DialAmerica-Supp. at 2.
    \490\ Make-A-Wish-NPRM at 6; McClure-NPRM at 2; NACAA-NPRM at 9; 
NYSCPB-NPRM at 4; Patrick-NPRM at 2-3; TRA-NPRM at 11.
---------------------------------------------------------------------------

    Background. The original Rule did not address the issue of Caller 
ID, or the feasibility or desirability of requiring telemarketers to 
transmit Caller ID information. During the Rule Review, however, the 
Commission received numerous comments from consumers and others 
expressing frustration about telemarketers' routine failure to transmit 
Caller ID information.\491\ Commenters complained that when 
telemarketers called, consumers' Caller ID devices would show a phrase 
like ``unknown,'' ``out of area,'' or ``unavailable,'' instead of 
displaying the name and telephone number of the telemarketer or seller 
on whose behalf the call was made.\492\ Based on the Rule Review 
record, the Commission proposed in the NPRM to prohibit blocking, 
circumventing, or altering the transmission of Caller ID 
information.\493\
---------------------------------------------------------------------------

    \491\ See, e.g., Baressi-RR at 1; Bell Atlantic-RR at 8; Blake-
RR at 1; Collison-RR at 1; Lee-RR at 1; LeQuang-RR at 1; Mack-RR at 
1; Sanford-RR at 1.
    \492\ See, e.g., Baressi-RR at 1; Blake-RR at 1; Collison-RR at 
1; Lee-RR at 1; LeQuang-RR at 1; Mack-RR at 1; Sanford-RR at 1.
    \493\ The Caller ID provision is found at Sec.  310.4(a)(7) of 
the proposed Rule; discussion of the proposed Rule provision is 
found at 67 FR at 4514-16.
---------------------------------------------------------------------------

    In support of this proposal, the Commission discussed in the NPRM 
the benefits that accrue to consumers from transmission of Caller ID 
information and the technical considerations implicated by transmission 
of this information.\494\ Consumers benefit because Caller ID 
information allows them to screen out unwanted callers and identify 
companies that have contacted them so that they can place ``do not 
call'' requests to those companies. These features of Caller ID enable 
consumers to protect their privacy and are clearly within the ambit of 
the Telemarketing Act's mandate, set forth in 15 U.S.C. Sec.  
6302(a)(3)(A), to prohibit telemarketers from undertaking a pattern of 
unsolicited telephone calls which a reasonable consumer would consider 
coercive or abusive of their right to privacy.\495\ The fact that 
consumers greatly value the privacy protection provided by receipt of 
Caller ID information is evidenced by the fact that, as of the year 
2000, nearly half of all Americans subscribed to a Caller ID 
service.\496\
---------------------------------------------------------------------------

    \494\ 67 FR at 4514-16. The Commission also asked whether trends 
in telecommunications might one day permit the transmission of full 
Caller ID information when the caller uses a trunk line or PBX 
system. Id. at 4538.
    \495\ 67 FR at 4514. DMA argued that the Commission lacks 
authority to require Caller ID transmission. DMA-NPRM at 48-49. 
However, the NPRM clearly explains that the harm to consumers that 
arises from failure to transmit Caller ID information falls within 
the areas of abuse that the Telemarketing Act explicitly aimed to 
address. 67 FR at 4514-16. The Commission therefore rejects DMA's 
``lack of authority'' argument.
    \496\ Dina ElBoghdady, Ears Wide Shut: Researchers Get Punished 
for Telemarketers' Crimes, WASH. POST, Sept. 8, 2002, at H 2.
---------------------------------------------------------------------------

    The Commission noted in the NPRM the conflict in opinion during the 
Rule Review regarding the feasibility of requiring Caller ID 
transmission by telemarketers.\497\ Based on its assessment of the 
information on the record at the close of the Rule Review, the 
Commission expressed its uncertainty that telemarketers using ``T-1'' 
trunk lines could transmit Caller ID information, and the Commission 
therefore did not at that time propose to mandate such 
transmission.\498\ The NPRM also acknowledged telemarketers' argument 
that, even if they could transmit Caller ID information, they would 
still face the challenge of transmitting a number that would be useful 
to consumers.\499\
---------------------------------------------------------------------------

    \497\ 67 FR at 4515.
    \498\ Id.
    \499\ Id. Some telemarketers asserted that the telephone number 
that would likely be displayed on consumers' Caller ID services 
would be the telemarketer's central switchboard or trunk exchange, 
rather than a customer service number or a number where consumers 
could submit a ``do not call'' request.
---------------------------------------------------------------------------

    The Commission received numerous comments in response to the NPRM's 
discussion of Caller ID. Some industry representatives simply posited 
that transmission of Caller ID information was not possible, or argued 
that it was possible to transmit a telephone number, but that it was 
impossible or prohibitively expensive to transmit a telephone number 
that consumers could use to call the telemarketer that had called 
them.\500\ Consumer groups and law enforcement representatives urged 
the Commission not to accept telemarketers' claims that mandatory 
Caller ID transmission is impossible or prohibitively expensive without 
carefully examining the technical considerations involved.\501\ A 
number of consumers expressed frustration with telemarketers who fail 
to transmit Caller ID information.\502\
---------------------------------------------------------------------------

    \500\ ANA-NPRM at 6; Associations-NPRM at 3; DMA-NPRM at 49; 
NAA-NPRM at 17; Nextel-NPRM at 25; Synergy Solutions-NPRM at 3-4; 
Teledirect-NPRM at 3; Associations-Supp. at 7. See also AFSA-NPRM at 
19; Assurant-NPRM at 6. But see EPIC-NPRM at 11, 13; NAAG-NPRM at 
45.
    \501\ EPIC-NPRM at 11-12; NAAG-NPRM at 45; AARP-NPRM at 5-6.
    \502\ See, e.g., Robert Hawrylak (Msg. 3382); Carl Wallander 
(Msg. 861); George Kapnas (Msg. 2243); Tom Kaufmann (Msg. 2433); Bob 
Schmitt (Msg. 3494); Bradley Davis (Msg. 3890); Toryface (Msg. 
19744). In all, more than 200 consumers stated that the Commission's 
proposed approach in the NPRM was not adequate to protect consumers' 
right to privacy.
---------------------------------------------------------------------------

    Industry commenters generally supported the proposed prohibition on 
blocking Caller ID, but urged the Commission not to require Caller ID 
transmission,\503\ although one telemarketer very strongly advocated 
that the Commission do so in order to remove the cloak of anonymity 
from telemarketers and thus promote accountability for the greater 
benefit of the industry as a whole.\504\ A number of industry 
commenters wanted to make sure that ``the prohibited practice is the 
deliberate manipulation of the Caller-ID signal'' and that ``[a]s long 
as no overt actions are taken to disrupt the information, there is no 
violation.''\505\ Several commenters expressly urged that purchasing or 
using telephone equipment that lacks Caller ID functionality should not 
be a violation of the Rule.\506\
---------------------------------------------------------------------------

    \503\ ABA-NPRM at 9; ARDA-NPRM at 6; ANA-NPRM at 6; 
Associations-NPRM at 3; BofA-NPRM at 7; CBA-NPRM at 10; Comcast-NPRM 
at 4; DMA-NPRM at 48; ERA-NPRM at 48-49; Green Mountain-NPRM at 27; 
ITC-NPRM at 3; Lenox-NPRM at 6; MPA-NPRM at 49; NAA-NPRM at 17; 
Nextel-NPRM at 24-25; Synergy Solutions-NPRM at 3-4; Tribune-NPRM at 
10; VISA-NPRM at 13. In the NPRM, the Commission specifically asked, 
among other things, whether it would ``be desirable to propose a 
date in the future by which all telemarketers would be required to 
transmit Caller ID information.'' 67 FR at 4538.
    \504\ DialAmerica-NPRM at 24; DialAmerica-Supp. at 10; June 2002 
Tr. II at 83 (DialAmerica).
    \505\ Synergy Solutions-NPRM at 3. See also Nextel-NPRM at 25; 
Noble-NPRM at 4; NATN-NPRM at 4; NSDI-NPRM at 4; ITC-NPRM at 3.
    \506\ AFSA-NPRM at 19; Comcast-NPRM at 4; CBA-NPRM at 10; Cox-
NPRM at 37; Household Bank-NPRM at 16; Nextel-NPRM at 25; Thayer-
NPRM at 5; Wells Fargo-NPRM at 3. But see EPIC-NPRM at 11, 13-14; 
McClure-NPRM at 1; Patrick-NPRM at 2-3; Thayer-NPRM at 5 (Commenter 
raises issue of whether Internet telephony users could transmit 
Caller ID information. There is nothing in the record indicating 
that telemarketers use Internet telephony. If they do use such 
technology, they are reminded that all telemarketers subject to the 
Rule must transmit Caller ID information. The FTC's own telephone 
system uses IP telephones, which do provide Caller ID information.).
---------------------------------------------------------------------------

    Technical feasibility of mandatory transmission of Caller ID 
information. The rulemaking record as a whole shows that telemarketers' 
failure to transmit Caller ID information need not be the result of 
their blocking its transmission or some other affirmative measure on 
their part.\507\ Rather, the record indicates that non-transmission

[[Page 4625]]

of Caller ID information may be a by-product of purchasing or using 
telephone equipment that lacks Caller ID transmission 
functionality.\508\
---------------------------------------------------------------------------

    \507\ ATA-Supp. at 16-17; Chicago ADM-NPRM at 1; Lenox-NPRM at 
6; NRF-NPRM at 19.
    \508\ EPIC-NPRM at 11; TRA-NPRM at 11. As is discussed below, 
non-transmission may also result from errors in telephone companies' 
equipment.
---------------------------------------------------------------------------

    In concluding that required transmission of Caller ID information 
is technically feasible and not costly for telemarketers, the 
Commission was persuaded in part by the example provided by 
DialAmerica. In its written comments and at the June 2002 Forum, 
DialAmerica explained how it transmits Caller ID information to the 
consumers it calls.\509\ DialAmerica's carrier assigns a telephone 
number to each of DialAmerica's call centers. When a sales 
representative from a particular call center calls a consumer, that 
call center's assigned telephone number is transmitted to the 
consumer's Caller ID service. SBC, a large provider of common carriage 
services, provided support for the availability of DialAmerica's 
model.\510\ DialAmerica stated at the June 2002 Forum that it does not 
pay its carrier any extra amount to transmit this assigned telephone 
number to consumers.\511\
---------------------------------------------------------------------------

    \509\ DialAmerica-Supp., Att. A at 1-2. See also June 2002 Tr. 
II at 81-83. According to one of DialAmerica's written comments: 
``Caller ID information can be delivered over T-1's today. We have 
been doing it for over two years. If the Commission does not mandate 
the delivery of Caller ID information, those who would want the 
Commission to believe that it cannot be done will have been 
successful.'' DialAmerica-Supp. at 10. See also DialAmerica-NPRM at 
25 (``The conclusion stated in the NPRM . . . that trunk or T-1 
lines will only display a term like ``unavailable'' is not 
correct.'') and NAAG-NPRM at 45 (``We have been advised that all 
trunk lines . . . should be capable of supporting Caller ID.'')
    \510\ See SBC-Supp. at 8-10; June 2002 Tr. II at 80-83. See also 
Cox-NPRM at 37; DMA-NPRM at 49; Green Mountain-NPRM at 28; 
Associations-Supp. at 7.
    \511\ June 2002 Tr. II at 83 (DialAmerica). Moreover, other 
moderate-sized telemarketers reported that they currently transmit 
Caller ID information. Because they are not compelled to do this, 
the Commission believes that doing so is not cost-prohibitive. See 
Aegis-NPRM at 5; Lenox-NPRM at 6. See also ANA-NPRM at 6; ARDA-NPRM 
at 6. But see ATA-Supp. at 18.
---------------------------------------------------------------------------

    The Commission believes the argument by telemarketers that required 
transmission of Caller ID information would be impossible or 
prohibitively expensive is based substantially on an erroneous 
supposition that telemarketers would be required to transmit the 
specific telephone number from which a sales representative placed a 
given call. The Commission's citation to DialAmerica's approach should 
make it clear that the Commission is not requiring this level of 
specificity. Under the amended Rule's Caller ID provision, 
telemarketers may transmit any number associated with the telemarketer 
that allows the called consumer to identify the caller. This includes a 
number assigned to the telemarketer by its carrier, the specific number 
from which a sales representative placed a call, or a number used by 
the telemarketer's carrier to bill the telemarketer for a given call. 
In the alternative, a telemarketer may transmit the seller's customer 
service number or the charitable organization's donor service number, 
provided that this number is answered during regular business hours.
    Not every telemarketer will need to follow DialAmerica's approach 
for transmission of Caller ID information. The record reflects various 
options in calling equipment used by telemarketers.\512\ A 
telemarketer's choice of calling equipment is determined in part by the 
telemarketer's size. The smallest telemarketers, most likely placing 
calls from home, may contact consumers using a ``plain old telephone 
service'' (``POTS'') line. A telemarketer calling consumers with a POTS 
line will have no difficulty transmitting Caller ID information.\513\ 
This is also true if, to call consumers, the telemarketer uses 
Integrated Services Digital Network-Basic Rate Interface (``ISDN-BRI'') 
technology, which, like POTS lines, is likely to be utilized only by 
the smallest telemarketers.\514\
---------------------------------------------------------------------------

    \512\ See, e.g., Nextel-NPRM at 25 (proprietary dialers); 
DialAmerica-Supp., Att. A at 1 (regular trunk groups provisioned by 
carrier); Fiber Clean-NPRM at 1 (telemarketers working from home).
    \513\ SBC-Supp. at 8.
    \514\ http://www.bell-labs.com/technology/access/ISDN-BRI.html. 
ISDN-BRI essentially uses a caller's existing wiring to transmit 
calls digitally. As such, its capability to transmit Caller ID 
information is akin to a POTS line's capability.
---------------------------------------------------------------------------

    Larger telemarketers commonly use a ``private branch exchange'' 
switch (``PBX''), which enables them to place large volumes of calls 
more efficiently.\515\ For telemarketers using a PBX, the primary 
determinant in transmitting Caller ID information is the telemarketer's 
connection to its telephone company. A telemarketer using a PBX 
connects to its telephone company through a ``trunk.''\516\ The more 
modern type of trunk used in telemarketing is an ``Integrated Services 
Digital Network-Primary Rate Interface'' (``ISDN-PRI'') trunk.\517\ It 
is clear from the record that a telemarketer using such an ``ISDN-PRI'' 
trunk has no difficulty in transmitting Caller ID information to a 
consumer.\518\
---------------------------------------------------------------------------

    \515\ SBC-Supp. at 8-9. This is also true of telemarketers using 
predictive dialers. Predictive dialers used by many telemarketers 
contain features similar to a PBX, and the capacity of such a 
predictive dialer to transmit Caller ID information is essentially 
the same as the capacity of a PBX to do so. See, e.g., Sytel-NPRM at 
8 (arguing that telemarketers using predictive dialers should 
transmit Caller ID information. This comment suggests that 
predictive dialers are capable of transmitting Caller ID 
information). See also http://www.pbxinfo.com/portal/modules.php?op=modload&name=Sections&file-=index&req=viewarticle&artid=8.
    \516\ SBC-Supp. at 8-9. An alternative to PBX available to 
telemarketers (but not widely used) is called ``Centrex.'' 
Telemarketers using Centrex connect to their telephone company using 
a telephone line; telemarketers using a PBX connect to their 
telephone company using a trunk. Because Centrex users use a line 
rather than a trunk, telemarketers using Centrex (like telemarketers 
using a POTS line or ISDN-BRI) should not find it difficult to 
transmit Caller ID information. See http://www.granitestatetelephone.com/sfb_centrex.html.
    \517\ June 2002 Tr. II at 76-77 (SBC).
    \518\ EPIC-NPRM at 12; SBC-Supp. at 8-9; June 2002 Tr. II at 80-
81 (SBC).
---------------------------------------------------------------------------

    The older kind of trunk used in telemarketing is a ``T-1'' 
trunk.\519\ Telemarketers using a ``T-1'' trunk are perhaps most likely 
to follow DialAmerica's model by having their carriers assign a 
telephone number to the trunk for transmission to consumers' Caller ID 
services. This is true because, in contrast to ``ISDN-PRI'' trunks, 
``T-1'' trunks do not routinely transmit the caller's telephone number 
to Caller ID devices.\520\ Some telemarketers stated that it may be 
technically feasible (but costly) for them to upgrade, reconfigure, or 
replace their PBX switches or their ``T-1'' trunks in order to transmit 
a specific sales representative's telephone number.\521\ However, the 
Commission's approach does not require this level of precision. 
Consequently, telemarketers will not have to absorb the expense 
associated with achievement of this level of precision.
---------------------------------------------------------------------------

    \519\ Some telemarketers may use a ``T3'' or ``DS3'' trunk. This 
kind of trunk is essentially a collection of ``T-1'' trunks; as 
such, it operates in a manner similar to a T-1 for purposes of 
Caller ID functionality. See http://www.hal-pc.org/[tilde]ascend/
MaxTNT/hwinst/tntt3.htm.
    \520\ SBC-Supp. at 8-9.
    \521\ Synergy Solutions-NPRM at 4; TeleDirect-NPRM at 3. But see 
EPIC-NPRM at 11-12.
---------------------------------------------------------------------------

    Regardless of telemarketers' calling systems and carriers' ability 
to assign a telephone number to a telemarketer's call center, there are 
occasions in which Caller ID information does not reach the called 
consumer even when telemarketers arrange for the transmission of that 
information.\522\ Two situations would seem to be outside the control 
of the telemarketer. First, the route traveled by a call could pass 
through a switch that lacks Caller ID functionality, essentially 
dropping

[[Page 4626]]

the Caller ID data but forwarding the rest of the call 
transmission.\523\ Second, a malfunction within a carrier's system 
could result in the failure to transmit Caller ID information in a 
given call.\524\ Because these phenomena are outside the control of the 
telemarketer, the telemarketer would not be held liable for violating 
this provision of the Rule when the failure to transmit Caller ID 
information results from such an occurrence. However, to avoid 
liability in such a case, a telemarketer must be able to establish that 
it has taken all available steps to ``transmit or cause the 
transmission of'' identifying information. This includes employing 
technical means within the telemarketer's operation, ensuring that the 
telemarketer's telephone company is equipped to transmit Caller ID 
information, and not using any means to block Caller ID transmission.
---------------------------------------------------------------------------

    \522\ See, e.g., ABA-NPRM at 9; Chicago ADM-NPRM at 1; IMC-NPRM 
at 9; Lenox-NPRM at 6; Teledirect-NPRM at 3; Associations-Supp. at 
7; ATA-Supp. at 17.
    \523\ ATA-Supp. at 16; SBC-Supp. at 13.
    \524\ SBC-Supp. at 13.
---------------------------------------------------------------------------

    A very small number of telemarketers may be located in areas of the 
country that are served only by telephone companies that are not 
capable of transmitting Caller ID information or assigning a telephone 
number to the telemarketer that can be transmitted to a called 
consumer.\525\ The Commission does not intend to require such 
telemarketers to relocate to areas of the country that are served by 
telephone companies that do provide Caller ID capability. Nonetheless, 
in enforcing this provision, the Commission would take into account any 
telemarketer's relocation from an area where it can transmit Caller ID 
information to a location where it cannot. However, the Commission 
believes it is unlikely that a telemarketer would go to such lengths in 
order to avoid compliance with this new requirement.
---------------------------------------------------------------------------

    \525\ The record reflects that with the exception of some small 
interexchange carriers (``IXCs''), competitive local exchange 
carriers (``CLECs''), and some incumbent local exchange carriers 
(``ILECs'') serving rural pockets of the country, all telephone 
companies can pass along Caller ID information. See June 2002 Tr. II 
at 78-79; FCC First Report and Order in the Matter of Access Charge 
Reform, CC Docket No. 96-262 (May 7, 1997), para. 137; http://www.ss7.net: Carriers connected to the Signaling System 7 (``SS7'') 
network can transmit Caller ID information. SS7 is the predominant 
signaling system, and its use is increasing. But see Green Mountain-
NPRM at 28.
---------------------------------------------------------------------------

    The Commission recognizes that transmission of Caller ID 
information does not depend on technical capability alone. 
Telemarketers who currently possess Caller ID capability may 
deliberately decline to transmit this information to the consumers they 
solicit. There is record evidence to support legitimate explanations 
for deliberate blocking of Caller ID transmission.\526\ Fiber Clean, 
for example, uses telemarketers working from home; it advocates Caller 
ID blocking to protect its employees' privacy.\527\ Other telemarketers 
may block Caller ID transmission because they are unable to transmit a 
telephone number which would be useful to consumers.\528\
---------------------------------------------------------------------------

    \526\ Fiber Clean-NPRM at 1; Cox-NPRM at 37-38; NRF-NPRM at 19. 
But see ERA-NPRM at 48; Teledirect-NPRM at 3; ATA-Supp. at 16.
    \527\ Fiber Clean-NPRM at 1.
    \528\ Cox-NPRM at 37-38; NRF-NPRM at 19.
---------------------------------------------------------------------------

    The Commission has concluded that some flexibility regarding what 
telephone number and name the telemarketer may transmit best 
accommodates the current state of telemarketing.\529\ A telemarketing 
service bureau calling on behalf of more than one seller, for example, 
may benefit from the option of transmitting the seller's name and 
telephone number rather than its own.\530\ Under Sec.  310.4(a)(7), 
telemarketers have the option of transmitting a telephone number 
associated with them that enables the consumer to identify who called, 
or, in the alternative, the seller's customer service number or the 
charitable organization's donor service number. If the telemarketer 
transmits its own number, that number ideally should enable the 
consumer to communicate with the caller to assert a company-specific 
``do not call'' request. Alternatively, telemarketers can forward 
consumers' return calls to a customer service line.\531\ At-home 
callers with a POTS line cannot alter, but they can acquire a second 
line for business calls, which would allay privacy concerns associated 
with transmission of the caller's residential number.
---------------------------------------------------------------------------

    \529\ ARDA-NPRM at 6; Assurant-NPRM at 6; ATA-Supp. at 16; DMA-
NPRM at 50; ERA-NPRM at 49; IMC-NPRM at 8; MPA-NPRM at 9, 49-50. See 
also Assurant-NPRM at 6 (Commenter asked that the Rule do more to 
prevent transmission of misleading Caller ID information. The 
Commission believes that the amended Rule addresses this concern.). 
But see AARP-NPRM at 6; NCL-NPRM at 8; Patrick-NPRM at 10 
(telemarketer should be required to transmit the seller's name 
whenever possible). See also EPIC-NPRM at 12; Make-A-Wish-NPRM at 5-
6; Worsham-NPRM at 4 (telemarketer should identify itself rather 
than the seller). See also BellSouth-NPRM at 4-5 (no flexibility in 
transmitted number should be permitted).
    \530\ MPA-NPRM at 9; DMA-NPRM at 50. See also Green Mountain at 
28; ATA-Supp. at 16.
    \531\ DialAmerica provides a model for the use of call 
forwarding in this context. See DialAmerica-Supp., Att. A at 2.
---------------------------------------------------------------------------

    Consumers benefit from transmission of Caller ID information. The 
record, taken as a whole, establishes that it is neither technically 
nor economically infeasible for telemarketers to transmit Caller ID 
information. On the other side of the equation, consumers derive 
substantial benefit from receiving Caller ID information. Moreover, as 
the Commission explained in the NPRM, the transmission of Caller ID 
information is necessary to protect consumers' privacy under the 
Telemarketing Act.\532\ Consumers in large numbers subscribe to, and 
pay for, Caller ID services offered by their telephone companies.\533\ 
Many of these consumers subscribe to Caller ID specifically to identify 
incoming calls from telemarketers and screen out unwanted telemarketing 
calls.\534\ Indeed, according to Private Citizen, consumers spend an 
aggregate of $1.4 billion annually on Caller ID services to limit 
unwanted telemarketing calls.\535\ Consumers who commented on the 
record expressed frustration at the failure of telemarketers to provide 
Caller ID information.\536\ These consumers have, over time, come to 
the conclusion that an incoming call that fails to provide Caller ID 
information is commonly a telemarketing call.\537\ As a result, some 
consumers decline to answer these calls.\538\ In an attempt to protect 
their privacy from incoming calls with no Caller ID information 
provided, other consumers have gone beyond call screening with services 
such as Caller Intercept and Privacy Manager, both of which are offered 
by telephone companies for a fee, that intercept incoming calls with no 
Caller ID information and require such callers to identify themselves 
before their call will be connected.\539\ At present, Caller ID 
services are an ineffective solution from consumers' perspective: many

[[Page 4627]]

consumers pay added costs simply to find out who is calling them, yet 
this investment is useless when the identifying information is not made 
available.\540\
---------------------------------------------------------------------------

    \532\ 67 FR at 4514.
    \533\ Dina ElBoghdady, Ears Wide Shut: Researchers Get Punished 
for Telemarketers' Crimes, WASH. POST, Sept. 8, 2002, at H2 (Noting 
that, according to a survey conducted in 2000, nearly half of all 
Americans subscribe to caller ID); ACUTA-NPRM at 2.
    \534\ McClure-NPRM at 3; Private Citizen-NPRM at 2, Susannah Fox 
(Msg. 3624), CN Rhodine (Msg. 480), Gautham Achar (Msg. 596), Brenda 
Hall (Msg. 825), Carl Wallander (Msg. 861). See also 67 FR at 4515, 
n.223 (citing Bell Atlantic survey finding that three out of four 
residential customers buy Caller ID to help stop abusive telephone 
calls).
    \535\ Private Citizen-NPRM at 2. See also Associated Press, 
Phone Companies Act as Double Agents in Telemarketing War, CHI. 
TRIB., Oct. 27, 2002, at C4.
    \536\ See, e.g., Robert Hawrylak (Msg. 3382), Patricia Frank 
(Msg. 223), Jo Ann Kilmer (Msg. 530), Jim Kelly (Msg. 541), Carl 
Wallander (Msg. 861), John G. Talafous (Msg. 1236), Louis Sarvary 
(Msg. 1319), George M. Kapnas (Msg. 2243), Bob Greene (Msg. 2716), 
FarmGirl16F3 (Msg. 14015).
    \537\ See, e.g., Karen Peters (Msg. 3814), Chuck Jackson (Msg. 
209).
    \538\ See, e.g., E Pereira (Msg. 214), Brenda Hall (Msg. 825), 
Victoria Brigman (Msg. 3889).
    \539\ See, e.g., http://www22.verizon.com/ForYourHome/SAS/res_fam_identify.asp; Private Citizen-NPRM at 2; DC-NPRM at 5; EPIC-
NPRM at 11; McClure-NPRM at 2.
    \540\ AARP-NPRM at 5; EPIC-NPRM at 11; McClure-NPRM at 3. But 
see Lynn Gaubatz (Msg. 2769) (Consumer prefers current state of 
affairs where ``most'' telemarketers block transmission of Caller ID 
information because her Caller ID is programmed to refuse calls from 
parties who block such transmission. Using this arrangement, the 
consumer reports receiving few telemarketing calls.).
---------------------------------------------------------------------------

    With the exception of Fiber Clean, which argued in favor of 
allowing at-home telemarketers to block Caller ID transmission, 
comments from industry members on the whole did not argue that 
telemarketers have a reason to block Caller ID transmission which might 
override the substantial privacy protection afforded to consumers when 
their Caller ID service shows them who is calling.\541\ To the 
contrary, comments from industry members supported the privacy 
principle behind the Rule's Caller ID provision, but took issue with 
the proposition that they should be required to transmit or cause 
transmission of Caller ID information.\542\ Therefore, there is strong 
support for the Commission's position that requiring Caller ID 
transmission in telemarketing calls will help promote consumers' 
privacy by allowing them to know who is calling them at home.
---------------------------------------------------------------------------

    \541\ Several comments from industry groups asserted that the 
Commission should yield to the FCC's standard on Caller ID blocking, 
under which the calling party's ability to block Caller ID 
transmission is preserved. See, e.g., DMA-NPRM at 48-49; SBC Supp. 
at 10-11. As is discussed below, however, the concerns at stake in 
the FCC's regulation--law enforcement and safety--are not implicated 
by telemarketing calls.
    \542\ DMA-NPRM at 48; IMC-NPRM at 8.
---------------------------------------------------------------------------

    Transmission of Caller ID information will also promote 
accountability throughout the industry--a goal championed by 
consumers\543\ and industry members\544\ alike. The Commission is 
persuaded by the argument DialAmerica presented in favor of requiring 
transmission of Caller ID in telemarketing calls. According to 
DialAmerica: ``[d]elivery of Caller ID information, that will be 
displayed on a consumer's Caller ID device or that can be accessed 
through such services as *69, is essential to create accountability in 
the outbound telemarketing industry.''\545\
---------------------------------------------------------------------------

    \543\ See, e.g., Teresa Vargas (Msg. 1292) (``I think 
telemarketers should NOT be able to block their phone numbers on 
Caller ID screens or *69. This will make the telemarketers more 
accountable, particularly if their tactics are in violation of a 
``do-not-call'' request or if, [sic] the telemarketers successfully 
scam consumers.''); Lisa Bellanca (Msg. 2007).
    \544\ See, e.g., DialAmerica-Supp. at 2; June 2002 Tr. II at 91-
92 (ERA).
    \545\ DialAmerica-Supp. at 2.
---------------------------------------------------------------------------

    Commenters noted that the increase in accountability that would 
accrue from requiring transmission of Caller ID information in 
telemarketing would provide particular benefit in addressing abandoned 
calls.\546\ Consumers whose privacy has been abused by dead air and 
call abandonment find it difficult, if not impossible, to ascribe those 
practices to a particular telemarketer unless Caller ID information is 
provided.\547\ As explained by DialAmerica, mandatory transmission of 
Caller ID information will provide ``a strong incentive for companies 
to keep abandonment rates low and eliminate 'dead air,''' as these 
companies do not want to engage in practices that might encourage 
consumers to invoke their company-specific ``do-not-call'' rights.\548\
---------------------------------------------------------------------------

    \546\ DialAmerica-NPRM at 25; Sytel-NPRM at 8; AARP-NPRM at 9; 
ARDA-NPRM at 15.
    \547\ http://www.opc-marketing.com/predictive.htm (``[I]t is 
assumed that abandoned calls to anonymous consumers do not harm the 
call center's business.'').
    \548\ DialAmerica-Supp. at 3.
---------------------------------------------------------------------------

    The enhanced accountability provided by Caller ID transmission 
extends beyond complaints about call abandonment and dead air. Caller 
ID information provides a record of identification that endures beyond 
the telemarketing call. The prompt disclosures required by 310.4(d) 
provide consumers with a needed introduction to a solicitation call, 
but do not provide an enduring record of identifying information, as 
most consumers do not answer the phone with pen and paper at the ready 
to write down the name of the calling party. Moreover, just as industry 
comments did not dispute the privacy protections provided by Caller ID 
transmission, neither did they present a rebuttal to the argument that 
such transmission will promote accountability in telemarketing. Indeed, 
the large majority of telemarketers--entities built upon good business 
practices and compliance with the Rule--will benefit from a provision 
designed to respond to deceptive and abusive practices aided by 
anonymity in telemarketing.\549\
---------------------------------------------------------------------------

    \549\ See, e.g., AARP-NPRM at 6.
---------------------------------------------------------------------------

    By eliminating anonymity in telemarketing, the Caller ID provision 
will serve a third, equally important goal: it will provide law 
enforcement with a significant new resource.\550\ In the years 
following promulgation of the original Rule, the Commission and the 
states have created a substantial record of enforcement.\551\ However, 
enforcement efforts concerning some Rule provisions have been 
frustrated because of difficulty in identifying violators.\552\ Sellers 
and telemarketers that have failed to honor ``do-not-call'' requests 
have been particularly hard to identify.\553\ A number of comments in 
the record noted the need for greater ability to identify possible 
violators, and the advantages of Caller ID information in filling that 
need.\554\ AARP noted that required transmission of Caller ID 
information will also enable consumers to contact government agencies 
and the Better Business Bureau to verify the legitimacy of the 
telemarketer, which will help to prevent fraud before it occurs.\555\ 
Therefore, the transmission of Caller ID information likely will aid 
law enforcement's ability to enforce the TSR, and increase the Rule's 
effectiveness.
---------------------------------------------------------------------------

    \550\ TRA-NPRM at 11; EPIC-NPRM at 11-12.
    \551\ FTC law enforcement actions alone total over 139 cases, 
resulting in total judgments of over $200 million since the Rule's 
inception.
    \552\ June 2002 Tr. II at 21.
    \553\ Donald Munson (Msg. 25516); EPIC-NPRM at 11; NYSCPB-NPRM 
Att. A at 4-5.
    \554\ DialAmerica-NPRM at 25-26; EPIC-NPRM at 11-12; Patrick-
NPRM at 2-3; TRA-NPRM at 11; CN Rhodine (Msg. 480); Charles Goodwin 
(Msg. 2079); Donald Munson (Msg. 25516).
    \555\ AARP-NPRM at 6.
---------------------------------------------------------------------------

    Consistency with FCC regulations. FCC regulations require carriers 
using SS7\556\ to provide a mechanism by which a line subscriber can 
block the display of his or her telephone number on a Caller ID 
device.\557\ SBC referenced the FCC's approach to Caller ID blocking to 
argue that calling parties' interest in privacy ``outweighs the general 
usefulness of Caller ID service.''\558\ As the NPRM made clear, the 
FCC's requirement that common carriers be able to allow Caller ID 
blocking is meant to address specific calling situations in which 
protecting the calling party's privacy takes on particular 
urgency.\559\ Cited examples include undercover law enforcement 
operations and calls placed from battered women's shelters.\560\ No 
such privacy justification suggests itself in the case of 
telemarketers. Moreover, there is no conflict between the amended 
Rule's Caller ID provision and FCC regulations. The FTC's provision 
requires sellers and telemarketers to transmit Caller ID information; 
it does not create an obligation or a prohibition for common carriers. 
FCC regulations require certain carriers to provide a mechanism for 
blocking display of Caller ID information; they do not grant

[[Page 4628]]

sellers and telemarketers the right to block transmission of that 
information.
---------------------------------------------------------------------------

    \556\ See note 526 above for more on SS7 technology.
    \557\ 47 CFR 64.1601.
    \558\ SBC-Supp. at 10-11.
    \559\ 67 FR at 4515, n.228. See also ATA-Supp. at 16; EPIC-NPRM 
at 14.
    \560\ Id.
---------------------------------------------------------------------------

Sec.  310.4(b) -- Pattern of calls

    Section 310.4(b)(1) of the original Rule specifies that ``[i]t 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,'' several practices deemed to be abusive of 
consumers. The proposed Rule contained some modifications to various 
subsections of this provision. The responses received in response to 
the NPRM, and the discussion at the June 2002 Forum, are set forth 
below.

Sec.  310.4(b)(1)(i) -- Calling repeatedly or continuously

    Section 310.4(b)(1)(i) specifies that it is an abusive 
telemarketing act or 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).\561\ Therefore, the 
language in that provision remains unchanged in the amended Rule.\562\ 
However, the expansion in the scope of the Rule effectuated by the USA 
PATRIOT Act brings within the ambit of this provision telemarketers 
soliciting charitable contributions.
---------------------------------------------------------------------------

    \561\ In its comments in the Rule Review, NASAA stated that this 
provision strikes directly at one of the manipulative techniques 
used in high-pressure sales to coerce consumers to purchase a 
product, and noted that the organization advises consumers that one 
of the ``warning signs of trouble'' is the ``three-call'' technique 
used by fraudulent sellers of securities. NASAA-RR at 2.
    \562\ Section 310.4(b)(1)(i) of the amended Rule 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.''
---------------------------------------------------------------------------

Sec.  310.4(b)(1)(ii) -- Denying or interfering with ``do-not-call'' 
rights

    In the NPRM, the Commission proposed to 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.\563\ In setting out the proposed prohibition, 
the Commission noted that during the Rule Review, numerous individual 
consumers had complained about being hung up on when they asked to be 
placed on a ``do-not-call'' list. In other instances, consumers 
complained that the telemarketer had used other means to hamper or 
impede these consumers' attempts to be placed on a ``do-not-call'' 
list. Participants in both the ``Do-Not-Call'' Forum and the Rule 
Review Forum echoed these complaints.\564\
---------------------------------------------------------------------------

    \563\ 67 FR at 4516.
    \564\ Id.
---------------------------------------------------------------------------

    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.\565\
---------------------------------------------------------------------------

    \565\ 15 U.S.C. 6102(a)(3)(A).
---------------------------------------------------------------------------

    Those commenters who addressed this provision strongly supported 
the prohibition.\566\ For example, NAAG stated that an express 
prohibition against denying or interfering with a consumer's right to 
be added to a company-specific ``do-not-call'' list clarifies the 
seriousness of the telemarketer's obligation to process the consumer's 
request and will raise confidence in the system.\567\
---------------------------------------------------------------------------

    \566\ See, e.g., ARDA-NPRM at 6; Assurant-NPRM at 7; NAAG-NPRM 
at 44; NCL-NPRM at 8; NYSCPB-NPRM at 5-6; Proctor-NPRM at 4.
    \567\ NAAG-NPRM at 44. See also NCL-NPRM at 8.
---------------------------------------------------------------------------

    NAAG noted that the consumer who receives the telemarketing call 
generally must rely exclusively on the telemarketer's truthful 
disclosure of his or her identity and the nature of the call, and that 
consumers are often confused because many company names are very 
similar.\568\ In this respect, the Commission's determination to 
require telemarketers to transmit Caller ID information, discussed 
above, will provide a valuable tool to both consumers and law 
enforcement agencies in identifying those telemarketers who fail to 
comply with their obligation to process the consumer's request.
---------------------------------------------------------------------------

    \568\ NAAG-NPRM at 44.
---------------------------------------------------------------------------

    Therefore, the Commission has determined 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. 
Section 310.4(b)(1)(ii) of the amended Rule prohibits this practice, 
and encompasses both telemarketers soliciting the purchase of goods or 
services and those soliciting charitable contributions in accordance 
with the USA PATRIOT Act amendments.\569\ In addition, Sec.  
310.4(b)(1)(ii) prohibits 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 intended 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.\570\
---------------------------------------------------------------------------

    \569\ Moreover, the Rule Review 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. See Peters-RR at 1.
    \570\ Because the USA PATRIOT Act amendments do not give the 
Commission jurisdiction over non-profit organizations, the 
prohibition against causing a telemarketer to deny or defeat ``do-
not-call'' requests applies only to sellers of goods or services, 
not to non-profit organizations.
---------------------------------------------------------------------------

Sec.  310.4(b)(1)(iii) -- ``Do-not-call''

    The original Rule prohibited a seller or telemarketer from calling 
a person who had previously asked not to be called by or on behalf of 
the seller whose goods or services were offered.\571\ The proposed Rule 
added a second ``do-not-call'' provision that would prohibit a seller 
or telemarketer from calling a consumer who had placed his or her name 
and/or telephone number on a centralized registry maintained by the 
Commission, unless the consumer had provided express authorization for 
the seller to call him or her.\572\ To effectuate the USA PATRIOT Act 
amendments, the Commission also proposed that for-profit telemarketers 
who solicit charitable donations be subject to the proposed national 
registry.\573\
---------------------------------------------------------------------------

    \571\ 16 CFR 310.4(b)(1)(ii). This is termed a ``company-
specific'' approach to eliminating unwanted telephone solicitations.
    \572\ Proposed Rule Sec. Sec.  310.4(b)(1)(iii)(B) and 
310.4(b)(1)(iii)(B)(1) and (2).
    \573\ 67 FR at 4516, 4519.
---------------------------------------------------------------------------

    The national ``do-not-call'' registry proposal generated extensive 
comment.\574\ Consumer and privacy advocates, as well as individual 
consumers, overwhelmingly supported the creation of such a 
registry.\575\

[[Page 4629]]

Indeed, many recommended that the Commission take a more restrictive 
``opt-in'' approach, and prohibit telemarketing except to those 
consumers who expressly agree in advance to accept sales calls.\576\ 
State regulators also supported a national registry, provided it did 
not preempt the ``do-not-call'' legislation already passed in many 
states or preclude the states from enforcing these laws.\577\
---------------------------------------------------------------------------

    \574\ As discussed above, the Commission received about 64,000 
written and electronic comments in response to the NPRM, including 
over 45 supplemental comments from organizations and individuals and 
almost 15,000 comments from Gottschalks' customers that were 
submitted by Gottschalks as its supplemental comment. The vast 
majority of comments touched, at least in part, on the proposed 
national ``do-not-call'' registry.
    \575\ See, e.g., DOJ-NPRM at 4-5; EPIC-NPRM at 2-3; LSAP-NPRM at 
12; NAAG-NPRM at 4, 6, 12, 29; NACAA-NPRM at 2; NCLC-NPRM at 13; 
NCL-NPRM at 8; NFPPA-NPRM at 1; Pelland-NPRM passim; Proctor-NPRM 
passim; PRC-NPRM at 2; Private Citizen-NPRM at 1; TDI-NPRM at 4-5; 
Worsham-NPRM at 1. Of the approximately 49,000 comments, about 
33,000 supported the creation of a national registry, while about 
13,700 opposed it. Of the 14,700 comments from Gottschalks'' 
customers, almost 11,500 supported the creation of a ``do-not-call'' 
registry, while only about 1800 opposed the idea of a registry.
    \576\ See, e.g., EPIC-NPRM at 4; NCL-NPRM at 8.
    \577\ See, e.g., Connecticut-NPRM at 1-2, 3; DC-NPRM at 4; 
Kansas-NPRM at 2; NAAG-NPRM at 4-29; NYSCPB-NPRM at 1; Tennessee-
NPRM at 2, 9-10; Texas PUC-NPRM at 1, 2; Virginia-NPRM at 1-2. See 
also AARP-NPRM at 1; NCL-NPRM at 9-10; NCLC-NPRM at 13; PRC-NPRM at 
4; Private Citizen-NPRM at 2; TDI-NPRM at 4-5.
---------------------------------------------------------------------------

    A number of industry commenters supported the general concept of a 
national ``do-not-call'' registry that would preempt state ``do-not-
call'' laws, provided an exemption for ``existing business 
relationships'' were added to the Rule. The need for an established 
business relationship exemption was the most emphatic and consistent 
theme of industry comments, but other points were raised as well. Some 
questioned whether the Commission had the statutory authority to 
establish such a registry.\578\ Others argued that a national ``do-not-
call'' registry would impose an unconstitutional restriction on 
commercial speech.\579\ Still others felt that an FTC registry was not 
necessary because the current system was sufficient to protect consumer 
privacy.\580\ These commenters supported increased enforcement of 
existing federal and state ``do-not-call'' laws. Charitable 
organizations and the telemarketers who serve them uniformly opposed 
the national ``do-not-call'' registry proposal if applicable to 
charitable solicitations by for-profit telemarketers. They argued that 
such a registry would violate the First Amendment and that it would 
have a devastating impact on the level of contributions that non-profit 
organizations depend upon to fulfill their missions.\581\
---------------------------------------------------------------------------

    \578\ See, e.g., Discover-NPRM at 2; ERA-NPRM at 26; NRF-NPRM at 
2-3; NAA-NPRM at 2; Paramount-NPRM at 1; PMA-NPRM at 6, 24-26.
    \579\ See, e.g., NAA-NPRM at 2; Paramount-NPRM at 2; PBP-NPRM 
passim; Redish-NPRM passim.
    \580\ See, e.g., Craftmatic-NPRM at 3; ERA-NPRM at 5, 28; PMA-
NPRM at 6; TeleStar-NPRM at 2; Weber-NPRM at 2.
    \581\ See, e.g., DMA-NonProfit-NPRM passim; Not-for-Profit 
Coalition-NPRM passim; Hudson Bay-NPRM passim. See also June 2002 
Tr. III at 110, 205-10.
---------------------------------------------------------------------------

    Based on the entire record in this proceeding, the Commission has 
determined to retain the provision in the original Rule that prohibits 
a seller or telemarketer from calling a consumer who has previously 
asked not to be called by or on behalf of that seller. The Commission 
has also determined to supplement that provision by amending the Rule 
to establish a national ``do-not-call'' registry. For the reasons set 
forth herein, the Commission has decided to limit coverage of the 
national registry to telemarketing calls made by or on behalf of 
sellers of goods or services, thus exempting telemarketing calls on 
behalf of charitable organizations. Calls on behalf of charitable 
organizations will be subject to the company-specific ``do-not-call'' 
provision. In addition, the Commission has decided to retain the 
provision that allows consumers who sign up on the national ``do-not-
call'' registry to provide express agreement to specific sellers to 
call them, but has modified that provision to require that evidence of 
such agreements be written, not oral. Furthermore, the Commission has 
decided to supplement that express agreement provision with a narrowly-
defined exemption for ``established business relationships.'' The 
Commission is persuaded that these provisions will work in a 
complementary fashion to effectuate the appropriate balance between 
protecting consumer privacy and enabling sellers to have access to 
their existing customers. Of course, even a seller who is exempt from 
the prohibition against calling a consumer based on the existence of an 
``established business relationship'' with that consumer must honor 
that consumer's direct request not to be called under the company-
specific ``do-not-call'' provision.
    Background. The original Rule's company-specific approach, which 
prohibited a seller or telemarketer from calling a person who had 
previously asked not to be called, was intended to prohibit abusive 
patterns of calls from a seller or telemarketer to a person. During the 
Rule Review, industry representatives 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.\582\ 
The vast majority of individual commenters, however, joined by consumer 
groups and state law enforcement representatives, claimed that the 
TSR's company-specific ``do-not-call'' provision is inadequate to 
prevent the abusive patterns of calls it was intended to prohibit.\583\ 
They cited several problems with the current ``do-not-call'' scheme as 
set out in the FTC and FCC regulations:\584\ the company-specific 
approach is extremely burdensome to consumers, who must repeat their 
``do-not-call'' request with every telemarketer that calls;\585\ 
consumers' repeated requests to be placed on a ``do-not-call'' list are 
ignored;\586\ consumers have no way to verify that their names have 
been taken off of a company's calling list;\587\ consumers find that 
using the TCPA's private right of action\588\ is very complex and time-
consuming, and places an evidentiary burden on the consumer who must 
keep detailed lists of who called and when;\589\ and finally, even if 
the consumer wins a lawsuit against a company, it is difficult for the 
consumer to enforce the judgment.\590\
---------------------------------------------------------------------------

    \582\ ARDA-RR at 2; ATA-RR at 8-10; Bell Atlantic-RR at 4; DMA-
RR at 2; ERA-RR at 6; MPA-RR at 16; NAA-RR at 2; NASAA-RR at 4; PLP-
RR at 1. See also DNC Tr. at 132-80.
    \583\ See NAAG-RR at 17-19; NCL-RR at 13-14; DNC Tr. at 132-80. 
See also, e.g., Anderson-RR at 1; Bennett-RR at 1; Card-RR at 1; 
Conway-RR at 1; Garbin-RR at 1; A. Gardner-RR at 1; Gilchrist-RR at 
1; Gindin-RR at 1; Harper-RR at 1; Heagy-RR at 1; Johnson-RR at 1; 
McCurdy-RR at 1; Menefee-RR at 1; Mey-RR passim; Mitchelp-RR at 1; 
Nova53-RR at 1; Peters-RR at 1; Rothman-RR at 1; Vanderburg-RR at 1; 
Ver Steegt-RR at 1; Worsham-RR at 1.
    \584\ The FCC's ``do-not-call'' regulations under the TCPA are 
at 47 CFR 64.1201.
    \585\ Garbin-RR at 1; NAAG-RR at 17; Ver Steeg-RR at 1.
    \586\ Harper-RR at 1; Heagy-RR at 1; Holloway-RR at 1; Johnson-
RR at 1; Menefee-RR at 1; Mey-RR passim; Nova53-RR at 1; Nurik-RR at 
1; Peters-RR at 1; Rothman-RR at 1; Runnels-RR at 1; Schiber-RR at 
1; Schmied-RR at 1; Vanderburg-RR at 1.
    \587\ McCurdy-RR at 1; Schiber-RR at 1.
    \588\ The TCPA permits a person who receives more than one 
telephone call in violation of the FCC's ``do-not-call'' regulations 
to bring an action in an appropriate state court to enjoin the 
practice, to receive money damages, or both. 47 U.S.C. 227(b)(3). 
The consumer may recover actual monetary loss from the violation or 
receive $500 in damages for each violation, whichever is greater. 
Id. If the court finds that a company willfully or knowingly 
violated the FCC's ``do-not-call'' rules, it can award treble 
damages. Id.
    \589\ Kelly-RR at 1; NAAG-RR at 17-19; NACAA-RR at 2; NCL-RR at 
13-14.
    \590\ Kelly-RR at 1.
---------------------------------------------------------------------------

    In addition to the fact that it has proven ineffective, there is 
another problem that is not even addressed by the company-specific 
provision. In particular, because a great many telemarketers are now 
placing huge patterns of unsolicited telemarketing calls,\591\ many 
consumers find even an

[[Page 4630]]

initial call from a telemarketer or seller to be abusive and invasive 
of privacy. Several states responded to the growing consumer 
frustration with unsolicited telemarketing calls and the 
ineffectiveness of the company-specific approach by passing legislation 
to establish statewide ``do-not-call'' lists. To date, 27 states have 
passed such legislation, and numerous other states have considered 
similar bills.\592\
---------------------------------------------------------------------------

    \591\ Based on figures provided by the telemarketing industry, a 
study prepared for CCC estimates that the annual number of outbound 
calls that are answered by a consumer is 16,129,411,765 (i.e., 16 
billion calls). James C. Miller, III, Jonathan S. Bowater, Richard 
S. Higgins, and Robert Budd, ``An Economic Assessment of Proposed 
Amendments to the Telemarketing Sales Rule,'' June 5, 2002, 
(hereinafter ``Miller Study'') at 28, Att. 1. This figure does not 
include those calls that are abandoned.
    \592\ DNC Tr. at 16, 137, 157-58. As of August, 2002, 27 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. 
Instead of a central registry, these two states opted to require 
telephone companies to place a black dot in the telephone directory 
by the names of consumers who do not wish to receive telemarketing 
calls. (1999 Or. 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.  46-5-27; see also rules at Ga. Comp. R. & Regs. 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.  407.1095); New 
York (N.Y. 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 August, 2002, another eleven 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 
Colo. Rev. Stat. Sec.  6-1-901); Illinois (S.B. 1830, signed Aug. 9, 
2002); Indiana (H.B. 1222, to be codified at Ind. Code Ann. Sec.  
24.4.7); Kansas (S.B. 296, to be codified at Kan . Stat. Ann. 2001 
Supp. Sec.  50-670, signed May 29, 2002); Louisiana (H.B. 175, to be 
codified at La. Rev. Stat. 45:844.11); Massachusetts (H.B. 5225, 
signed Aug. 10, 2002); Minnesota (S.B. 3246, to be codified at Minn. 
Stat. Sec.  325E.311, signed May 15, 2002); Oklahoma (S.B. 950, to 
be codified at Okla. Stat. tit. 15 Sec.  775B.1, signed Apr. 15, 
2002); Pennsylvania (H.B. 1469, to be codified as amendment to Pa. 
Cons. Stat. Sec.  2241; Texas (H.B. 472, to be codified at Tex. Bus. 
& Com. Code Ann. Sec.  43.001); Vermont (S. 62, Pub. Act 120, to be 
codified at Vt. Stat. Ann. tit. 9 Sec.  2464a, signed June 5, 2002); 
and Wisconsin (Section 2435 of 2001 Wisconsin Act 16, 2001 S.B. 55, 
to be codified at Wis. Stat. 100.52). In addition, numerous states 
are considering or recently have considered laws that would create 
state-run ``do-not-call'' lists, including Arizona, Delaware, 
District of Columbia, Hawaii, Illinois, Iowa, Maryland, Michigan, 
Mississippi, Montana, Nebraska, Nevada, New Jersey, North Carolina, 
Ohio, Rhode Island, South Carolina, South Dakota, Utah, Virginia, 
Washington, and West Virginia. See CallCompliance table of state 
``do-not-call'' laws and proposed legislation, http://www.callcompliance.com/pages/STATElist.html (accessed July 24, 
2002). 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, the 
``Telemarketing Victim Protection Act''). In addition, on December 
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.
---------------------------------------------------------------------------

    The comments received in response to the NPRM show that frustration 
with unsolicited telemarketing calls continues despite the efforts of 
the DMA, the states, and the TCPA/TSR company-specific approaches to 
the problem. Individual commenters overwhelmingly supported the 
establishment of a national ``do-not-call'' registry.\593\ This was 
true even of those individuals who were already signed up on their 
state's ``do-not-call'' registry or on the DMA's TPS.\594\ Although 
many of these individuals stated that they had found their state 
registry to be effective in reducing the number of unwanted calls, they 
thought that a national registry would be a beneficial addition to 
their state registry because, among other things, a central registry 
would eliminate some of the loopholes in the state laws, thus 
increasing coverage, and would provide the convenience of a one-stop 
method of reducing unwanted calls.\595\ Similarly, individuals who were 
signed up on the DMA's TPS list also said that the list had been 
effective in reducing the number of unwanted calls, yet they felt that 
a national registry was needed because they were still receiving 
unwanted calls.\596\
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    \593\ The Commission received approximately 64,000 email and 
written comments. Of those, approximately 44,000 supported the 
proposed national ``do-not-call'' registry, while only about 15,000 
opposed the creation of such a registry. (The remaining 5,000 
comments did not address this issue.)
    \594\ The Commission received approximately 7,500 comments from 
consumers who live in states that have ``do-not-call'' statutes. 
See, e.g., Dan Seaman (AL) (Msg. 1127); Shawn Baumgartner (FL) (Msg. 
2771); Edwin Rodriguez (CO) (Msg. 4573); Michelle Crouch (GA) (Msg. 
4973); and Rona Owen (TX) (Msg. 6247).
    \595\ See, e.g., Michelle Crouch (GA) (Msg. 4973); Dan Seaman 
(AL) (Msg. 1127) (state registry has too many exemptions); Clive and 
Jane Romig (FL) (Msg. 19125) (current remedies are inadequate).
    \596\ See, e.g., Robert Winters (Msg. 18984) (resurgence of 
calls after a while); Gregory Stahmer (Feb. 21, Part 6, Msg. 150) 
(continues to get unwanted calls); Robert Baly (Feb. 27, Part 1, 
Msg. 551).
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    Consumer groups supported the creation of a national ``do-not-
call'' registry,\597\ and some privacy advocates urged the Commission 
to take an even more restrictive ``opt-in'' approach by banning 
telemarketing to any consumer who has not expressly agreed to receive 
telephone solicitations.\598\ With certain caveats, state regulators 
also supported the proposal for a national ``do-not-call'' 
registry.\599\ Some states that already have a state ``do-not-call'' 
list in place indicated that a national list would complement the 
current regime of state legislation and could be an effective addition 
to the arsenal of tools available to consumers in reducing unwanted 
calls.\600\ However, states and consumer advocates cautioned that such 
a system should be implemented in close coordination with the states 
and should not supplant more restrictive state laws.\601\
---------------------------------------------------------------------------

    \597\ AARP-NPRM at 1; CCA-NPRM at 1; ConsumerPrivacyGuide.com-
NPRM at 1; EPIC-NPRM at 2-3; LSAP-NPRM at 12-15; NAAG-NPRM at 4; 
NACAA-NPRM at 2; NARUC-NPRM at 1, 3; NASUCA-NPRM at 2; NCL-NPRM at 
8; NCLC-NPRM at 13; PRC-NPRM at 1; Worsham-NPRM at 1. The U.S. 
Department of Justice also supported the creation of a national 
``do-not-call'' list maintained by the FTC. DOJ-NPRM at 4-5.
    \598\ See, e.g., EPIC-NPRM at 3; Worsham-NPRM at 5.
    \599\ See, e.g., CCA-NPRM at 1; Connecticut-NPRM at 1-2, 3; DC-
NPRM at 4; Kansas-NPRM at 2; NAAG-NPRM at 4-29; NYSCPB-NPRM at 1-2; 
Tennessee-NPRM at 2; Texas PUC-NPRM at 1, 2; Virginia-NPRM at 1-2.
    \600\ CCA-NPRM at 1; Connecticut-NPRM at 1; Kansas-NPRM at 1; 
NAAG-NPRM at 6, 12, 29; NYSCPB-NPRM at 1-2; Tennessee-NPRM at 2.
    \601\ Connecticut-NPRM at 1-2, 3; Kansas-NPRM at 1; NAAG-NPRM at 
6-13; NACAA-NPRM at 4-5; NCL-NPRM at 9; NYSCPB-NPRM at 2-4, 13-17; 
Private Citizen-NPRM at 2; Tennessee-NPRM at 2, 9-10; Texas PUC-NPRM 
at 3-4. See also June 2002 Tr. I at 19-40.
---------------------------------------------------------------------------

    Industry commenters generally believed that the current system is 
working and that a national ``do-not-call'' registry is 
unnecessary.\602\ They expressed the view that the DMA's Telephone 
Preference Service (``TPS'') is tantamount to a national ``do-not-
call'' registry. In fact, according to their comments, the TPS has 
greater coverage than the FTC registry would have because it covers 
certain entities such as common carriers, banks, and charitable 
organizations beyond FTC jurisdiction.\603\ They argued that these

[[Page 4631]]

gaps in the national registry's coverage due to the FTC's limited 
jurisdiction would make a national ``do-not-call'' list more confusing 
than helpful to consumers.\604\ Some industry members suggested that 
the states are the more appropriate forum for creation of ``do-not-
call'' lists.\605\ Some of these commenters argued that, unlike a 
national list, that must be ``one size fits all,'' states can be more 
responsive to the needs of their citizens and tailor their lists to 
those differing needs.\606\
---------------------------------------------------------------------------

    \602\ See, e.g., ATA-NPRM at 21-25; Craftmatic-NPRM at 3; DMA-
NPRM at 7-8; ERA-NPRM at 5, 28; Fleet-NPRM at 2; Green Mountain-NPRM 
at 21-23; Lenox-NPRM at 4-5; MPA-NPRM at 34-35; Noble-NPRM at 2; 
NATN-NPRM at 2; NSDI-NPRM at 3; Pacesetter-NPRM at 2-3; PMA-NPRM at 
6; Synergy Solutions-NPRM at 2; Technion-NPRM at 4; Teleperformance-
NPRM at 2; TeleStar-NPRM at 2; TRC-NPRM at 2; Weber-NPRM at 2.
    \603\ See, e.g., ATA-NPRM at 24-25; DMA-NPRM at 8-11; ERA-NPRM 
at 27-28; MPA-NPRM at 34-35; Noble-NPRM at 2; NATN-NPRM at 2; NSDI-
NPRM at 3; Synergy Solutions-NPRM at 2; Technion-NPRM at 4; 
Teleperformance-NPRM at 2; TRC-NPRM at 2.
    \604\ See, e.g., ERA-NPRM at 28, 36; MPA-NPRM at 34-35; Noble-
NPRM at 2; NATN-NPRM at 2; NSDI-NPRM at 3; Synergy Solutions-NPRM at 
2; Technion-NPRM at 4; Teleperformance-NPRM at 2; TRC-NPRM at 2.
    \605\ See, e.g., ATA-NPRM at 23-25; Noble-NPRM at 2; NATN-NPRM 
at 2; NSDI-NPRM at 3; possibleNOW.com-NPRM at 1; Success Marketing-
NPRM at 2; Synergy Solutions-NPRM at 2; Technion-NPRM at 4; 
Teleperformance-NPRM at 2; TRC-NPRM at 2. See also Tennessee-NPRM at 
6-7.
    \606\ See, e.g., ATA-NPRM at 23-25; Noble-NPRM at 2; NATN-NPRM 
at 2; NEMA-NPRM at 4; NSDI-NPRM at 3; possibleNOW.com-NPRM at 1; 
Success Marketing-NPRM at 2; Synergy Solutions-NPRM at 3; 
Teleperformance-NPRM at 2; TRC-NPRM at 2. See also Tennessee-NPRM at 
6-7.
---------------------------------------------------------------------------

    The record in this matter overwhelmingly shows the contrary--as 
detailed earlier, it shows that the company-specific approach is 
seriously inadequate to protect consumers' privacy from an abusive 
pattern of calls placed by a seller or telemarketer. The comments also 
show that consumers continue to be angered by and frustrated with the 
pattern of unsolicited telemarketing calls they receive from the 
multitude of sellers and telemarketers. A national ``do-not-call'' 
registry addresses both types of abuse. It provides a mechanism that a 
consumer may use to indicate that he or she finds unsolicited 
telemarketing calls abusive and an invasion of privacy. It will also 
protect a consumer from repeated abusive calls from a seller or 
telemarketer. These problems cannot be fully addressed by state lists. 
While state ``do-not-call'' lists may be effective in reducing calls 
for the citizens in those states, about half the states do not have 
such legislation. A federal list would protect those consumers who are 
not currently protected. In addition, as EPIC pointed out in its 
comment, the state ``do-not-call'' lists vary with regard to exempt 
entities, with some containing so many exemptions that virtually all 
telemarketers are exempt.\607\ A federal list would provide uniformity 
with regard to those entities within the FTC's jurisdiction. Finally, 
although industry touts the state lists as the appropriate approach to 
``do-not-call,'' they also challenge the states' authority to regulate 
interstate calls under the state ``do-not-call'' laws.\608\ The 
Telemarketing Act grants the states the authority to enforce the TSR in 
federal court.\609\ Therefore, a national ``do-not-call'' registry 
maintained by the FTC pursuant to the TSR (and enforceable by the 
states) would quell any challenges to state ``do-not-call'' enforcement 
with respect to interstate telemarketing.
---------------------------------------------------------------------------

    \607\ EPIC-NPRM at 19.
    \608\ See, e.g., ATA-NPRM at 24.
    \609\ 15 U.S.C. 6108.
---------------------------------------------------------------------------

    Some industry members would have the FTC forget about a national 
registry and continue to let consumers use the current national self-
regulatory system set up through DMA's TPS.\610\ DMA has provided an 
important public service by administering the TPS, and the Commission 
applauds the efforts of the industry to regulate itself. However, the 
self-regulatory model has two serious shortcomings which limit its use 
as an effective national ``do-not-call'' registry: a self-regulatory 
system is voluntary; and to the extent that sanctions exist for non-
compliance, DMA may apply those sanctions only against its members, not 
non-members.\611\ On the other hand, lists established pursuant to the 
FTC Act and the Telemarketing Act, as well as those established 
pursuant to state law, have the force of law, and violators are subject 
to civil penalties. This type of sanction makes it more likely that 
companies will take their ``do-not-call'' obligations seriously.
---------------------------------------------------------------------------

    \610\ See, e.g., ATA-NPRM at 21-25; Craftmatic-NPRM at 3; DMA-
NPRM at 7-8; ERA-NPRM at 5, 28; Fleet-NPRM at 2; Green Mountain-NPRM 
at 21-23; Lenox-NPRM at 4-5; MPA-NPRM at 34-35; Noble-NPRM at 2; 
NATN-NPRM at 2; NSDI-NPRM at 3; Pacesetter-NPRM at 2-3; PMA-NPRM at 
6; Synergy Solutions-NPRM at 2; Technion-NPRM at 4; Teleperformance-
NPRM at 2; TeleStar-NPRM at 2; TRC-NPRM at 2; Weber-NPRM at 2.
    \611\ DMA has about 5,000 members. DMA-NPRM at 1.
---------------------------------------------------------------------------

    The Commission recognizes that its jurisdictional limitations will 
impact the effectiveness of a national ``do-not-call'' registry. 
However, the Commission notes that while certain specific entities are 
exempt from coverage, the telemarketing companies that solicit on their 
behalf are nonetheless covered by the TSR.\612\ Moreover, many 
consumers have signed up for state ``do-not-call'' lists,\613\ all of 
which include various exemptions. Consumers in those states have 
accepted the limitations of the state ``do-not-call'' lists and have 
been satisfied at the prospect of at least reducing the number of 
unwanted telephone solicitations that they receive.\614\ Indeed, an FTC 
registry may be more inclusive than some state ``do-not-call'' 
lists.\615\ The Commission believes that consumer education will 
minimize consumer confusion over what calls will and will not be 
allowed under a national ``do-not-call'' registry.
---------------------------------------------------------------------------

    \612\ 67 FR at 4497.
    \613\ For example, Missouri and Indiana each have more than 1 
million telephone numbers on their lists; New York's list contains 
more than 2 million numbers. See Missouri No Call Tops 1 Million 
Three Days Before One-Year Anniversary of Law, Office of Missouri 
Attorney General, June 28, 2002, http://www.ago.state.mo.us/062802.htm; and David Wessel, On Hold: Gagging the Telemarketers, 
WALL ST. J., Apr. 11, 2002, at A2. See also NAAG-NPRM at 4, n.3.
    \614\ See generally June 2002 Tr. I at 110-21.
    \615\ See EPIC-NPRM at 19 (noting that some state laws are 
ineffective due to the number of exempted entities).
---------------------------------------------------------------------------

    Industry pointed to the economic importance of outbound 
telemarketing, which accounted for $274.2 billion in 2001,\616\ and 
warned that a national ``do-not-call'' registry would have dire 
economic consequences.\617\ In its supplemental comments, DMA submitted 
a study showing ``the face of the telemarketing industry.''\618\ 
According to DMA predictions, job losses would impact most seriously on 
women, minorities, and rural areas--the groups and regions from which 
most telemarketers are drawn.\619\ Individual sellers and telemarketing 
firms estimated that they might have to lay off up to 50 percent of 
their employees if such a registry were to go into effect.\620\ 
Numerous individual telemarketers submitted comments in which they 
talked about the pride they have in their work and their fear of losing 
their livelihood.\621\
---------------------------------------------------------------------------

    \616\ DMA, ``The Faces and Places of Outbound Telemarketing in 
the United States,'' (June 2002) (``DMA study'') at 1.
    \617\ See id. See also NATN-NPRM at 1; NSDI-NPRM at 2; Success 
Marketing-NPRM at 2; Synergy Solutions-NPRM at 1.
    \618\ DMA study, see note 616 above.
    \619\ The DMA study indicates that teleservices workers are 
overwhelmingly female, high-school educated, and African-American or 
Hispanic. Almost 62 percent of all females working as teleservices 
agents are working mothers, and 30 percent are part of a welfare-to-
work program or were recently on public assistance. DMA study at 2. 
The study also indicates that outbound telemarketing call centers 
can be found in every state, often in rural areas or small towns and 
cities that are economically distressed. Id. at 4. See also NATN-
NPRM at 1; NSDI-NPRM at 2; Success Marketing-NPRM at 2; Synergy 
Solutions-NPRM at 1.
    \620\ See NATN-NPRM at 1; NSDI-NPRM at 2; Success Marketing-NPRM 
at 2; Synergy Solutions-NPRM at 1; Teleperformance-NPRM at 2; TRC-
NPRM at 2-3. However, the Commission notes that these companies 
offered no analysis to substantiate their claims regarding the 
impact of the national registry.
    \621\ See, e.g., Alhafez (Mar. 22, part 1, Msg. 1712); Cameron 
(Mar. 6, part 1, Msg. 951); Dillon (Mar. 21, part 2, Msg. 1622). See 
also, e.g., ACI Telecentrics-Levie (Msg. 19322); InfoCision 
Management-Davis (Msg. 23968); HFC-Beneficial-Darst (Msg. 33709); 
Household-Alioto (Msg. 27876); LTD Direct-Rockwood (Msg. 27601); and 
TCIM Services Inc.-Davis (Msg. 22871).

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[[Page 4632]]

    The Commission recognizes that telemarketing is a legitimate method 
of selling goods and services. It is important to remember that the 
``do-not-call'' registry will impact only outbound telemarketing, and 
will have no effect whatsoever on the greater portion of the industry 
devoted to inbound calls from consumers.\622\ The Commission also 
recognizes the importance of outbound telemarketing to federal, state, 
and local economies. Telemarketing provides needed jobs to rural areas 
and small towns that often face high unemployment, and to people who 
often face difficulties in obtaining other employment, such as 
individuals moving off of welfare.
---------------------------------------------------------------------------

    \622\ In 2001, inbound telemarketing accounted for 55 percent of 
total teleservice expenditures and was expected to grow to 62 
percent by 2004. Winterberry Group, ``Industry Map: Teleservice 
Industry--Multi-Channel Marketing Drives Universal Call Centers'' at 
9 (Jan. 2001).
---------------------------------------------------------------------------

    Although industry fears the economic impact a national registry 
might have, ironically, an FTC ``do-not-call'' registry may actually 
benefit rather than harm industry. For example, the federal framework, 
with its exemptions, would provide greater consistency of coverage, at 
least with regard to interstate calls. In addition, industry would 
benefit because telemarketers would reduce time spent calling consumers 
who do not want to receive telemarketing calls and would be able to 
focus their calls only on those who do not object to such calls.\623\
---------------------------------------------------------------------------

    \623\ Industry representatives also have indicated that they do 
not wish to call consumers who do not want to receive telemarketing 
calls. See DNC Tr. at 41, 51, 53-56, 61, 71.
---------------------------------------------------------------------------

    Industry emphasized the importance of harmonizing federal and state 
laws. To the extent that industry members supported creation of a 
national ``do-not-call'' list, they conditioned their support on 
preemption of state laws.\624\ These commenters argued that the major, 
if not only, benefit to industry from a national ``do-not-call'' 
registry would be to eliminate the costs of purchasing multiple lists 
and complying with a patchwork of potentially 50 different state 
laws.\625\ Absent preemption, industry believed that a national 
registry would only add another layer of bureaucracy and one more list 
that they must purchase.\626\ The June 2002 Forum discussed in depth 
the interplay between the national ``do-not-call'' registry and state 
laws. Participants agreed that the Commission should seek comity with 
state laws, and that a single list would provide substantial benefits 
to both industry and consumers.\627\
---------------------------------------------------------------------------

    \624\ See, e.g., AFSA-NPRM at 3-5; Craftmatic-NPRM at 3; 
Discover-NPRM at 2; HSBC-NPRM at 1; MBA-NPRM at 2; NCTA-NPRM at 15-
16; NRF-NPRM at 7-8; Nextel-NPRM at 3-4, 26-27; PMA-NPRM at 28; 
SIIA-NPRM at 3; Time-NPRM at 3-4; Community Bankers-Supp. at 4; 
ARDA-Supp. at 1; ICTA-Supp. at 1. See also June 2002 Tr. at 19-40.
    \625\ See, e.g., AFSA-NPRM at 3-5; Craftmatic-NPRM at 3; 
Discover-NPRM at 2; HSBC-NPRM at 1; MBA-NPRM at 2; NCTA-NPRM at 15-
16; NRF-NPRM at 7-8; Nextel-NPRM at 3-4, 26-27; PMA-NPRM at 28; 
SIIA-NPRM at 3; Time-NPRM at 3-4.
    \626\ Id.
    \627\ See June 2002 Tr. I at 19-40.
---------------------------------------------------------------------------

    For example, Dr. James Miller, testifying on behalf of CCC, 
estimated that if the Commission's ``do-not-call'' proposal were 
enacted as proposed, it would cost all firms that sell their products 
via outbound telemarketing combined a total of $6.6 million to purchase 
access to the FTC's ``do-not-call'' registry and to check their calling 
lists against the ``do-not-call'' list to ensure that they do not call 
consumers who have asked not to be called.\628\ If companies could 
comply with both FTC and state regulations by purchasing access to the 
FTC's list and not calling consumers whose numbers appeared on that 
list, this would represent the total burden on firms to avoid calling 
consumers who did not wish to be called. However, Dr. Miller testified 
that the total cost to comply with the state regulations as well as the 
FTC requirements, should firms still have to purchase separate lists 
from each state having its own do-not-call provisions, could 
approximate $100 million.\629\
---------------------------------------------------------------------------

    \628\ See June 2002 Tr. I at 209. Dr. Miller's testimony drew 
from the Miller Study (see note 591 above). As the study explains, 
the $6.6 million figure assumes that 3,000 firms will pay $1,000 
each on average to obtain access to the list and that it will take 
the average firm approximately two hours of effort at a cost of $50 
per hour each time it is necessary to compare the firm's calling 
list against the ``do-not-call'' registry. As proposed in the NPRM, 
firms would have been required to do this comparison 12 times each 
year so that the average firm would have incurred a total expense of 
$2,200. Miller Study at 11-12. Because the amended Rule does not 
require firms to compare their calling lists to the FTC's ``do-not-
call'' registry monthly as did the NPRM proposal, the estimated cost 
using Dr. Miller's methodology would now be around $4.5 million.
    \629\ See June 2002 Tr. I at 209.
---------------------------------------------------------------------------

    Finally, commenters raised various issues and offered suggestions 
relating to the implementation of a national ``do-not-call'' registry. 
For example, various commenters questioned the accuracy of automatic 
number identification (``ANI'') verification, the length of time a 
consumer's telephone number should remain on the list, who should be 
able to sign up for the list, whether the Commission should allow third 
parties to submit telephone numbers, the type of information that 
should be collected, and the accuracy of the Commission's cost 
estimates.\630\ These issues are discussed in the section below 
addressing implementation.
---------------------------------------------------------------------------

    \630\ See, e.g., AFSA-NPRM at 4-10; Craftmatic-NPRM at 3; DC-
NPRM at 5; DialAmerica-NPRM at 13; Discover-NPRM at 3; EPIC-NPRM at 
14; ERA-NPRM at 29-32; HSBC-NPRM at 2; MBA-NPRM at 2; NYSCPB-NPRM at 
7-13. See also June 2002 Tr. I at 138-271.
---------------------------------------------------------------------------

    Coverage of the ``do-not-call'' provisions. A number of commenters 
asked the Commission to clarify coverage of its ``do-not-call'' 
provisions. Some queried whether calls to home businesses would be 
subject to the ``do-not-call'' requirements.\631\ The Rule exempts 
telemarketing calls to businesses (except for sellers or telemarketers 
of nondurable office or cleaning supplies). Therefore, calls to home 
businesses would not be subject to the amended Rule's ``do-not-call'' 
requirements.
---------------------------------------------------------------------------

    \631\ See, e.g., IBM-NPRM at 11-12; Pelland-NPRM at 3.
---------------------------------------------------------------------------

    Some commenters asked whether the ``do-not-call'' requirements 
would cover calls to cellular or wireless telephones and pagers. The 
Commission intends that Sec.  310.4(b)(1)(iii) apply to any call placed 
to a consumer, whether to a residential telephone number or to the 
consumer's cellular telephone or pager. Consumers are increasingly 
using cellular telephones in place of regular telephone service,\632\ 
which is borne out by the dramatic increase in cellular phone 
usage.\633\ The Commission believes that it is particularly important 
to allow consumers an option to reduce unwanted telemarketing calls to 
cellular telephones or to pagers because some cellular services charge 
the consumer for incoming calls, thus adding insult to injury when the 
consumer is charged for

[[Page 4633]]

the unwanted telemarketing call to the consumer's cellular 
telephone.\634\
---------------------------------------------------------------------------

    \632\ See FCC Notice of Proposed Rulemaking and Memorandum 
Opinion and Order in the Matter of Rules and Regulations 
Implementing the Telephone Consumer Protection Act of 1991, CG 
Docket No. 02-278, CC Docket No. 92-90 (Sept. 18, 2002) (hereinafter 
``FCC TCPA 2002'') at 27, para. 42 (citing a USA Today/CNN/Gallop 
poll showing that one in five mobile telephone users use their 
wireless phone as their primary phone, Michelle Kessler, 18 % See 
Cellphones as Their Main Phone, USA TODAY, Feb. 1, 2002). See also 
Wendy Ruenzel, More Cell Phone Users Dispense with Traditional Phone 
Line, POST CRESCENT, Aug. 6, 2001; Simon Romero, When the Cellphone 
Is the Home Phone, N.Y. TIMES, Aug. 29, 2002; Joelle Tessler, Small 
But Growing Number of Cell Phone Users Abandon Land Lines, SAN JOSE 
MERCURY NEWS, Aug. 15, 2002.
    \633\ See FCC TCPA 2002 at 26-27, para. 42, n.160 (noting that, 
in the ten-year period between 1991 and 2001, the number of wireless 
subscribers increased from about 7.5 million to approximately 128 
million. From 1993 to 2001, the average minutes of use per 
subscriber per month increased from 140 minutes to 385 minutes.) 
(citations omitted).
    \634\ See, e.g., Andy Vuong, Telemarketers tap cellphone: 
Complaints on rise as solicitors dial into no-call exemption, DENVER 
POST, July 30, 2002; Jennifer Bayot, Now, That Ringing Cellphone May 
Be a Telemarketer's Call, N.Y. TIMES, July 5, 2002.
---------------------------------------------------------------------------

    Established business relationship. Industry commenters 
overwhelmingly opposed as unworkable the Commission's proposal to allow 
consumers to give their express authorization to companies from which 
they wished to receive calls. Industry stated that it would be cost 
prohibitive for them to contact their customers to obtain authorization 
(although they provided no detailed support for this argument) and that 
consumer inertia would keep consumers from independently providing that 
type of affirmative authorization.\635\ They also argued that consumers 
may not know in advance which companies they want to hear from.\636\
---------------------------------------------------------------------------

    \635\ See, e.g., AFSA-NPRM at 8; BofA-NPRM at 9; Cox-NPRM at 6; 
MBA-NPRM at 5.
    \636\ See, e.g., DialAmerica-NPRM at 14; Roundtable-NPRM at 4-5.
---------------------------------------------------------------------------

    Industry commenters noted that, without an exemption permitting 
calls to existing customers, companies would be unable to conduct 
normal servicing of customers' accounts, since such customer service 
calls frequently are multiple purpose calls that also include attempts 
to sell additional goods or services to the customer.\637\ 
Additionally, magazines and newspapers would be unable to contact 
consumers whose subscriptions had expired to offer them a new 
subscription.\638\ Commenters from financial institutions pointed out 
that, if not permitted to call current customers, they may run afoul of 
their fiduciary relationship with those customers.\639\ Sellers argued 
that it would be cost prohibitive for them to use direct mail or other 
means to contact their customers to obtain authorization to call.\640\
---------------------------------------------------------------------------

    \637\ See, e.g., ACA-NPRM at 2; ARDA-NPRM at 17; Associations-
NPRM at 2; Cendant-NPRM at 5; Comcast-NPRM at 2; DMA-NPRM at 34; 
HSBC-NPRM at 1; MBA-NPRM at 1-2.
    \638\ See NAA-NPRM at 12, June 28-Supp. at 1, and July 31-Supp. 
at 1; NNA-NPRM at 3.
    \639\ See, e.g., ABA-NPRM at 10; ABIA-NPRM at 4; AFSA-NPRM at 
13-14; AmEx-NPRM at 3; BofA-NPRM at 3; Bank One-NPRM at 4-5; VISA-
NPRM at 13; Wells Fargo-NPRM at 4. However, unless such a customer 
service call includes an inducement to purchase additional goods or 
services, it would fall outside the definition of ``telemarketing'' 
and, therefore, beyond the scope of the Rule's coverage.
    \640\ See, e.g., Comcast-NPRM at 2; CAP-Supp. at 1-2.
---------------------------------------------------------------------------

    Industry commenters also pointed out that, in failing to include an 
exemption for existing business relationships, the proposed Rule was at 
odds with the approach taken by the states with regard to ``do-not-
call'' registries. All state ``do-not-call'' laws, except Indiana's, 
include such an exemption.\641\ State regulators noted that there have 
been few complaints from consumers about calls from companies with whom 
they have an existing business relationship.\642\ In addition, FCC 
regulations under the TCPA exempt ``established business 
relationships'' from the company-specific ``do-not-call'' 
regulations.\643\ Individual commenters who expressed an opinion on 
this issue were divided on whether there should be such an exemption. 
Analysis of individual consumer comments that touched on this issue 
indicates that about 860 favored an exemption for calls from firms with 
whom they already have an established relationship, while about 1080 
opposed such an exemption.\644\ Furthermore, over 13,000 of the nearly 
15,000 comments submitted by Gottschalks' customers supported allowing 
Gottschalks to call them even if they signed up on a ``do-not-call'' 
registry to block other calls.
---------------------------------------------------------------------------

    \641\ See, e.g., Ark. Code Ann. Sec.  4-99-403(2)(A); Colo. Rev. 
Stat. Sec.  6-1-903(10)(B)(II); Conn. Gen. Stat. Ann. Sec.  42-
288a(a)(9); Fla. Stat. Ann. Sec.  501.059(1)(c); Ga. Code Ann. Sec.  
46-5-27(b)(3)(B); Mo. Rev. Stat. Sec.  407.1095(3)(b); and Tenn. 
Code Ann. Sec.  65-4-401(6)(B)(iii).
    \642\ See June 2002 Tr. I at 118 (New York: ``Well, [consumers 
are not unhappy], and a lot of times they complain, and you could 
say that's prima facie evidence they're unhappy. We call them back 
and say, gee, did you have a transaction with these folks? They 
claim you did on X, Y and Z, and they furnished us this paperwork. 
And then they say, oh, yeah. They don't seem to be mad.''); June 
2002 Tr. I at 118-19 (Missouri: ``Most people when you call them 
back are delighted that 70 to 80 percent of their phone calls have 
been caused to not come in, so when we explain to them that you had 
a relationship or you explain to them that some of these calls are 
exempt, they understand when you explain that to them, and they're 
delighted, because our anecdotal information shows that 70 to 80 
percent of the calls people had been receiving, they're not 
receiving now.''); and see generally, June 2002 Tr. I at 110-21.
    \643\ 47 CFR 64.1200(c)(3). The TCPA requires such an exemption. 
47 U.S.C. 227(a)(3).
    \644\ See, e.g., GBELois (Msg. 44) (``If a person is a member, 
subscriber, current customer, etc., of a company and the company is 
calling regarding the status of that relationship then the company 
should not be obligated to conform to the do not call registry.''); 
Jerry Warnke (Msg. 371) (``Have to be a way to exempt businesses or 
organizations when they are returning your phone calls or they have 
a need to call you with an ongoing relationship.''). But see, e.g., 
Karl Engelberger (Msg. 331) (``All pre-existing agreements and 
relationships should be voided and can, at the line subscribers 
discretion be re-established.''); Don Price (Msg. 483) (``Sometimes 
pre-existing relationships are those hardest to communicate with 
regarding the fact that the individual wants to end the relationship 
with the telemarketer business--once you give or buy something, many 
telemarketers expect you to continue what you started and make it a 
monthly habit--even if that was never your intent.'').
---------------------------------------------------------------------------

    Finally, industry commenters suggested that the Commission's 
rationale for not including an exemption for ``established business 
relationships'' was faulty.\645\ In adopting the original Rule, the 
Commission had expressed the view that such an exemption was 
inappropriate because it was not workable in the context of fraud.\646\ 
These commenters pointed out that the ``do-not-call'' registry was 
driven by privacy concerns, not concerns about fraud. Therefore, they 
argued, the Commission's stated rationale was inapplicable in the ``do-
not-call'' context.\647\ However, these commenters misunderstood the 
Commission's rationale in not including an exemption for ``established 
business relationship'' in the proposed ``do-not-call'' provision. In 
fact, the Commission's rationale for not including such an exemption in 
its proposal was driven not by concerns about fraud, but by the same 
privacy concerns that those commenters noted. The Commission believed 
that the national registry should contain few exemptions in order to 
provide consumers with the most comprehensive privacy protection 
possible.
---------------------------------------------------------------------------

    \645\ See, e.g., DMA-NPRM at 34-36; NCTA-NPRM at 8; Nextel-NPRM 
at 13-15; Wells Fargo-NPRM at 4.
    \646\ See 60 FR at 43859.
    \647\ See, e.g., DMA-NPRM at 34-36; NCTA-NPRM at 8; Nextel-NPRM 
at 13-15; Wells Fargo-NPRM at 4.
---------------------------------------------------------------------------

    Because the proposed Rule did not contain any ``established 
business relationship'' exemption, it is not surprising that few 
commenters raised this issue unless they were advocating that such an 
exemption be added. In response to industry's strong advocacy in favor 
of an ``established business relationship'' exemption, however, the 
June 2002 Forum elicited comment on whether such an exemption would be 
appropriate. Privacy advocates opposed any exemptions to the registry, 
stating that exemptions erode the effectiveness of a ``do-not-call'' 
registry.\648\ These commenters feared that, because of the difficulty 
in crafting such an exemption narrowly, an ``established business 
relationship'' exemption would provide too great a loophole, and would 
severely hamper the effectiveness of a national ``do-not-call'' 
registry.\649\ One consumer spoke at the June 2002 Forum about the 
dangers inherent in such an exemption.\650\ AARP noted in its 
supplemental comments that an exemption appeared to be necessary, but

[[Page 4634]]

urged that the Commission keep the exemption very narrow and limit it 
to existing relationships only, as opposed to prior relationships.\651\
---------------------------------------------------------------------------

    \648\ See, e.g., EPIC-NPRM at 20-21; NCL-NPRM at 10.
    \649\ NCL-NPRM at 10.
    \650\ June 2002 Tr. I at 278-82 (Diana Mey).
    \651\ AARP-Supp. at 3.
---------------------------------------------------------------------------

    Based on the record as a whole, the Commission is persuaded that 
the benefits of including an exemption for established business 
relationships outweigh the costs of such an exemption. Therefore, the 
Commission has decided to provide an exemption for ``established 
business relationships'' from the national ``do-not-call'' registry, as 
long as the consumer has not asked to be placed on the seller's 
company-specific ``do-not-call'' list. Once the consumer asks to be 
placed on the seller's ``do-not-call'' list, the seller may not call 
the consumer again regardless of whether the consumer continues to do 
business with the seller. If the consumer continues to do business with 
the seller after asking not to be called, the consumer cannot be deemed 
to have waived his or her company-specific ``do-not-call'' 
request.\652\
---------------------------------------------------------------------------

    \652\ See June 2002 Tr. I at 278-82 (Consumer recounted that a 
telemarketer from a retailer telephoned her, notwithstanding the 
fact that she was on the retailer's ``do-not-call'' list. When she 
questioned them about this apparent error, the telemarketer said 
that she had recently made a purchase at the retailer, which re-
created an ``established business relationship,'' which exempted 
them from complying with her ``do-not-call'' request.).
---------------------------------------------------------------------------

    The amended Rule limits the ``established business relationship'' 
exemption to relationships formed by the consumer's purchase, rental or 
lease of goods or services from, or financial transaction with, the 
seller within 18 months of the telephone call or, in the case of 
inquiries or applications, to three months from the inquiry or 
application. As indicated in the discussion of the definition of 
``established business relationship'' in Sec.  310.2(n), this time 
frame is consistent with most state laws that include a time 
limit.\653\ The exemption is terminated by the consumer's request to be 
placed on the company's ``do-not-call'' list, which is consistent with 
the FCC's regulations and those of many of the states.\654\ As 
explained above in the discussion of Sec.  310.2(n), the definition of 
``established business relationship'' encompasses those affiliates of 
the seller that the consumer would reasonably expect to be included 
given the nature and type of goods or services offered and the identity 
of the affiliate.
---------------------------------------------------------------------------

    \653\ See discussion of Sec.  310.2(n) and note 135, above.
    \654\ See 47 CFR 64.1200(f)(4), and discussion in FCC TCPA 2002 
(see note 633 above) at 8765, para. 23, and at 8770, para. 34, n.63. 
In addition, several state ``do-not-call'' statutes contain a 
similar provision in their exemption for ``established business 
relationships'' which terminates the exemption if the consumer has 
asked not to be called. See, e.g., Alaska, California, Colorado, 
Connecticut, Illinois, Kansas, New York, Oklahoma, Texas, and 
Wyoming. See note 592, above, for citations to each state's ``no-
call'' laws and/or regulations.
---------------------------------------------------------------------------

    In addition to an exemption for ``established business 
relationships,'' the Commission has decided to retain the provision 
that allows sellers to obtain the express agreement of consumers who 
wish to receive telephone calls from that seller, but has modified the 
provision to require that such express agreement may be evidenced only 
by a signed, written agreement. The Commission believes that it is 
important to limit the established business relationship to those where 
there is ongoing contact or where the relationship has recently lapsed 
or terminated. However, the Commission recognizes that consumers may 
have ongoing relationships with sellers where the contacts may be 
infrequent. Therefore, the Commission has decided to retain the 
provision that would allow sellers to obtain the consumer's express 
agreement to call, regardless of whether there has been contact during 
the prior 18 months. In order to minimize the potential for abuse, the 
amended Rule does not permit sellers or telemarketers to obtain the 
consumer's oral authorization. Rather, the amended Rule requires that 
the express agreement meet the same standards as written authorization 
in Sec.  310.3(a)(3)(i)--i.e., that the express agreement be in 
writing, signed by the consumer--and must also include the telephone 
number to which the calls may be placed. Because the express agreement 
requires the consumer's signature, the Rule makes it more difficult for 
sellers and telemarketers to bury the consent in the fine print of a 
document where the consumer might not notice it. The Commission intends 
that the consent be clear and conspicuous. This express agreement is 
effective as long as the consumer has not asked to be placed on the 
seller's company-specific ``do-not-call'' list. Once the consumer asks 
to be placed on the seller's ``do-not-call'' list, the seller may not 
call the consumer again regardless of whether the consumer continues to 
do business with the seller.
    First Amendment and related considerations applicable to ``do-not-
call'' provisions. As noted above, the proposal to include charitable 
solicitation telemarketing by for-profit telemarketers within the scope 
of a national ``do-not-call'' registry requirement drew extensive 
negative comment from non-profit organizations and their 
representatives. These commenters advanced a number of criticisms of 
the proposal based upon the practical effects it would foreseeably 
produce if adopted. They also argued that the proposal was fatally 
flawed from the standpoint of First Amendment analysis. Each of the 
major points made by these commenters is discussed below.
    Because of the central role of the telephone and of professional 
fundraisers in the non-profit arena, non-profit organizations and their 
representatives uniformly predicted financial disaster for the non-
profit sector if such a proposal were adopted.\655\ According to DMA-
NonProfit, a quarter of all charitable contributions raised in 2001 
came from telephone solicitation,\656\ and an estimated 60 to 70 
percent of that solicitation was performed by professional 
fundraisers.\657\ These commenters feared the detrimental impact of a 
national ``do-not-call'' registry on this important element of the non-
profit world's financial support system.\658\ One commenter opined that 
the proposed ``do-not-call'' registry requirement would reduce the 
potential donor pool by between 40 to 50 percent, and based on sign-up 
rates in some states, possibly by as much as 70 or 80 percent.\659\
---------------------------------------------------------------------------

    \655\ See, e.g., DMA-NonProfit-NPRM at 16; Not-for-Profit 
Coalition-NPRM at 7. See also Red Cross-NPRM at 3; APTS-NPRM at 2-3; 
Childhood Leukemia-NPRM at 1; FireCo-NPRM at 1; California FFA-NPRM 
at 2; Edwardsville FFA-NPRM at 1; HRC-NPRM at 1-2; Leukemia Society-
NRPM at 1-2; March of Dimes-NPRM at 1; Michigan Nonprofit-NPRM at 1; 
Purple Heart-NPRM at 2; NC Zoo-NPRM at 1; NPR-NPRM at 2; AAST-NPRM 
at 5; FOP-NPRM at 2; Southern Poverty-NPRM at 2.
    \656\ DMA-NonProfit-NPRM at 2 (citing the Turner Study, see note 
142 above).
    \657\ DMA-NonProfit-NPRM at 2. See also Not-for-Profit 
Coalition-NPRM at 6.
    \658\ See, e.g., ACE-NPRM at 1; ADA-NPRM at 1; Red Cross-NPRM at 
3; Blood Centers-NPRM at 2; Childhood Leukemia-NPRM at 1; LifeShare-
NPRM at 1; March of Dimes-NPRM at 2; NPR-NPRM at 4-5; FOP-NPRM at 3, 
4; Project Angel Food-NPRM at 1.
    \659\ Not-for-Profit Coalition-NPRM at 9.
---------------------------------------------------------------------------

    The proposed registry's impact on non-profit organizations' ability 
to solicit previous donors was of particular concern. According to a 
number of commenters, it is axiomatic that persons who have already 
contributed to a non-profit or charitable organization are much more 
likely to contribute than are persons who have never done so.\660\ In

[[Page 4635]]

this regard, Not-for-Profit Coalition stated that ``[c]ompounding the 
harm is the fact that the registry would apply equally to donors with a 
long history of supporting bona fide non-profit and charitable 
organizations as well as new prospective donors. Depriving charities 
and non-profits of the ability to contact prior supporters will be 
financially devastating.''\661\
---------------------------------------------------------------------------

    \660\ AFP-NPRM at 4 (``For nearly all nonprofit organizations, 
pre-existing donors and volunteers constitute the source of a 
majority of all gifts and volunteer time. These individuals are most 
committed to a cause and best understand the organization. Donors 
should not lose the opportunity to hear from organizations they 
supported in the past.''); March of Dimes-NPRM at 3 (``The most 
generous donors and volunteers are those who have a prior 
relationship with the Foundation . . . . If the Foundation cannot 
contact prior donors and volunteers on the basis of a preexisting 
relationship, then the effectiveness of our fundraising program will 
be jeopardized.'' See also, e.g., APTS-NPRM at 2; ADA-NPRM at 1; 
AAST-NPRM at 3; FireCo-NPRM at 1; NTC-NPRM at 3; Southern Poverty-
NPRM at 2; NCLF-NPRM at 1.
    \661\ Not-for-Profit Coalition-NPRM at 10.
---------------------------------------------------------------------------

    Not-for-Profit Coalition also argued that the effect of the ``do-
not-call'' registry requirement would be to drive non-profit 
organizations away from efficient use of professional telefunders, and 
toward inefficient in-house operations.\662\ According to commenters, 
the efficiency benefits of using professional telefunders may be 
substantial. For example, Hudson Bay stated:
---------------------------------------------------------------------------

    \662\ Id. at 18, 19.

HBC's phone canvass is mostly for smaller non-profit organizations 
(and the state chapters of large ones). Instead of renting space, 
buying computers and phone equipment, hiring supervisors and so on, 
HBC's clients find it cheaper to contact their members and donors by 
sharing these resources. Even after paying HBC's fee, which ranges 
from 4 to 7%, it is much cheaper for these non-profits to centralize 
these services. The savings achieved by phone company volume 
discounts alone pays more than half of HBC's fee.\663\
---------------------------------------------------------------------------

    \663\ Hudson Bay-Goodman-NPRM at 2. See also, e.g., APTS-NPRM at 
3; Not-For-Profit Coalition-NPRM at 19.

    Several representatives of non-profit organizations argued that 
under relevant First Amendment precedent, charitable fundraising is 
fully protected speech, and that attempts by the government to regulate 
it are subject to the highest level of scrutiny.\664\ These commenters 
also noted that under the relevant precedents, no distinction between 
the speech of the non-profit organization and that of the professional 
telefunder actually making the calls is recognized--both are equally 
protected. Several criticized the proposal's exemptions for 
solicitations by ``political clubs, committees, or parties'' and 
``constituted religious organizations'' as making distinctions based on 
the type of speech or speaker that are impermissible under the First 
Amendment.\665\
---------------------------------------------------------------------------

    \664\ See, e.g., Hudson Bay-Goodman-NPRM at 4, 5; DMA-NonProfit-
NPRM at 7; Not-For-Profit Coalition-NPRM at 15.
    \665\ See, e.g., DMA-NonProfit-NPRM at 5, 6; Not-for-Profit 
Coalition at 41.
---------------------------------------------------------------------------

    The Commission believes that, with respect to telemarketing that 
solicits sales of goods or services, the ``do-not-call'' registry 
provisions are consistent with the relevant First Amendment cases. In 
Central Hudson Gas & Elec. v. Pub Serv. Comm. of N.Y., the Supreme 
Court established the applicable analytical framework for determining 
the constitutionality of a regulation of commercial speech that is not 
misleading and does not otherwise involve illegal activity.\666\ Under 
that framework, the regulation (1) must serve a substantial 
governmental interest; (2) must directly advance this interest; and (3) 
may extend only as far as the interest it serves\667\--that is, there 
must be ``a 'fit' between the legislative ends and the means chosen to 
accomplish those ends . . . a fit that is not necessarily perfect, but 
reasonable . . . that employs not necessarily the least restrictive 
means but . . . a means narrowly tailored to achieve the desired 
objective.''\668\
---------------------------------------------------------------------------

    \666\ 447 U.S. 557 (1980).
    \667\ Id. at 566.
    \668\ Bd. of Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469, 
480 (1989).
---------------------------------------------------------------------------

    With regard to the first of these criteria, protecting the privacy 
of consumers from unwanted commercial telemarketing calls is a 
substantial governmental interest.\669\ ``Individuals are not required 
to welcome unwanted speech into their own homes and the government may 
protect this freedom.''\670\ The ``do-not-call'' registry is designed 
to advance the privacy rights of consumers by providing them with an 
effective, enforceable means to make known to sellers their wishes not 
to receive solicitation calls. Simply put, sellers or telemarketers 
soliciting sales may not call persons who have placed themselves on the 
registry. The registry is also designed to cure the inadequacies as a 
privacy protection measure that became apparent in the company-specific 
``do-not-call'' provisions included in the original Rule.\671\ Thus, 
the second of Central Hudson's criteria is satisfied. Finally, the 
national ``do-not-call'' registry is a mechanism closely and 
exclusively fitted to the purpose of protecting consumers from unwanted 
telemarketing calls.
---------------------------------------------------------------------------

    \669\ In some instances, the ``do-not-call'' registry provisions 
will also serve another substantial governmental interest--
prevention of fraud and abuse, as in cases where elderly consumers 
are signed up on the registry to protect them from exploitative or 
fraudulent telemarketers. Cf. Metromedia v. San Diego, 453 U.S. 490, 
509 (1981) (holding, inter alia, that San Diego's ``twin goals that 
the ordinance seeks to further--traffic safety and the appearance of 
the city--are substantial government goals.'')
    \670\ Frisby v. Schultz, 487 US 474, 485 (1988).
    \671\ The shortcomings of the company-specific approach are set 
forth above in the discussion of Sec.  310.4(b)(1)(iii).
---------------------------------------------------------------------------

    In Rowan v. Post Office Dept., the Supreme Court upheld a federal 
statute empowering a homeowner to bar mailings from specific senders by 
notifying the Postmaster General that she wished to receive no further 
mailings from that sender.\672\ The Court stated:
---------------------------------------------------------------------------

    \672\ 397 U.S. 728 (1969).

We therefore categorically reject the argument that a vendor has a 
right under the constitution or otherwise to send unwanted material 
into the home of another. If this prohibition operates to impede the 
flow of even valid ideas, the answer is that no one has a right to 
press even ``good'' ideas on an unwilling recipient. That we are 
often ``captives'' outside the sanctuary of the home and subject to 
objectionable speech and other sound does not mean we must be 
captives everywhere. The asserted right of a mailer, we repeat, 
stops at the outer boundary of every person's domain. . . . To hold 
less would tend to license a form of trespass and would make hardly 
more sense than to say that a radio or television viewer may not 
twist the dial to cut off an offensive or boring communication and 
thus bar its entering his home. Nothing in the Constitution compels 
us to listen to or view any unwanted communication, whatever its 
merit; we see no basis for according the printed word or pictures a 
different or more preferred status because they are sent by mail. 
The ancient concept that ``a man's home is his castle'' into which 
``not even the king may enter'' has lost none of its vitality, and 
none of the recognized exceptions includes any right to communicate 
offensively with another.\673\
---------------------------------------------------------------------------

    \673\ Id., at 737-38 (internal citations omitted).

    Under Rowan, the First Amendment allows a statutory scheme whereby 
a person may block a sender's mailings by notifying the Postmaster 
General, who then will prevent that sender's mailings from being 
delivered to that person. The Commission believes that the First 
Amendment similarly raises no impediment to Rule provisions that will 
enable a person by signing up on a national ``do-not-call'' registry to 
block commercial communications via telephone, which are far more 
intrusive than the communications, at issue in Rowan, via printed words 
and images.\674\
---------------------------------------------------------------------------

    \674\ While the statute under consideration in Rowan was focused 
on mailed advertisements of a sexual nature, the Court specifically 
rejected arguments that it should be read narrowly to cover only 
``salacious'' or ``pandering'' advertisements--or even all 
advertisements. Instead, the court upheld the statute interpreted as 
covering all mailings from the sender, regardless of whether they 
were advertisements, and regardless of whether they were sexually 
provocative. The determinative factor was that the mailings were 
unwanted. The Commission does not advance a theory, however, that 
Rowan should be read here to cover any non-commercial 
communications.

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

[[Page 4636]]

    With respect to telemarketing that solicits charitable 
contributions, the Commission believes that the applicable analytical 
framework is more stringent.\675\ ``[C]haritable solicitations involve 
a variety of speech interests . . . that are within the protection of 
the First Amendment and therefore have not been dealt with as purely 
commercial speech.''\676\ In considering the more stringent analysis, 
the Commission notes, preliminarily, that the company-specific ``do-
not-call'' provisions that apply to charitable solicitation 
telemarketing are content-neutral. ``Laws that confer benefits or 
impose burdens on speech without reference to the ideas or views 
expressed are in most instances content neutral.''\677\ The company-
specific ``do-not-call'' provisions apply equally to all for-profit 
solicitors, regardless of whether they are seeking sales of goods or 
services or charitable contributions, and regardless of what may be 
expressed in the solicitation calls themselves or the viewpoints of the 
organizations on whose behalf the solicitation calls are made. Thus, 
these provisions are content-neutral.\678\
---------------------------------------------------------------------------

    \675\ Metromedia makes clear that a less exacting standard is 
applied in analyzing a regulation's constitutionality with respect 
to commercial speech than in analyzing the same regulation's 
constitutionality with respect to noncommercial speech. ``[I]nsofar 
as it regulates commercial speech, the San Diego ordinance meets the 
constitutional requirements of Central Hudson.... It does not 
follow, however, that San Diego's ban on signs carrying 
noncommercial advertising is also valid . . . . Commercial speech 
cases have consistently accorded noncommercial speech a greater 
degree of protection than commercial speech.'' Metromedia, 453 U.S. 
at 513. In Watchtower Bible and Tract Soc'y v. Village of Stratton, 
---- U.S. ----, 122 S. Ct. 2080 (2002), where the Court invalidated 
an ordinance that required anyone who wanted to engage in door-to-
door canvassing or soliciting to obtain a permit before doing so, 
the Court went out of its way to suggest that the ordinance might 
have been constitutional if it were limited to commercial speech. 
Id. at 2089. This may be dicta, but it is significant because the 
Court seems to have approved a distinction between commercial and 
noncommercial speech--the same distinction drawn in the amended 
Rule--and to have done so in the same context as the Rule, i.e., 
solicitation that threatens to invade the privacy of the home.
    \676\ Riley v. Nat'l. Fed. of the Blind, 487 U.S. 781 (1988) 
(internal quotation marks omitted).
    \677\ Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 648 (1994). 
``[R]egulations that are unrelated to the content of speech are 
subject to an intermediate level of scrutiny because in most cases 
they pose a less substantial risk of excising certain ideas or 
viewpoints from the public dialogue.'' Turner at 642, citing Clark 
v. Cmty. for Creative Non-Violence, 468 U.S. 288, 293 (1984). See 
also Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989) (``[The] 
principal inquiry in determining content neutrality is whether the 
government has adopted a regulation of speech because of 
disagreement with the message it conveys.''). See also Am. Target 
Adver. v. Giani, 199 F.3d 1241 (10th Cir. 2000), cert. denied, 531 
U.S. 811 (200) (applying this principle in the context of 
solicitation).
    \678\ Similarly, the ``do-not-call'' registry provisions are 
also content-neutral, because they apply equally to all sellers and 
telemarketers engaged in the solicitation of sales of goods or 
services, regardless of the content of the calls, or the viewpoints 
of the telemarketers or the sellers.
---------------------------------------------------------------------------

    As in the case of commercial speech, the analysis applicable to 
charitable solicitations also inquires into the nature of the 
governmental interest that the regulation seeks to advance. The case 
law indicates that with respect to the higher level of scrutiny 
applicable to charitable solicitation, privacy protection is a 
sufficiently strong governmental interest to support a regulation that 
touches on protected speech.\679\ However, the case law also indicates 
that, in the case of charitable solicitation, greater care must be 
given to ensuring that the governmental interest is actually advanced 
by the regulatory remedy, and tailoring the regulation narrowly so as 
to minimize its impact on First Amendment rights. In Riley and 
Schaumburg, the Court rigorously examined laws that regulated the 
percentage of charitable contributions raised by a professional 
fundraiser that could be retained as the fundraiser's fee. The Court 
struck down the laws because there was, in the Court's view, at best an 
extremely tenuous correlation between charity fraud and the percentage 
of funds paid as a professional fundraiser's fee; the laws therefore 
were unlikely to achieve their intended purposes of preventing fraud 
and protecting charities. The Court also found that these laws were not 
tailored narrowly enough to minimize the impact on the charities' First 
Amendment rights.
---------------------------------------------------------------------------

    \679\ ``The Village argues that three interests are served by 
its ordinance: the prevention of fraud, the prevention of crime, and 
the protection of residents' privacy. We have no difficulty 
concluding, in light of our precedent, that these are important 
interests that the village may seek to safeguard through some form 
of regulation.'' Watchtower, 122 S. Ct. 2080 (2002); Schaumburg v. 
Citizens for Better Env't., 444 U.S. 620, 637 (1980) (protecting the 
public from fraud, crime, and undue annoyance are indeed 
substantial).
---------------------------------------------------------------------------

    By contrast, a very tight nexus exists between the Commission's 
legitimate interest in protecting consumers' privacy against unwanted 
telemarketing calls and the company-specific ``do-not-call'' provisions 
that apply to telemarketing to solicit charitable contributions. This 
nexus does not rely on an attenuated theoretical connection between 
fraud and the percentage of funds raised that a telefunder takes as its 
fee. Rather, there is a direct correlation between the governmental 
interest and the regulatory means employed to advance that interest: 
The consumer requests a specific caller not to call again, and the 
regulation requires the caller to make a record of and honor that 
request in the future.
    The Commission approaches with extreme care the issue of tailoring 
``do-not-call'' requirements narrowly to advance its legitimate 
interest in privacy protection and yet minimize the impact on the First 
Amendment rights of charitable organizations and the telemarketers who 
solicit on their behalf. The Commission is concerned that subjecting 
charitable solicitation telemarketing--along with commercial 
telemarketing to solicit sales of goods and services--to national ``do-
not-call'' registry requirements may sweep too broadly, because it 
could, for example, prompt some consumers to accept the blocking of 
charitable solicitation calls that they would not mind receiving, as an 
undesired but unavoidable side-effect resulting from signing up for the 
registry to stop sales solicitation calls.\680\ In the NPRM, the 
Commission proposed to resolve this problem by including in the Rule a 
provision enabling consumers who signed up for the ``do-not-call'' 
registry nonetheless to choose selectively to receive calls from 
specific entities from whom they would welcome solicitation calls. This 
proposed solution met with uniform condemnation from non-profit 
organizations, who opined that it would be too costly for non-profit 
organizations to obtain prospective donors' express permission to call, 
and too difficult for consumers to exercise their right to hear from 
them.\681\ The Commission is persuaded that these objections may be 
well-founded, and that this, therefore, would not be an adequate 
approach to narrow tailoring.
---------------------------------------------------------------------------

    \680\ Childhood Leukemia-NPRM at 1 (``I firmly believe if this 
change is implemented, people attempting to avoid calls from those 
who sell goods and services over the telephone will put themselves 
out of reach of our organization, thereby threatening our financial 
foundation. The victims will be the children because we will no 
longer have the resources to help them.'')
    \681\ Non-profit organizations also argued that this proposal 
was tantamount to a constitutionally impermissible requirement for 
non-profits to seek permission to speak before speaking.
---------------------------------------------------------------------------

    Another solution alluded to in a specific question posed in the 
NPRM might be to bifurcate the registry into separate categories, one 
for commercial solicitation and another for charitable solicitation, 
enabling consumers to sign up separately to stop commercial calls while 
allowing charitable solicitations.\682\ At this time, however,

[[Page 4637]]

the Commission believes that such an approach may be impractical 
because of cost considerations and because of the difficulty for 
consumers to understand and deal with the complications of such a 
system. Thus, these factors may render a bifurcated registry an 
insufficient or excessively cumbersome response to the imperative of 
narrow tailoring.
---------------------------------------------------------------------------

    \682\ ``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?'' Question 
5 i, 67 FR at 4539. Few commenters addressed this question, and 
those who did so expressed only the most general views, without 
advocating or opposing the concept of bifurcation. See, e.g., 
NYSCPB-NPRM at 23 (``[T]he technical problems and costs of 
implementing such a system might be prohibitive.''); NCLC-NPRM at 
19; NCL-NPRM at 9; NAAG-NPRM at 20. Only about 100 individual 
consumer email comments received by the Commission responded to a 
direct question on the issue included on the Commission's website. A 
minority of these commenters (about 40 percent) expressed the view 
that the ``do-not-call'' registry should not treat calls from 
charitable fundraisers differently, while about 60 percent expressed 
the view that it should do so.
---------------------------------------------------------------------------

    After careful consideration of the record as a whole and the 
relevant case law, the Commission has determined that the best approach 
to achieve narrow tailoring of the ``do-not-call'' provisions at this 
time is to exempt from the ``do-not-call'' registry requirements 
solicitations to induce charitable contributions via outbound telephone 
calls,\683\ and instead to bring charitable solicitation telemarketing 
only within the ambit of the company-specific ``do-not-call'' regime 
contained in the original Rule.\684\
---------------------------------------------------------------------------

    \683\ ``Solicitations to induce charitable contributions via 
outbound telephone calls are not covered by Sec.  
310.4(b)(1)(iii)(B) of this Rule.'' Section 310.6(a) of the amended 
Rule.
    \684\ The comments of many non-profit or charitable 
organizations indicate that these organizations have a policy of 
maintaining a ``do-not-call'' list even though not legally required 
to do so. Lautman-NPRM at 1 (``[Professional fundraisers] use the 
Direct Marketing Association's `do not call' database, in addition 
to client maintained `do not call' lists.''); HRC-NPRM at 1 (``[W]e 
have (like most nonprofit organizations) eliminated unwanted calls 
to our donors by requiring our telemarketing partners to keep a `do-
not-call' list. We also require them to use the Direct Marketing 
Association's `do not call' list.''); Telefund-NPRM at 1 (``Most 
non-profit organizations maintain lists of their own donors who 
prefer to be contacted via the mail. Telefund Inc. also maintains 
such a database for its clients.''). See also ADA-NPRM at 1; 
American Rivers-NPRM at 1; Angel Food-NPRM at 1; APTS-NPRM at 3; 
Childhood Leukemia-NPRM at 1; FOP-NPRM at 1; Italian American 
Police- NPRM at 1; Illinois Police-NPRM at 1; Leukemia Society-NPRM 
at 2; SO-CN-NPRM at 1; SO-CO-NPRM at 1; National Children's Cancer-
NPRM at 1; Southern Poverty-NPRM at 2; Stage Door-NPRM at 1.
---------------------------------------------------------------------------

    The Commission believes that the encroachment upon consumers' 
privacy rights by unwanted solicitation calls is not exclusive to 
commercial telemarketers; consumers are disturbed by unwanted calls 
regardless of whether the caller is seeking to make a sale or to ask 
for a charitable contribution.\685\ Thus, the Commission rejects the 
suggestion from numerous non-profit organizations and their 
representatives that no privacy protection measures are necessary with 
respect to charitable solicitation telemarketing, and that telefunders 
should be exempt from even the company-specific ``do-not-call'' 
provisions.\686\
---------------------------------------------------------------------------

    \685\ One indication of this is that, even though the FTC web 
page advising consumers on how to comment specifically included a 
direct question calling attention to the possibility of a separate 
database for charitable fundraisers, only about 100 consumer email 
comments responded to it. A great many consumer email comments 
expressed the view that unsolicited calls disturb their privacy, and 
did not distinguish between sales calls and other types of 
solicitation calls, such as those for charities.
    \686\ See generally Not-For-Profit Coalition-NPRM; DMA-
NonProfit-NPRM.
---------------------------------------------------------------------------

    The Commission believes that even though the company-specific 
approach has not been fully adequate to the task of protecting 
consumers' privacy rights against an onslaught of commercial 
solicitations, this more limited approach does provide some privacy 
protection in the context of charitable fundraising, and works better 
to accommodate both the right of privacy and the right of free speech. 
The Commission is persuaded by the arguments of Hudson Bay that 
fundamental differences between commercial solicitations and charitable 
solicitations may confer upon the company-specific ``do-not-call'' 
requirements a greater measure of success with respect to preventing a 
pattern of abusive calls from a fundraiser to a consumer than it was 
able to produce in the context of commercial fundraising:

    When a pure commercial transaction is at stake, callers have an 
incentive to engage in all the things that telemarketers are hated 
for. But non-commercial speech is a different matter. The success of 
an advocacy call does not hinge entirely on whether the recipient 
decides to part with a sum of money. A calling center employee 
working for a citizens' group is less interested in the volume of 
calls than in effective communication of the group's concerns. That 
is the reason the money is needed in the first place, not for 
profit.
    * * *
    In a non-commercial call the recipient is more than a potential 
source of income. Rather he or she is also a voter, a constituent, a 
consumer, a source of information to others, and a potential source 
of a future contribution, even if not in the current call. There is 
more than a sale, there is a cause at stake. It is, therefore, self-
defeating for the advocacy caller to engage in the abusive 
telemarketing practices that motivated the draft TSR. Such a caller 
risks alienating the recipient of the call against the cause not 
just against the caller or their organization.\687\
---------------------------------------------------------------------------

    \687\ See also HRC-NPRM at 1 (``Most importantly, nonprofits are 
dependent upon the revenue generated by their supporters and will do 
nearly anything to honor their requests and treat them with the 
utmost respect.'')

Nevertheless, if experience indicates that the company-specific 
approach does not in fact provide adequate protections for consumers' 
privacy in the context of charitable solicitation telemarketing, the 
Commission may revisit this decision in the future, and reconsider 
whether to require telemarketing calls soliciting charitable donations 
to comply with the national ``do-not-call'' registry requirements.
    FTC authority to establish a ``do-not-call'' registry. Several 
industry members questioned whether the FTC had the statutory authority 
to establish a national ``do-not-call'' registry.\688\ They argued that 
the Telemarketing Act does not mention the creation of a ``do-not-
call'' registry and that, in fact, another statute (TCPA) had directed 
another agency (the FCC) to explore the possibility of establishing 
such a registry.\689\ They noted that the FCC had considered such a 
registry and rejected it in 1992 in favor of a company-specific 
approach that required consumers to tell those companies from which 
they did not wish to receive calls to place them on the company's ``do-
not-call'' list.\690\
---------------------------------------------------------------------------

    \688\ See, e.g., Advanta-NPRM at 2; ATA-NPRM at 6-10, 20-21; 
DMA-NPRM at 16-22; ERA-NPRM at 26-27; MPA-NPRM at 34-38; PMA-NPRM at 
25-26. See also ARDA-Supp. at 1; ATA-Supp. at 7.
    \689\ See, e.g., DMA-NPRM at 16-22; ERA-NPRM at 26; MPA-NPRM at 
34-38; PMA-NPRM at 25-26.
    \690\ FCC Report and Order, CC Docket No. 92-90, 7 FCC Rcd 8752 
at 8762-67 (Oct. 16, 1992).
---------------------------------------------------------------------------

    Congress passed the Telemarketing Act three years after the FCC 
rejected a national registry. As noted in the NPRM, the Telemarketing 
Act authorizes the Commission to prescribe rules ``prohibiting 
deceptive telemarketing acts or practices and other abusive 
telemarketing acts or practices,'' and specifically mandates that these 
rules 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.''\691\ Thus, establishment of the national ``do-not-call'' 
registry is squarely within the authority granted by the statute.
---------------------------------------------------------------------------

    \691\ 15 U.S.C. 6102 (a)(1) and (a)(3)(A) (emphasis added).
---------------------------------------------------------------------------

    The goal in both the TCPA and Sec.  6102(a)(3) of the Telemarketing 
Act is to protect consumer privacy. When Congress directed the FTC to 
include in the TSR a prohibition against a pattern of unsolicited 
telephone calls which the reasonable consumer would consider

[[Page 4638]]

coercive or abusive of such consumer's right to privacy, Congress 
knowingly put the FTC on the same path that the FCC had trod three 
years earlier, but did not mandate that the two agencies arrive at the 
identical conclusion. Instead, the Telemarketing Act is written broadly 
and does not limit how the Commission is to effectuate the 
Congressional mandate; it leaves the method of achieving the goal of 
protecting privacy to the Commission's discretion.\692\ There is 
nothing in the TCPA that would lead to the conclusion that the FCC was 
the only federal agency authorized to create a national registry. In 
fact, although Congress had passed the TCPA only three years earlier, 
it mandated in the Telemarketing Act that the FTC promulgate provisions 
similar to those that the FCC had promulgated pursuant to TCPA. For 
example, although FCC regulations already restricted the times that 
telemarketers can call consumers,\693\ Section 6102(a)(3)(B) of the 
Telemarketing Act directed the FTC to also include in its regulations a 
provision that would prohibit telemarketers from making unsolicited 
phone calls to consumers during certain hours of the day or night. 
Thus, Congress clearly intended to provide the FTC with sufficient 
authority to remedy the problem of unwanted telemarketing calls by 
means of a national registry, notwithstanding that the FCC had earlier 
decided not to exercise its own authority to do so.
---------------------------------------------------------------------------

    \692\ See KENNETH CULP DAVIS & RICHARD J. PIERCE, JR., 
ADMINISTRATIVE LAW TREATISE Sec.  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 Res. Def. 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.
    \693\ 47 CFR 64.1200(e)(1). See also discussion at 7 FCC Rcd at 
8767-68.
---------------------------------------------------------------------------

    Interplay between the national ``do-not-call'' registry and state 
``do-not-call'' laws. The NPRM specifically requested comment on how 
the proposed establishment of a national ``do-not-call'' registry 
should interplay with similar requirements on the state level.\694\ In 
response, NAAG and representatives of individual states with ``do-not-
call'' laws expressed concern about the possible preemptive effect of a 
national ``do-not-call'' registry.\695\ On the other hand, industry 
representatives urged that if, despite their opposition, the Commission 
adopted TSR provisions establishing a national ``do-not-call'' 
registry, the national registry must preempt similar state 
requirements.\696\
---------------------------------------------------------------------------

    \694\ 67 FR at 4539.
    \695\ See, e.g., NAAG-NPRM at 6-14; Connecticut-NPRM at 3; DC-
NPRM at 4-5 (District of Columbia); NYSCPB-NPRM at 13-17 (New York); 
Texas PUC-NPRM at 3-4.
    \696\ See, e.g., ATA-NPRM at 28-29; DMA-NPRM at 3, 14; ERA-NPRM 
at 34.
---------------------------------------------------------------------------

    At this time, the Commission does not intend the Rule provisions 
establishing a national ``do-not-call'' registry to preempt state ``do-
not-call'' laws. Rather, the Commission's intent is to work with those 
states that have enacted ``do-not-call'' registry laws, as well as with 
the FCC, to articulate requirements and procedures during what it 
anticipates will be a relatively short transition period leading to one 
harmonized ``do-not-call'' registry system and a single set of 
compliance obligations.\697\ The Commission is actively consulting with 
the individual states to coordinate implementation of the national 
registry to minimize duplication and maximize efficiency for consumers 
and business. The Commission's goal is a consistent, efficient system 
whereby consumers, in a single transaction, can register their requests 
not to receive calls to solicit sales of goods or services, and sellers 
and telemarketers can obtain a single list to ensure that in placing 
calls they do not contravene those consumers' requests. In adopting the 
``do-not-call'' provisions in the amended Rule, the Commission intends 
to advance that goal. At this time, the Commission specifically 
reserves further action on the issue of preemption until sufficient 
time has passed to enable it to assess the success of the approach 
outlined above.\698\
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    \697\ In this regard, the Commission notes that in September 
2002, the FCC published an NPRM to review its TCPA regulations, 
including, among other things, whether its company-specific ``do-
not-call'' requirement has been effective and whether a national 
registry would better serve the public interest. See FCC TCPA 2002.
    \698\ See generally English v. Gen. Elec. Co., 496 U.S. 72, 78-
79 (1990) (preemption can occur ``where it is impossible for a 
private party to comply with both state and federal requirements, 
see, e. g., Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 
132, 142-143 (1963), or where state law `stands as an obstacle to 
the accomplishment and execution of the full purposes and objectives 
of Congress.' Hines v. Davidowitz, 312 U.S. 52, 67 (1941).''); 
Crosby v. Nat'l. Foreign Trade Council, 530 U.S. 363, 372-73 (2000); 
Ass'n of Banks in Ins. v. Duryee, 270 F.3d 397, 404 (6th Cir. 2001) 
(where state and federal laws are inconsistent, state law can be 
pre-empted even if it was enacted to protect its citizens or 
consumers).
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Implementation of a National Do-Not-Call Registry

    In developing an implementation plan for a national ``do-not-call'' 
registry, the Commission has been guided by a number of concerns. Most 
importantly, the Commission has sought to ensure the accuracy and 
validity of the consumer telephone numbers added to the registry, and 
to build a system that can handle the potential volume of consumer 
requests to be placed on the registry.\699\ Equally important, the 
system must ensure the security of the information maintained in the 
registry. The registry also must be easily accessible to both 
telemarketers and appropriate law enforcement agencies. In addition, 
the Commission seeks to develop the system with the lowest possible 
costs.
---------------------------------------------------------------------------

    \699\ Consumer interest in state ``do-not-call'' registries has 
varied from a few percent to over 40 percent of all telephone lines 
within the state.
---------------------------------------------------------------------------

    The Commission conducted extensive research to determine the 
feasibility of a national ``do-not-call'' registry and to develop a 
plan for implementing such a registry. The NPRM asked for comment on a 
number of specific implementation questions.\700\ The staff contacted 
the states with their own registries, and also contacted many of the 
contractors used by those states to develop their registries. On 
February 28, 2002, as part of its research, the Commission issued a 
Request for Information (``RFI'') to contractors capable of assisting 
the FTC in the development, deployment, and operation of the national 
registry.\701\ Thirty-six different companies responded to the RFI. In 
August 2002, the Commission issued a Request for Quotes (``RFQ'') to 
selected vendors.\702\ A number of those vendors have submitted 
proposals and quotes to the Commission; the agency is currently 
evaluating those proposals.\703\
---------------------------------------------------------------------------

    \700\ 67 FR at 4538-39.
    \701\ See http://www.ftc.gov/procurement.
    \702\ The Commission issued the RFQ to those vendors that 
expressed an interest in developing the national registry and that 
were on General Service Administration (``GSA'') schedules to 
provide goods or services to the federal government.
    \703\ All vendor responses to both the RFI and RFQ contain 
confidential proprietary business information and therefore cannot 
be made public.
---------------------------------------------------------------------------

    Based on all of the information gathered during this process, the 
Commission plans to develop a national registry with three components: 
consumer registration; access to the consumer registration database by 
telemarketers and sellers; and law enforcement access to both the 
consumer registration database and the list of telemarketers and 
sellers who have accessed the consumer registration database. The 
entire system will be fully automated to simplify the process and keep 
costs to a minimum.
    Consumer registration. Consumers will be able to add their 
telephone numbers to the national ``do-not-call'' registry through two 
methods: either through a toll-free telephone call or over

[[Page 4639]]

the Internet. Consumers who choose to register by phone will have to 
call the registration number from the telephone line that they wish to 
register. Their calls will be answered by an Interactive Voice Response 
(``IVR'') system. After a brief introductory message, the consumer will 
be asked to enter on his or her telephone keypad the telephone number 
from which the consumer is calling. The number entered will be checked 
against the automatic number information (``ANI'') that is transmitted 
with the call. If the telephone number the consumer enters on the 
keypad matches the ANI of the line from which the consumer is calling, 
then the IVR system will inform the consumer that the number is 
registered and the call will end. If the telephone number does not 
match, the IVR system will advise the consumer to call back from the 
telephone the consumer wishes to register. In the small percentage of 
calls in which ANI is not available, the system will offer other 
verification options.
    Using this process, the Commission will verify, at a minimum, that 
each consumer is calling from a telephone line assigned the number the 
consumer is attempting to register. The Commission has determined that 
this is sufficient verification for the limited purposes involved here 
-- ensuring that a telephone number in the national registry was 
entered by someone in the household to which that telephone number is 
assigned.\704\ A number of commenters stated that the FTC should 
prohibit third parties from registering consumers' preferences not to 
receive telemarketing calls with the national ``do-not-call'' registry, 
citing concerns that such third-party registrations could lead to 
abuse.\705\ The Commission agrees that third-party registrations should 
not be permitted, and believes that the verification procedures to be 
established for telephone registrations will prevent these potential 
types of third-party abuse, because the person registering will have to 
be present physically in the household with which the telephone number 
being registered is associated.
---------------------------------------------------------------------------

    \704\ Unlike the Commission's cases challenging the unauthorized 
billing of goods or services to consumers' telephone numbers based 
solely on ANI verification, see, e.g., FTC v. Verity Int'l, Ltd., 
No. 00 Civ. 7422 (LAK) (S.D.N.Y. 2000); FTC v. American TelNet, 
Inc., No. 99-1587 CIV:KING (S.D. Fla. 1999), the verification 
process needed to ensure the validity of numbers in the national 
registry is much less stringent. Here, only the right not to receive 
unwanted telemarketing calls is being asserted; the line subscriber 
is not incurring charges for goods and services, possibly purchased 
by unauthorized third parties, based on ANI information.
    \705\ See, e.g., DialAmerica-NPRM at 13; Household-NPRM at 13; 
Texas PUC-NPRM at 2; PMA-NPRM at 29. NAAG also cited recent state 
cases against companies that have deceptively offered to add 
consumers' numbers, for a fee, to ``do-not-call'' lists. See NAAG-
NPRM at 19, n.47.
---------------------------------------------------------------------------

    Other commenters suggested that only the line subscriber or person 
who is billed for the telephone line be allowed to register that number 
in the national registry.\706\ In fact, one commenter suggested that 
the FTC should ``permit each adult user of the telephone to prevent 
calls to him or herself, but not to be able to bar all calls to all 
adults using that telephone.''\707\ The Commission does not believe 
this is a realistic approach. Because numerous people in a household 
often share a common telephone number, the Commission has determined 
that the decision to be part of the ``do-not-call'' registry does not 
rest with the line subscriber (or any single resident) alone. In such a 
shared-number situation, the privacy rights of all are affected by 
unwanted telemarketing calls. Thus, the decision to register the 
household telephone number in the national registry is a joint decision 
of all household members. The Commission's telephone registration 
system will accept the registration from any member of the household, 
but will remind consumers that they are registering on behalf of all 
household members.\708\
---------------------------------------------------------------------------

    \706\ See, e.g., DialAmerica-NPRM at 13; Nextel-NPRM at 26.
    \707\ AFSA-NPRM at 8.
    \708\ Several commenters supported allowing any household member 
to register the household telephone number. See, e.g., NCL-NPRM at 9 
(allow registration requests to be made by the line subscriber, 
spouse, roommate, care giver, or others with a legitimate interest). 
One telemarketer that calls on behalf of non-profit organizations 
opposed this view, commenting that ``each person has an individual, 
separate constitutional right to speak and be in association with 
other like-minded people, and the groups to which they belong also 
have the right to contact their members and the public at large. 
When dealing with fully protected, non-commercial speech, any do-
not-call list that keeps track only of numbers, rather than names 
and numbers, needs some way to be certain that everyone who is 
lawfully and regularly reached at a telephone number has consented 
to be cut off from the organizations to which they belong.'' Hudson 
Bay-Goodman-NPRM at 13 (emphasis omitted). As an initial matter, 
non-commercial speech is not covered by the national ``do-not-call'' 
provisions of the amended Rule. See amended Rule Sec.  310.6(a) 
(exempting solicitations to induce charitable contributions via 
outbound telephone calls from Sec.  310.4(b)(1)(iii)(B) of the 
Rule). Moreover, the Commission has determined that to accomplish 
its privacy protection objectives, there is no workable alternative 
to allowing any member of a household to exercise the ``do-not-
call'' rights of the entire household using a shared telephone 
number. Households in which one member wants to sign up with the 
national ``do-not-call'' registry and another does not have the 
option of subscribing to an additional telephone line that is not on 
the registry and may therefore receive telemarketing calls, or they 
can provide express authorization to specific entities to receive 
telemarketing calls from them, regardless of their national registry 
status, pursuant to Sec.  310.4(b)(1)(iii)(B)(i) of the amended 
Rule. The Commission notes that the ``do-not-call'' provisions will 
not ``cut off'' individuals from organizations or sellers because it 
will not foreclose other means of communication with any member of 
the household, such as by conventional mail, email, or door to door 
solicitation. The ``do-not-call'' provisions are strongly analogous 
to laws requiring solicitors to honor a ``no solicitation'' sign 
posted by a homeowner, which the Supreme Court has approved in such 
cases as Martin v. Struthers, 319 U.S. 141 (1941), involving ``a 
form of regulation . . . which would make it an offense for any 
person to ring the bell of a householder who has appropriately 
indicated that he is unwilling to be disturbed.'' According to the 
Court, ``[t]his or any similar regulation leaves the decision as to 
whether distributers of literature may lawfully call at a home where 
it belongs--with the homeowner himself. A city can punish those who 
call at a home in defiance of the previously expressed will of the 
occupant.. . .'' Id. at 148.
---------------------------------------------------------------------------

    Consumers who choose to register via the Internet will go to a 
website dedicated to the registration process, where they will be asked 
to enter the telephone number they wish to register. Consumers will be 
told that they may register only their household or personal telephone 
number(s). As with the telephone registration system, they will be 
reminded that if they share a household number with others, they are 
registering on behalf of all household members. The Commission is 
considering two possible methods for verifying consumers' information. 
One possible option is that a consumer will be asked to enter certain 
address information, such as his or her zip code and the numeric 
portion of his or her street address, which the system would then check 
against a national database to ensure that it matches the telephone 
number provided. The second possible option is that the consumer will 
be asked to enter his or her email address; the system will send a 
confirming email to that address, and the consumer will then have to 
respond to reconfirm his or her registration decision.
    The Commission will use one or both of these verification methods 
for Internet registrations. Such verification processes will enhance 
the likelihood that individuals will register their own telephone 
numbers. If the email verification process is used, the Commission will 
also develop procedures to prevent large numbers of registrations from 
being confirmed through the same email account. Once again, the 
Commission has determined that these are sufficient verification 
procedures for the limited purpose of adding telephone numbers to the 
national ``do-not-call'' registry, and should help prevent the 
potential abuses cited concerning massive third-party registrations.

[[Page 4640]]

    For both telephone and Internet registrations, the only personal 
identifying information that will be maintained by the national ``do-
not-call'' registry will be the consumer's telephone number. Based on 
our discussions with the states, that appears to be the only piece of 
information that is needed by telemarketers.\709\ Moreover, the 
Commission has determined that it has no need for consumer names or 
addresses in the registry.\710\ Thus, the Commission will not collect 
that information.
---------------------------------------------------------------------------

    \709\ In fact, based on discussions between the states and the 
Commission staff, it appears that in states where additional 
information is provided to telemarketers, the states have received 
requests to strip their lists of all information except the 
telephone number.
    \710\ Some commenters stated that the Commission would have to 
collect consumers'' names, addresses and telephone numbers for the 
national registry to remain accurate. See, e.g., NAA-NPRM at 12; 
Household-NPRM at 13. Another stated that to keep the registry 
accurate, ``the Commission must be prepared to accept a data stream 
from every local exchange carrier in the country on a daily basis.'' 
SBC-NPRM at 11. The Commission has learned that this is not 
necessarily true. National databases with sufficient accuracy that 
contain only telephone numbers now exist, permitting the Commission 
to purge a telephone number from the national registry when that 
number is disconnected or the party in whose name the number is 
registered changes.
---------------------------------------------------------------------------

    Consumers will be able to verify or cancel their registration 
status using either the telephone or Internet. The same verification 
procedures established for the initial registration will apply to these 
requests as well. Allowing consumers to verify their registration 
status and to cancel their registrations if they so wish offers yet 
another method to enhance the accuracy of the national registry.
    The Commission has determined that consumer registrations will 
remain valid for five years, with the registry periodically being 
purged of all numbers that have been disconnected or reassigned. The 
Commission wishes to minimize the inconvenience to consumers entailed 
in periodically re-registering their preference not to receive 
telemarketing calls.\711\ However, the Commission is also aware that 
the length of time registrations remain valid directly affects the 
overall accuracy of the national registry.\712\ A number of commenters 
stated that 16 percent of all telephone numbers change each year, and 
that 20 percent of all Americans move each year.\713\ Unless the system 
includes a process to counteract this effect, numbers in the national 
registry that have been disconnected and then reassigned to other line 
subscribers would remain in the registry even though those line 
subscribers to whom the numbers are reassigned may not object to 
receiving telemarketing calls. To guard against this possibility, the 
system will include a procedure to periodically check all telephone 
numbers in the national registry against national databases, and those 
telephone numbers that have been disconnected or reassigned will be 
purged from the registry. This procedure will help maintain the 
accuracy of the national registry, while limiting the number of times 
consumers must go through the registration process.\714\ The Commission 
believes that a five-year registration period coupled with the periodic 
purging of disconnected telephone numbers from the registry adequately 
balances, on the one hand, the need to maintain a high level of 
accuracy in the national registry and, on the other hand, the onus on 
consumers to periodically re-register their telephone numbers.
---------------------------------------------------------------------------

    \711\ Consumer inconvenience includes not just their time and 
effort necessary to register, but also their need to remember when 
it is time to re-register. Of course, requiring frequent consumer 
re-registrations also increases the costs of operating the national 
registry. Several commenters supported allowing registrations to 
continue indefinitely, until the consumer's phone number is 
disconnected or he requests that his number be removed. See, e.g., 
New Orleans at 9; NCL at 9. In addition, 14 states with ``do-not-
call'' registries do not specify a renewal period for registrations 
in their ``do-not-call'' statutes (Alabama, Alaska, California, 
Colorado, Indiana, Kentucky, Louisiana, Massachusetts, Minnesota, 
Missouri, New York, Oklahoma, Pennsylvania, and Tennessee).
    \712\ Commenters citing this concern over the accuracy of the 
national registry reached various conclusions concerning the time 
period for which registrations remain should remain valid. Some 
suggested registrations remain valid for only one year. See 
DialAmerica-NPRM at 13; NCTA-NPRM at 16; Nextel-NPRM at 26. Others 
stated that registrations should remain valid for two years, unless 
the Commission can ensure greater accuracy through some purging 
process. See NRF-NPRM at 18; PMA-NPRM at 29. Still others suggested 
that a five-year registration period is sufficient. See NAAG-NPRM at 
18; Household-NPRM at 13. State registration periods vary from one 
year to five years, while, as stated in the previous footnote, 
fourteen states impose no expiration on consumer registrations. 
Three states require consumers to renew their registration annually 
(Arkansas, Florida, and Oregon). Two states (Georgia and Wisconsin) 
have a two-year registration, and two others (Texas and Idaho) have 
registrations that are good for three years. Six states require 
consumers to re-register after five years (Connecticut, Illinois, 
Kansas, Maine, Vermont, and Wyoming).
    \713\ See DMA-NPRM at 12; Nextel-NPRM at 26; Household-NPRM at 
13; SBC-NPRM at 11. Of course, not all consumers who move change 
their telephone numbers. For consumers who keep their existing 
telephone numbers when they move, no action by either the consumer 
or the Commission is necessary to maintain the registry's accuracy.
    \714\ The DMA TPS is operated in a similar manner. TPS 
registrations remain valid for five years. During that five-year 
period, the DMA checks the information in the TPS against the U.S. 
Postal Service's National Change of Address List, purging the 
telephone numbers of those registered consumers who have moved. DMA-
NPRM at 7, 12.
---------------------------------------------------------------------------

    Access to consumer registration information. To comply with the 
amended Rule's ``do-not-call'' provisions, telemarketers and sellers 
must gain access to the telephone numbers in the national registry so 
that they can ``scrub'' their call lists to eliminate the telephone 
numbers of consumers who have registered a desire not to be called. For 
the telemarketer and seller access component of the registry, the 
Commission plans to develop a fully-automated, secure website dedicated 
to providing this information to telemarketers and sellers. The first 
time a telemarketer or seller accesses the system, the company will be 
asked to provide certain limited identifying information, such as 
company name and address, company contact person, and the contact 
person's telephone number and email address. If a telemarketer is 
accessing the registry on behalf of a client seller, the telemarketer 
will also need to identify that client.
    The only consumer information telemarketers and sellers will 
receive from the national registry is the registrants' telephone 
numbers. Those telephone numbers will be sorted and available by area 
code. Telemarketers and sellers will be able to access as many area 
codes as desired, by selecting, for example, all area codes within a 
certain state or region of the country. Of course, telemarketers and 
sellers will also be able to access the entire national registry, if 
desired.
    When a seller or telemarketer first submits an application to 
access registry information, the company will be asked to specify the 
area codes that they want to access.\715\ Each company accessing the 
registry data will be required to pay an annual fee for that access, 
based on the number of area codes of data the company accesses.\716\ 
Fees will be payable via credit card (which will permit the real-time 
transfer of data) or electronic funds transfer (which will require the 
telemarketer or seller to wait approximately one day for the funds to 
clear before data access will be provided).
---------------------------------------------------------------------------

    \715\ They will be able to amend the list of area codes for 
which they seek data on future visits, provided they pay the 
appropriate fee for the additional area codes.
    \716\ On May 29, 2002, the Commission issued a Notice of 
Proposed Rulemaking to add a new section 310.9 to the Rule, which 
would establish a ``user fee'' for telemarketer access to the 
national do-not-call registry. 67 FR. 37362. After reviewing the 
comments received in response to that NPRM, the Commission has 
decided that it will issue a revised NPRM seeking additional comment 
on the fee issue in the near future. Section 310.8 of the amended 
Rule has been reserved for the fee section.
---------------------------------------------------------------------------

    After payment is processed, the telemarketer or seller will be 
given an account number and permitted access to the appropriate 
portions of the registry.

[[Page 4641]]

 That account number will be used in future visits to the website, to 
shorten the time needed to gain access. On subsequent visits to the 
website, telemarketers and sellers will be able to download either an 
entire updated list of numbers from their selected area codes, or a 
more limited list, consisting only of additions to or deletions from 
the registry that have occurred since the company's last download. This 
would limit the amount of data that a company needs to download during 
each visit. Telemarketers and sellers will be permitted to access the 
registry as often as they wish for no additional cost, once the annual 
fee has been paid. As indicated in the discussion of Section 
310.4(b)(3)(iv), however, the Rule requires a seller or a telemarketer 
to employ a version of the ``do-not-call'' registry obtained from the 
Commission no more than three months prior to the date any 
telemarketing call is made.
    Law enforcement access to the registry. Any law enforcement agency 
that has responsibility to enforce either the Rule or any state do-not-
call statute or regulation will be permitted to access appropriate 
information in the national registry. This information will be provided 
through a secure Internet website, with access obtained through the 
Commission's existing Consumer Sentinel[reg] system. Law enforcers will 
be able to query the registry to determine if and when a particular 
telephone number was registered by a consumer. They will also be able 
to query if and when a particular telemarketer or seller accessed the 
registry, and the information accessed by that telemarketer or seller. 
Such law enforcement access to data in the national registry is 
critical to enable state Attorneys General and other appropriate law 
enforcement officials to gather evidence to support enforcement actions 
under the Telemarketing and Consumer Fraud and Abuse Prevention 
Act,\717\ and, as discussed below, once harmonization between the 
national registry and state do-not-call programs has been completed, to 
support law enforcement action under state law as well.
---------------------------------------------------------------------------

    \717\ 15 U.S.C. 6101 et seq.
---------------------------------------------------------------------------

    Harmonization of various do-not-call registries. As discussed 
above, the Commission is working with the states to develop a single, 
national ``do-not-call'' registry. The Commission envisions allowing 
consumers throughout the United States to register their preference not 
to receive telemarketing calls in a single transaction with one 
governmental agency. In addition, the Commission anticipates allowing 
telemarketers and sellers to access that consumer registration 
information through one visit to a national website, developed for that 
purpose.
    To further those goals, the Commission will allow all states, and 
the DMA if it so desires, to download into the national registry--at no 
cost to the states or the DMA--the telephone numbers of consumers who 
have registered with them their preference not to receive telemarketing 
calls. Telemarketers and sellers will be allowed to access that data 
through the national registry as the information is received.
    It will take some time to achieve these goals completely, however. 
Some states will be able to transfer their state ``do-not-call'' 
registration information, and will cease requiring telemarketers to 
access the state registries, by the time telemarketers first gain 
access to the national registry. For other states, it may take from 12 
to 18 months to achieve those results. At least one state, Indiana, may 
need up to three years before it can become part of the national 
system. In any event, the Commission will continue to work diligently 
with the states in an effort to harmonize these different systems.
    Implementation time line. As stated above, the Commission has 
issued an RFQ to vendors to develop and operate a national ``do-not-
call'' registry. The implementation time line for the registry begins 
on the date the contract is awarded to a vendor in response to that 
RFQ. The Commission anticipates awarding the contract as soon as the 
agency receives appropriate authority and funding from Congress to 
begin building the national registry.
    Consumers will be allowed to begin to register their preference not 
to receive telemarketing calls approximately four months after a 
contract for the national ``do-not-call'' registry is awarded. To avoid 
an unmanageable surge of calls when the national registry is initially 
opened, the Commission anticipates phasing in registry availability to 
consumers one geographic region at a time throughout the United States 
over a period of approximately two months. Telemarketers and sellers 
will be given access to the telephone numbers in the national registry 
approximately six months after the contract is awarded. The effective 
date for the ``do-not-call'' provisions of the amended Rule will be 
approximately seven months after the date the contract to develop and 
implement the system is awarded. Thus, to comply with the amended Rule, 
telemarketers will need to obtain the list of registered telephone 
numbers during the sixth month after the contract is awarded, allowing 
themselves sufficient time to scrub their calling lists before placing 
outbound telemarketing calls in the seventh month after the date the 
contract is awarded.
    As stated below in the Effective Date section, in the future the 
Commission will announce the date by which full compliance with the 
national ``do-not-call'' registry provisions of the amended Rule will 
be required. As noted elsewhere in this document, full compliance with 
all other provisions of the amended Rule--with the exception of the 
Caller ID provision (Sec.  310.4(a)(7))--will be required by the date 
on which the amended Rule is effective, March 31, 2003. Full compliance 
with the Caller ID provisions will be required by January 29, 2004.

Sec.  310.4(b)(1)(iv) -- Abandoned calls & Sec.  310.4(b)(4) -- Safe 
harbor for abandoned calls

    In the NPRM, the Commission explained that ``abandoned calls'' 
violate Sec.  310.4(d) of the original Rule because such calls failed 
to provide the requisite prompt disclosures.\718\ In providing this 
explanation, the Commission noted that ``abandoned calls'' include two 
distinguishable scenarios: ``hang up'' calls, in which telemarketers 
hang up on consumers whom they have called without speaking to them; 
and ``dead air'' calls, in which there is a prolonged period of silence 
between the consumer's answering a call and the connection of that call 
to a sales representative.\719\ The record shows that both types of 
abandoned calls arise from the use of predictive dialers, which promote 
telemarketers' efficiency by calling multiple consumers for every 
available sales representative.\720\ Doing so maximizes the amount of 
time representatives spend speaking with consumers and minimizes the 
amount of time representatives spend waiting to reach a prospective 
customer.\721\ An inevitable ``side effect'' of predictive dialers' 
functionality is that the dialer will reach more consumers than can be 
connected to available sales

[[Page 4642]]

representatives.\722\ In those situations, the dialer will either 
disconnect the call or keep the consumer connected in case a sales 
representative becomes available.\723\
---------------------------------------------------------------------------

    \718\ 67 FR at 4524.
    \719\ 67 FR at 4522.
    \720\ ABA-NPRM at 12; ATA-NPRM at 32; CADM-NPRM at 3; 
DialAmerica-NPRM at 22; Pelland-NPRM at 2; Sytel-NPRM at 3; Miller 
Study at 13; http://www.predictive-dialers.com/home/faq.html.
    \721\ ATA-NPRM at 31; ERA-NPRM at 41; MPA-NPRM at 31; NAA-NPRM 
at 14; Private Citizen-NPRM at 3; PMA-NPRM at 30; TeleDirect-NPRM at 
2.
    \722\ June 2002 Tr. I at 211 (CCC); Time-NPRM at 11; ATA-Supp. 
at 11; Miller Study at 13-14.
    \723\ NASUCA-NPRM at 12-13; Sytel-NPRM at 4-7; ATA-Supp. at 11; 
Miller Study at 13-14.
---------------------------------------------------------------------------

    According to one consumer organization, the Rule's prohibition on 
abandoned calls as set forth in the NPRM addresses ``one of the most 
invasive practices of the telemarketing industry.''\724\ ``Hang up'' 
calls and ``dead air'' frighten consumers,\725\ invade their 
privacy,\726\ cause some of them to struggle to answer the phone only 
to be hung up on,\727\ and waste the time and resources of consumers 
working from home.\728\
---------------------------------------------------------------------------

    \724\ PRC-NPRM at 3.
    \725\ 67 FR at 4523.
    \726\ AARP-NPRM at 9.
    \727\ 67 FR at 4523; Texas PUC-NPRM at 5; Worsham-NPRM at 5.
    \728\ PRC at 3.
---------------------------------------------------------------------------

    The amended Rule prohibits abandoning outbound telephone calls, but 
constructs a safe harbor allowing telemarketers to continue using 
predictive dialers in a regulated manner. Under Sec.  310.4(b)(1)(iv), 
an outbound telephone call is abandoned if, once the call has been 
answered by a consumer, the telemarketer fails to connect the call to a 
sales representative within two seconds of the consumer's completed 
greeting. (As explained herein, ``hang up'' calls and delays of more 
than two seconds before connecting the call to a sales representative 
are prohibited by this section of the Rule.) The Commission's 
prohibition of abandoned calls is authorized by Sec.  6102(a)(3)(A) of 
the Telemarketing Act, which directs the Commission to 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, and by Sec.  6102(a)(3)(C), which 
directs the Commission to require telemarketers to promptly and clearly 
disclose certain material information. Section 6102(a)(3), which 
directs the Commission to consider recordkeeping requirements in 
prescribing rules regarding deceptive and abusive telemarketing acts or 
practices, is the authority for the required recordkeeping related to 
predictive dialers.
    Section 310.4(b)(4), the amended Rule's safe harbor provision, 
provides that the Commission will refrain from bringing a Rule 
enforcement action against a seller or telemarketer based on violations 
of Sec.  310.4(b)(1)(iv) if the seller or telemarketer's conduct meets 
certain specified standards designed to minimize call abandonment. 
These standards are: (1) the seller or telemarketer must employ 
technology that ensures abandonment of no more than three percent of 
all calls answered by a consumer, measured per day per calling 
campaign; (2) the seller or telemarketer must allow each telemarketing 
call placed to ring for at least fifteen seconds or four complete rings 
before disconnecting an unanswered call; (3) whenever a sales 
representative is not available to speak with the person answering the 
call within two seconds of that person's completed greeting, the seller 
or telemarketer must promptly play a recorded message; and (4) the 
seller or telemarketer must retain records, in accordance with Sec.  
310.5(b)-(d), establishing compliance with Sec.  310.4(b)(4)(i)-(iii).
    Telemarketers voiced strong objection to the NPRM discussion of 
abandoned calls as violative of Sec.  310.4(d),\729\ and argued that 
this interpretation would in effect ban the use of predictive 
dialers,\730\ causing the loss of efficiency benefits that arise from 
the use of predictive dialers.\731\ The Commission is mindful of the 
benefits of increased efficiency, but believes that the increased 
efficiency of predictive dialers must be balanced against the abusive 
nature of abandoned calls. The abuses of abandoned calls were 
delineated in the NPRM and elsewhere in the record.\732\ As NAAG 
asserted at the June 2002 Forum, an abandoned call is basically a 
``prank call.''\733\ However, the Commission is persuaded that a total 
ban on abandoned calls, which would amount to a ban on predictive 
dialers, would not strike the proper balance between addressing an 
abusive practice and allowing for the use of a technology that provides 
substantially reduced costs for telemarketers. At the June 2002 Forum, 
one telemarketing group posited that consumers who make purchases via 
the telephone ultimately benefit from these reduced costs in the form 
of lower prices.\734\ Therefore, taking into account the record as a 
whole, and arguments raised by both sides of this issue, the Commission 
has determined to prohibit abandoned calls from continuing without 
regulation, and has created requirements that, in effect, closely 
govern the use of predictive dialers. Under this approach, consumers 
will benefit from a substantial reduction in the number of abandoned 
calls they receive,\735\ but telemarketers will not be deprived of a 
large part of the efficiency benefits that accrue from the use of 
predictive dialers.\736\ The Commission also notes that the amended 
Rule's establishment of a national ``do-not-call'' registry should 
significantly reduce the number of calls received by consumers who 
place their numbers on the registry, thereby reducing the number of 
abandoned calls these consumers must contend with as well.
---------------------------------------------------------------------------

    \729\ ABA-NPRM at 12; ACA-NPRM at 9; ATA-NPRM at 30; 
Associations-NPRM at 3; Capital One-NPRM at 6; DialAmerica-NPRM at 
24-25; DMA-NPRM at 44; ERA-NPRM at 40-41; Gannett-NPRM at 4; 
Infocision-NPRM at 6-7; Metris-NPRM at 10; MPA-NPRM at 29-30; NAA-
NPRM at 13, 15; Time-NPRM at 11; Tribune-NPRM at 9.
    \730\ June 2002 Tr. I at 211 (CCC); ABA-NPRM at 12; Advanta-NPRM 
at 4; Aegis-NPRM at 5; AFSA-NPRM at 16; Capital One-NPRM at 6; 
Gannett-NPRM at 4; Household Auto-NPRM at 12; ICT-NPRM at 2; PMA-
NPRM at 30; PCIC-NPRM at 2; VISA-NPRM at 12; Miller Study at 14. But 
see EPIC-NPRM at 23.
    \731\ ACA-NPRM at 8-9; ARDA-NPRM at 15; ANA-NPRM at 6; ATA-NPRM 
at 31; BofA-NPRM at 9; BRI-NPRM at 3; Discover-NPRM at 6; Fleet-NPRM 
at 6; FPIR-NPRM at 2; Household Auto-NPRM at 11-12; ICT-NPRM at 2; 
ITC-NPRM at 2-3; KeyCorp-NPRM at 6; Marketlink-NPRM at 3; MPA-NPRM 
at 8; NAA-NPRM at 14; Noble-NPRM at 4; NATN-NPRM at 4; NSDI-NPRM at 
4; SHARE-NPRM at 4; Synergy Solutions-NPRM at 4; Technion-NPRM at 5; 
TeleDirect-NPRM at 2; Teleperformance-NPRM at 3; TRC-NPRM at 4; 
TeleStar-NPRM at 2; Time-NPRM at 10; Allstate-Supp. at 2; Miller 
Study at 15. See also Citigroup-NPRM at 10; IMC-NPRM at 7 
(Predictive dialers enhance dialing accuracy); NAA-NPRM at 7 
(Predictive dialers help with ``do not call'' compliance).
    \732\ 67 FR at 4522-24; AARP-NPRM at 9; NAAG-NPRM at 47; NACAA-
NPRM at 10; PRC-NPRM at 3.
    \733\ June 2002 Tr. II at 27 (NAAG). See also NAAG-NPRM at 47; 
McKenna-Supp. at 2.
    \734\ June 2002 Tr. I at 212-13 (CCC). But see June 2002 Tr. I 
at 222-23 (EPIC).
    \735\ AFSA-NPRM at 16; Sytel-NPRM at 7-8.
    \736\ See KeyCorp-NPRM at 6; PCIC-NPRM at 2.
---------------------------------------------------------------------------

    ``Abandoned call'': Section 310.4(b)(1)(iv) of the amended Rule 
defines a prohibited abandoned outbound call as one in which the 
recipient of the call answers the call, and the telemarketer does not 
connect the call to a sales representative within two seconds of the 
person's completed greeting. This definition of abandoned call covers 
``dead air'' and ``hang up'' calls, in which the telemarketer hangs up 
on a called consumer without connecting that consumer to a sales 
representative. This approach to abandoned calls clarifies several 
issues raised by telemarketers in the record.
    The amended Rule removes any possibility of doubt that a call 
placed by a telemarketer is an outbound telephone call within the 
meaning of the Rule, even if the telemarketer hangs up on the called 
consumer without speaking to him or her, or subjects the called 
consumer to dead air. The Rule's disclosure requirement is triggered 
once a recipient of a telemarketing call

[[Page 4643]]

answers the phone.\737\ This approach is consistent with the treatment 
of this issue in the NPRM.\738\ The Commission rejects the argument, 
advanced by ACA, ATA, DMA, and ERA, that abandoned calls cannot be 
regulated by the Rule because they are not ``outbound telephone 
calls.''\739\ If this theory were valid, telemarketers could abuse 
consumers in a variety of ways without violating the Rule as long as 
they did not also engage in a sales pitch. That interpretation and that 
result are contrary to the overall purpose and intent of the 
Telemarketing Act and plainly at odds with the Rule's definition of 
``outbound telephone call'' and with the Rule generally. A telemarketer 
initiates a telephone call by causing the called consumer's telephone 
to ring. Abandoning the call after the consumer answers but before the 
sales representative begins a sales pitch is an abusive telemarketing 
act or practice. Certainly this is the type of practice that prompted 
Congress, in the Telemarketing Act, to direct the Commission to 
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.''\740\ The record 
contains ample evidence that consumers find abandoned calls to be 
coercive or abusive of their privacy rights.\741\
---------------------------------------------------------------------------

    \737\ The safe harbor, which, among other things, directs how 
long telemarketers must allow a called consumer's telephone to ring 
before disconnecting the call, addresses telemarketers' practices 
before the consumer answers the phone.
    \738\ 67 FR at 4524.
    \739\ ACA-NPRM at 9-10; ATA-NPRM at 30; DMA-NPRM at 43-44; ERA-
NPRM at 40. DMA, ERA, and PMA argued that the FTC lacks authority to 
regulate telemarketers' use of predictive dialer technology. [See 
DMA-NPRM at 4, 42-48; ERA-NPRM at 38-40; PMA-NPRM at 29-30.] 
Specifically, DMA, ERA, and PMA argued that the FCC has authority to 
regulate automatic telephone dialing systems through the TCPA. But 
nothing in the TCPA limits the authority of the FTC under the 
Telemarketing Act. The Rule's regulation of abandoned calls falls 
squarely within the FTC's authority to regulate abusive 
telemarketing acts or practices under the Telemarketing Act. As the 
Commission stated in the NPRM, the harm to consumers that arises 
from abandoned calls is very real and falls within the areas of 
abuse that the Telemarketing Act explicitly aimed to address. [See 
67 FR at 4524.] The Commission therefore rejects the argument 
offered by DMA, ERA, and PMA that it lacks the legal authority to 
address call abandonment in the TSR.
    \740\ 15 U.S.C. 6102(a)(3)(A).
    \741\ AARP-NPRM at 8-9; EPIC-NPRM at 23; Private Citizen-NPRM at 
4; McKenna-Supp. at 2. See also Pelland-NPRM at 2.
---------------------------------------------------------------------------

    ATA, in its comment and at the June 2002 Forum, requested guidance 
from the Commission on how ``abandoned call'' would be defined in the 
Rule.\742\ Accordingly, the Commission has clarified, in Sec.  
310.4(b)(1)(iv), that an outbound call is ``abandoned'' if, once 
answered by a consumer, it is not connected to a sales representative 
within two seconds of the consumer's completed greeting (i.e., no more 
than two seconds of ``dead air'').\743\ As was explained above, this 
definition of ``abandoned call'' also includes situations in which the 
telemarketer hangs up on a consumer who has answered the telemarketer's 
call without connecting that call to a sales representative.
---------------------------------------------------------------------------

    \742\ ATA-NPRM at 34; June 2002 Tr. II at 38 (ATA). See also 
Convergys-NPRM at 6; MPA-NPRM at 32-33.
    \743\ DialAmerica-NPRM at 19; Sytel, Outbound Focus Issue 16, 
http://www.outboundfocus.com.
---------------------------------------------------------------------------

    Abandoned call ``safe harbor'': The abandoned call safe harbor 
consists of four components, each of which is supported by record 
evidence. A seller or telemarketer will not be deemed to have violated 
Sec.  310.4(b)(1)(iv) by abandoning calls, provided that the seller or 
telemarketer can show that its conduct conforms to the standards 
specified in this safe harbor.
    Under the first subsection of the safe harbor, the seller or 
telemarketer must employ technology that ensures abandonment of no more 
than three percent of all calls answered by called consumers. The safe 
harbor's three percent abandonment rate is measured per day per calling 
campaign. The ``per day per campaign'' unit of measurement is 
consistent with DMA's guidelines addressing its members' use of 
predictive dialer equipment.\744\ Under this standard, a telemarketer 
running two or more calling campaigns simultaneously cannot offset a 
six percent abandonment rate on behalf of one seller with a zero 
percent abandonment rate for another seller in order to satisfy the 
Rule's safe harbor provision. Each calling campaign must record a 
maximum abandonment rate of three percent per day to satisfy the safe 
harbor.
---------------------------------------------------------------------------

    \744\ See http://www.the-dma.org/library/guidelines/
dotherightthing.shtml38. See also MBNA-NPRM at 8. But see 
ATA-NPRM at 35: Commenter advocated a unit of measurement 
incorporating ``a broad period of time'' to allow for variances in 
abandonment rates caused by such factors as the time of day a call 
is placed; ERA-NPRM at 44; MPA-NPRM at 30, 32; NAA-NPRM at 15; PMA-
NPRM at 31; ERA-Supp. at 24.
---------------------------------------------------------------------------

    What constitutes an ``acceptable'' abandonment rate was the subject 
of substantial comment on the record. A number of telemarketers urged 
the Commission to alter the position implied in the NPRM that the 
appropriate standard is a zero percent abandonment rate.\745\ Among 
industry representatives who advanced this argument, ATA took the most 
extreme position, arguing against any regulation of abandonment 
rates.\746\ The Commission rejects this position in light of the record 
of conduct affiliated with abandoned calls and predictive dialers under 
the current regulatory scheme.\747\ Other industry comments recommended 
that the Commission set a ``reasonable'' or ``acceptable'' abandonment 
rate above zero percent that would curb abuses while allowing use of 
predictive dialers to continue.\748\ A third group of telemarketers 
argued that the Commission's abandonment rate should be consistent with 
DMA's current guideline, which calls for an abandonment rate no higher 
than five percent.\749\ Consumer groups and law enforcement 
representatives advocated strongly for a zero abandonment rate.\750\
---------------------------------------------------------------------------

    \745\ DialAmerica-NPRM at 24; NAA-NPRM at 15; PMA-NPRM at 31.
    \746\ ATA-NPRM at 33; ATA-Supp. at 14. See also TeleDirect-NPRM 
at 2.
    \747\ 67 FR at 4522-23. In the present environment, 
telemarketers have engaged in predictive dialer practices that 
frighten, disturb, and aggravate consumers. See, e.g., June 2002 Tr. 
II at 17-18 (AARP); June 2002 Tr. II at 21 (NAAG); June 2002 Tr. II 
at 22 (DialAmerica).
    \748\ BofA-NPRM at 9; Citigroup-NPRM at 10; ITC-NPRM at 3; 
KeyCorp-NPRM at 6; MasterCard-NPRM at 13; Time-NPRM at 11.
    \749\ http://www.the-dma.org/library/guidelines/
dotherightthing.shtml38; ABA-NPRM at 12; AFSA-NPRM at 16; 
ARDA-NPRM at 16; CBA-NPRM at 10; Citigroup-NPRM at 10; Discover-NPRM 
at 6; ERA-NPRM at 43; MPA-NPRM at 8, 32-33; June 2002 Tr. II at 24 
(ERA). See also NAA-NPRM at 15; PMA-NPRM at 31; ERA-Supp. at 22-23; 
MPA-Supp. at 6, 23; NAA-Supp. at 2; Miller Study at 2. But see 
NASUCA-NPRM at 14; Tribune-NPRM at 9.
    \750\ EPIC-NPRM at 22-23; NAAG-NPRM at 47; NASUCA-NPRM at 14; 
NCL-NPRM at 11; PRC-NPRM at 3; Private Citizen-NPRM at 4; June 2002 
Tr. I at 220 (Junkbusters). See also Horick-NPRM at 1; McKenna-Supp. 
at 2. But see McClure-NPRM at 1.
---------------------------------------------------------------------------

    Taking all of these viewpoints into account, the Commission has 
concluded that neither extreme strikes the right balance on this issue. 
The Commission believes that a maximum abandonment rate of three 
percent strikes a reasonable balance between curbing a very abusive 
practice and preserving some of the substantial economic benefits that 
accrue from the use of predictive dialers. Two telemarketers 
essentially supported this abandonment rate as being ``feasible, 
realistic'' and ``fully capable'' of being achieved.\751\ ATA asserted 
that the three percent standard would result in ``a significant drop in 
efficiency'' among some of its members.\752\ Sytel, a leading provider 
of predictive dialer technology, urged the Commission not to set a rate 
below three

[[Page 4644]]

percent to allow for continuing use of predictive dialers.\753\ The 
three percent standard is also consistent with the California Public 
Utilities Commission's Interim Opinion regarding predictive dialer use 
and abandoned calls.\754\
---------------------------------------------------------------------------

    \751\ PCIC-NPRM at 2; Aegis-NPRM at 5. See also ARDA-Supp. at 1: 
``A rate between three and five percent is reasonable.''
    \752\ June 2002 Tr. II at 49 (ATA). See also ATA-Supp. at 15; 
Associations-Supp. at 6-7; ERA-Supp. at 23; MPA-Supp. at 23; NAA 
June 28-Supp. at 2.
    \753\ June 2002 Tr. II at 53 (Sytel).
    \754\ CPUC Interim Opinion, Rulemaking 02-02-020 (June 27, 2002) 
at 20. The CPUC concluded that, based on comments it had received in 
its rulemaking process, ``most responsible users of predictive 
dialing equipment are either already at or near a 3 percent error 
rate or can achieve it with minimum reprogramming effort.''
---------------------------------------------------------------------------

    The second component of the abandoned call safe harbor addresses 
``ring time'' or ``early hang ups.'' According to Sytel, some 
telemarketers using predictive dialers may disconnect calls to 
consumers after allowing the phone to ring for only a very short period 
of time before hanging up, without giving consumers a reasonable 
opportunity to answer the phone; these disconnected calls are not 
considered ``abandoned'' by predictive dialers.\755\ Employing a short 
``ring time'' is yet another way for telemarketers to maximize the 
efficiency of their sales representatives; the predictive dialer calls 
many more consumers than the telemarketer can handle to minimize the 
chance that a sales representative will remain idle.\756\ This kind of 
call is abusive of a consumer's right to privacy, as consumers' lives 
at home are interrupted without any benefit or purpose whatsoever. One 
runs to the phone only to have it stop ringing before one can pick it 
up; or answers it only to find no one there. Surprisingly, one 
commenter, MPA, actually argued in favor of allowing telemarketers to 
hang up after one ring if no sales representatives were available to 
handle the call.\757\ Sytel recommends that the Commission follow DMA 
guidelines on predictive dialers, which recommend allowing the phone to 
ring at least four times or for twelve seconds before disconnecting the 
call.\758\ Sytel stated that the practice of ``early hangups'' is 
widespread, and it urged the Commission to set a ``ring time'' standard 
that allows consumers a reasonable length of time to answer the 
phone.\759\ The Commission has concluded that a modified version of the 
DMA guidelines presents a reasonable approach. Under this part of the 
safe harbor, telemarketers must let the phone ring either four times or 
for fifteen seconds before disconnecting the call.\760\ This ring time 
standard will give consumers, including the elderly or infirm who may 
struggle to get to the telephone, a reasonable opportunity to answer 
telemarketing calls while preventing the undesirable result of 
consumers' privacy being disrupted by ringing phones with no caller 
present on the other end of the line.
---------------------------------------------------------------------------

    \755\ Sytel-NPRM at 4; Sytel, Outbound Focus Issue 16, http://www.outboundfocus.com.
    \756\ Private Citizen-NPRM at 3.
    \757\ June 2002 Tr. II at 25 (MPA).
    \758\ Sytel-NPRM at 4; http://www.the-dma.org/library/
guidelines/dotherightthing.shtml38.
    \759\ Sytel-NPRM at 4.
    \760\ According to Sytel, the 15-second standard has been 
adopted by the United Kingdom DMA. Outbound Focus Issue 16, http://www.outboundfocus.com.
---------------------------------------------------------------------------

    The third component of the abandoned call safe harbor requires 
telemarketers to play a recorded message whenever a sales 
representative is not available to speak with a consumer within two 
seconds of the consumer's completed greeting. The silence that 
consumers face when the sales representative is unavailable and does 
not respond after the consumer says, ``hello'', is ``dead air.''\761\ 
The recorded message will significantly mitigate the problems 
associated with ``dead air'' by identifying the caller responsible for 
the extended silence.
---------------------------------------------------------------------------

    \761\ ARDA-NPRM at 15.
---------------------------------------------------------------------------

    According to the record amassed in this proceeding, dead air is an 
unavoidable feature of predictive dialers.\762\ Some dead air in 
telemarketing calls is caused by answering machine detection (``AMD''): 
consumers are met with silence as the dialer determines whether the 
call was answered by a person or an answering machine.\763\ Dead air 
also results when the dialer waits for a sales representative to become 
available to speak with the called consumer.\764\ Sytel argued in favor 
of setting a maximum dead air standard of two seconds.\765\ DMA's 
predictive dialer guidelines also set a two second maximum for dead 
air.\766\ This standard is consistent with the recent CPUC Interim 
Opinion governing predictive dialers.\767\ Based on the record 
established on this issue--that use of predictive dialers inevitably 
entails some dead air and that two seconds of dead air allows 
predictive dialers to impart significant efficiencies--the amended Rule 
provision allows two seconds of dead air before a call answered by a 
consumer will be considered ``abandoned.''
---------------------------------------------------------------------------

    \762\ Sytel, Outbound Focus Issue 16, http://www.outbound.focus.com; Sytel-NPRM at 4-5. See also ATA-NPRM at 34; 
Cendant-NPRM at 9; DMA-NPRM at 42.
    \763\ DialAmerica-NPRM at 19-20; Private Citizen-NPRM at 3; 
Sytel-NPRM at 4-5; Time-NPRM at 10.
    \764\ ARDA-NPRM at 15; DialAmerica-NPRM at 20-21; Sytel-NPRM at 
4.
    \765\ Sytel-NPRM at 5-6.
    \766\ See http://www.the-dma.org/library/guidelines/
dotherightthing.shtml38. But see ATA-Supp. at 14 
(supporting a four-second dead air standard); ERA-Supp. at 25, MPA-
Supp. at 23 (Commenters' proposed definition of ``abandoned call'' 
has no dead air time limit).
    \767\ CPUC Interim Opinion at 11-12.
---------------------------------------------------------------------------

    Consumers on the receiving end of dead air may wonder if ``someone 
is waiting to get into my home when I'm away, or . . . determining when 
I'm home alone.''\768\ The Commission believes it is not so much the 
pause that frightens consumers, it is the silence. By playing a 
recorded message giving the name and telephone number of the seller 
responsible for the call, the fear generated by telemarketers' dead air 
is substantially mitigated, and telemarketers are able to continue 
using predictive dialer technology.\769\
---------------------------------------------------------------------------

    \768\ AARP-NPRM at 9.
    \769\ ARDA-NPRM at 15-16; Household Auto-NPRM at 12; NACAA-NPRM 
at 10; PCIC-NPRM at 2; TeleDirect-NPRM at 3; Texas PUC-NPRM at 5.
---------------------------------------------------------------------------

    The ``recorded message'' component of the safe harbor must be read 
in tandem with the prohibition of abandoned calls, under which 
telemarketers must connect calls to a sales representative within two 
seconds of the consumer's completed greeting to avoid a violation of 
the Rule. Clearly, telemarketers cannot avoid liability by connecting 
calls to a recorded solicitation message rather than a sales 
representative. The Rule distinguishes between calls handled by a sales 
representative and those handled by an automated dialing-announcing 
device.\770\ The Rule specifies that telemarketers must connect calls 
to a sales representative rather than a recorded message.\771\
---------------------------------------------------------------------------

    \770\ But see Kans. Rev. Stat. 50-670(b)(6), which does not 
distinguish between the two.
    \771\ This comports with the CPUC Interim Opinion governing 
predictive dialers, DMA's guidelines for predictive dialers, and 
Sytel's recommended approach. See CPUC Interim Opinion at 10-12; 
http://www.the-dma.org/library/guidelines/
dotherightthing.shtml38; Sytel-NPRM at 3.
---------------------------------------------------------------------------

    The record reflects a range of views regarding the prospect of 
using recorded messages in telemarketing. A consumer advocacy group, a 
law enforcement body, and some telemarketers expressed support for 
recorded messages as a way to mitigate the abuses arising from dead 
air.\772\ Others opposed requiring the use of recorded messages.\773\ 
DMA opposed it based on the assumption that telemarketers' messages 
would need to include all of the prompt disclosures required by Sec.  
310.4(d).\774\ DMA noted

[[Page 4645]]

that recorded messages containing these disclosures could violate the 
TCPA.\775\ Time similarly opposed it based on concern for requiring the 
recorded message to include the prompt disclosures and, in addition, 
posited that consumers would not support receiving recorded-message 
disclosures on their answering machines.\776\ The Commission's approach 
to the recorded message component of this safe harbor should allay 
these concerns.\777\ The recorded message need not include all required 
prompt disclosures; rather, the message need contain no more than the 
seller's name and telephone number.\778\ Of course, it must comply with 
applicable state and federal laws governing the use of recorded 
messages, such as the FCC's TCPA regulations. Moreover, telemarketers 
are not required to leave a recorded message on the answering machines 
of consumers who are not home to answer the telemarketer's call. In 
light of the limited nature of the elements of the recorded message 
component of the safe harbor, the Commission's approach also resolves 
Sytel's caution against allowing the use of recorded messages without 
regulation.\779\
---------------------------------------------------------------------------

    \772\ AARP-NPRM at 9; ARDA-NPRM at 15; BofA-NPRM at 9; CADM-NPRM 
at 1; Household Auto-NPRM at 12; PCIC-NPRM at 2; Texas PUC-NPRM at 
5. See also McClure-NPRM at 2. But see MasterCard-NPRM at 13.
    \773\ DMA-NPRM at 44; EPIC-NPRM at 24; Time-NPRM at 11; Worsham-
NPRM at 5.
    \774\ DMA-NPRM at 44. See also Capital One-NPRM at 6-7; NASUCA-
NPRM at 13-14; NCL-NPRM at 11; Private Citizen-NPRM at 4.
    \775\ DMA-NPRM at 44. See also Sytel-NPRM at 6; Worsham-NPRM at 
5.
    \776\ Time-NPRM at 11. See also ANA-NPRM at 6; Associations-NPRM 
at 3.
    \777\ Capital One-NPRM at 6-7.
    \778\ When consumers receive this information, they will not 
have to wonder whether the call has been placed by someone with 
sinister motives, as described by AARP. See AARP-NPRM at 9; ATA-
Supp. at 11.
    \779\ Sytel-NPRM at 6.
---------------------------------------------------------------------------

    The fourth component of the abandoned call safe harbor is a 
recordkeeping requirement. Specifically, telemarketers using predictive 
dialers under this safe harbor must keep records documenting compliance 
with the first three components of this safe harbor in a manner that is 
in accordance with the recordkeeping requirements of the Rule set out 
in Sec.  310.5(b)-(d). The record clearly establishes the need for this 
requirement. According to statements at the June 2002 Forum, some 
telemarketers routinely exceed DMA's recommended maximum abandonment 
rate of five percent.\780\ At the June 2002 Forum, DMA explained that 
enforcement of its guideline was difficult despite receiving 
complaints.\781\ The Commission foresees that, absent recordkeeping 
requirements, the Commission would encounter similar difficulty in 
enforcing this aspect of the amended Rule. Furthermore, the record does 
not contain opposition to a recordkeeping requirement associated with 
the use of predictive dialers, and the records required by the 
Commission in this provision of the Rule are similar to those supported 
by industry representatives in the CPUC's predictive dialer rulemaking 
proceeding.\782\ The Commission believes that predictive dialer 
technology can capture and preserve abandonment rate records as a 
matter of routine;\783\ records showing compliance with the ring time 
and recorded message requirements will not impose a significant burden 
on telemarketers who wish to take advantage of this safe harbor.
---------------------------------------------------------------------------

    \780\ June 2002 Tr. II at 29 (ATA); June 2002 Tr. II at 45 
(DialAmerica); June 2002 Tr. II at 52 (Sytel). See also Capital One-
NPRM at 6; DialAmerica-NPRM at 23; NASUCA-NPRM at 14; Sytel-NPRM at 
7.
    \781\ June 2002 Tr. II at 51 (DMA).
    \782\ CPUC Interim Opinion at 20-22.
    \783\ TeleDirect-NPRM at 2.
---------------------------------------------------------------------------

Sec.  310.4(b)(2) -- Restrictions on use of list

    Section 310.4(b)(1)(iv) of the proposed Rule prohibited any seller 
or telemarketer from selling, purchasing, or using a seller's ``do-not-
call'' list for any purpose other than complying with the Rule's ``do-
not-call'' provision. The amended Rule retains the provision but 
modifies the language to also prohibit the sale, purchase, rental, 
lease, or use of the national registry maintained by the Commission for 
any purpose other than compliance with the Rule's ``do-not-call'' 
provision or otherwise to prevent telephone calls to telephone numbers 
on either the sellers' lists or the national registry.
    Those commenters who addressed this provision supported such a 
prohibition.\784\ NCL stated that, since consumers who sign up for a 
``do-not-call'' list are seeking to preserve their privacy, it would be 
an invasion of their privacy to use any information that would identify 
those consumers (e.g., names or telephone numbers) for any purpose 
other than to ensure that those individuals do not receive unsolicited 
telemarketing calls.\785\
---------------------------------------------------------------------------

    \784\ See, e.g., AARP-NPRM at 3; EPIC-NPRM at 16; NCL-NPRM at 8-
9; NYSCPB-NPRM at 6-7; Texas PUC-NPRM at 1-2; Verizon-NPRM at 5. See 
also June 2002 Tr. I at 215-25.
    \785\ NCL-NPRM at 8-9.
---------------------------------------------------------------------------

    In addition to expanding the provision to cover the sale, purchase, 
rental, lease, or other use of the registry, the amended Rule has made 
this prohibition a separate and distinct abusive practice. In the 
proposed Rule, this provision was part of Sec.  310.4(b)(1), which sets 
out prohibited practices by telemarketers, including adherence to the 
``do-not-call'' provision. Section 310.4(b)(1) also prohibited sellers 
from causing telemarketers to engage in the prohibited practices. 
However, the Commission believes that it is important for all persons, 
not just sellers and telemarketers, to use the ``do-not-call'' lists 
properly. Therefore, the amended Rule retains this provision, 
renumbered as Sec.  310.4(b)(2), but extends the prohibition to ``any 
person,'' in order to prohibit all entities, not just sellers and 
telemarketers, from misusing ``do-not-call'' lists. By extending the 
prohibition to ``any person,'' the Commission intends that the 
provision apply to such parties as list brokers and other entities that 
do not fall within the definitions of ``seller'' or ``telemarketer.'' 
In addition, the amended Rule adds a provision that permits a person to 
use either seller-specific lists, or the national registry, not only to 
comply with the ``do-not-call'' provisions of the Rule, but also ``to 
prevent telephone calls to telephone numbers on such lists.'' This 
provision will permit an entity not subject to the amended Rule for 
whatever reason (e.g., because it is outside of the Commission's 
jurisdiction) to access the national registry in order to scrub its 
calling lists, if it wants to avoid calling consumers who have 
expressed a preference not to receive telemarketing calls.

Sec.  310.4(b)(3) -- Safe harbor for ``do-not-call''

    Section 310.4(b)(3) provides sellers and telemarketers with a 
limited safe harbor from liability for violating the ``do-not-call'' 
provision found in Sec.  310.4(b)(1)(iii).\786\ 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.
---------------------------------------------------------------------------

    \786\ This provision has been renumbered in the amended Rule. In 
the original Rule and in the NPRM, the ``safe harbor'' provision is 
Sec.  310.4(b)(2).
---------------------------------------------------------------------------

    These criteria tracked the FCC's regulations, which set forth the 
minimum standards that companies must follow to comply with the TCPA's

[[Page 4646]]

``do-not-call'' provision.\787\ In the NPRM, the Commission proposed 
three additional requirements which have to be met by sellers or 
telemarketers or others acting on behalf of a seller or charitable 
organization before they may avail themselves of the ``safe harbor:'' 
(1) they must use a process to prevent telemarketing calls from being 
placed to any telephone number included on the Commission's national 
registry using a version of the registry obtained not more than 30 days 
before the calls are made; (2) they must maintain and record consumers' 
express verifiable authorizations to call; and (3) they must monitor 
and enforce compliance with their ``do-not-call'' procedures.
---------------------------------------------------------------------------

    \787\ 47 CFR 64.1200(e)(2).
---------------------------------------------------------------------------

    Based on the record in this matter, and for the reasons set forth 
below, the amended Rule retains the ``safe harbor'' requirement to 
monitor and enforce compliance. However, the amended Rule deletes the 
``safe harbor'' provision expressly requiring maintenance and recording 
of express verifiable authorizations.\788\ In addition, Sec.  
310.4(b)(3)(iv), the ``safe harbor'' requirement to purchase and 
reconcile the registry, has been modified to delete the 30-day 
requirement and, instead, require that telemarketers employ a version 
of the registry which has been obtained no more than three months 
before a call is made, and to maintain records documenting that 
process.\789\
---------------------------------------------------------------------------

    \788\ This requirement was in Sec.  310.4(b)(2)(v) of the 
proposed Rule.
    \789\ This requirement was in Sec.  310.4(b)(2)(iii) of the 
proposed Rule.
---------------------------------------------------------------------------

    The Commission continues to believe that the Rule should contain a 
``safe harbor'' from liability for violations of its ``do-not-call'' 
provision. Commenters generally agreed with this position.\790\ 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. Further, as 
discussed in the NPRM, the Commission believes that the same rationale 
applies to potential violations of Sec.  310.4(b)(1)(ii), and therefore 
has, in the introductory sentence of Sec.  310.4(b)(5), extended the 
``safe harbor'' to cover violations of both amended Sec. Sec.  
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.
---------------------------------------------------------------------------

    \790\ See, e.g., ARDA-NPRM at 13; BofA-NPRM at 6; NACAA-NPRM at 
9; Verizon-NPRM at 4-6. But see CATS-NPRM at 2; Patrick-NPRM at 5-6 
(cautioning that the standards set forth in the ``safe harbor'' 
should be obligatory for all telemarketers subject to the Rule).
---------------------------------------------------------------------------

    Although the Commission has extended the ``safe harbor'' provision 
to cover the additional practice of denying or interfering with a 
consumer's right to be on a ``do-not-call'' list, it has also tightened 
the provision by adding the requirement that sellers and telemarketers 
monitor compliance and take disciplinary action for non-compliance in 
order to be eligible for the safe harbor. Section Sec.  310.4(b)(5)(v) 
of the amended Rule requires the seller or telemarketer to monitor and 
enforce compliance with the procedures established in Sec.  
310.4(b)(5)(i).
    During the Rule Review, 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.\791\ Several commenters echoed these complaints 
in their responses to the NPRM.\792\ 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.\793\
---------------------------------------------------------------------------

    \791\ See, e.g., Bennett-RR at 1; A. Gardner-RR at 1; Gilchrist-
RR at 1; Gindin-RR at 1; Harper-RR at 1; Heagy-RR at 1; Johnson-RR 
at 3; McCurdy-RR at 1; Menefee-RR at 1; Mey-RR, passim; Nova53-RR at 
1; Peters-RR at 1; Runnels-RR at 1.
    \792\ See, e.g., Synergy Global-NPRM at 1-2 (ex-telemarketer 
says firm ignored ``do-not-call'' lists); Denny (Feb. 21, Msg. 970); 
Connolly (Mar. 6, Msg. 961); Young (Feb. 27, Msg. 165); Jackson 
(Feb. 2, Msg. 521); Horowitz (Feb. 27, Msg. 598); Truitt (Feb. 28, 
Msg. 687); Griffin (Feb. 28, Msg. 708); Loeher (Feb. 28, Msg. 729).
    \793\ Mey-RR at 2. See also DC-NPRM at 6-7.
---------------------------------------------------------------------------

    To clarify this apparent misconception about the Rule's 
requirements, the Commission proposed that, in order to avail 
themselves of the ``safe harbor'' provision, sellers and telemarketers 
must be able to demonstrate that, as part of ordinary business 
practice, they monitor and enforce compliance with the written 
procedures required by Sec.  310.4(b)(5)(i). The Commission received 
few comments on this proposal, and those commenters supported the 
proposal.\794\ Therefore, the Commission retains Sec.  310.4(b)(5)(v) 
unchanged, except for renumbering. 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)(5) unless it 
can demonstrate that it actually trains employees in implementing its 
``do-not-call'' policy, and enforces that policy.
---------------------------------------------------------------------------

    \794\ See, e.g., DC-NPRM at 6-7; Verizon-NPRM at 5. But see 
Patrick-NPRM at 5-6 (cautioning that the standards set forth in the 
``safe harbor'' should be obligatory for all telemarketers subject 
to the Rule).
---------------------------------------------------------------------------

    Finally, in the ``safe harbor'' provision in the proposed Rule, the 
Commission required that the seller or telemarketer use a process to 
prevent calls to telephone numbers on the national ``do-not-call'' 
list, employing a version of the ``do-not-call'' registry obtained from 
the Commission not more than 30 days before the calls are made, and to 
maintain records documenting this process.\795\ Virtually all comments 
on the safe harbor provision were directed at the proposed 30-day 
requirement for using the registry, which would have required sellers 
and telemarketers to reconcile or ``scrub'' the names on the registry 
with their customer list every 30 days. Industry commenters were 
unanimous in their view that a 30-day requirement would be extremely 
burdensome.\796\ They also pointed out that a 30-day requirement would 
be virtually impossible to meet without shutting down operations for a 
day to scrub their lists, and would be particularly burdensome for 
small businesses with few employees or those that do not use 
sophisticated technology.\797\ Industry commenters urged the Commission 
to require quarterly updating, which is the standard adopted by the 
majority of states in implementing their ``do-not-call'' statutes.\798\ 
They pointed out that, after an initial period of ``volatility'' when 
consumers sign up for the new registry, the number of names on the 
registry will stabilize and there may not be as great a need for 
frequent updating.\799\
---------------------------------------------------------------------------

    \795\ This requirement was in Sec.  310.4(b)(2)(iii) of the 
proposed Rule.
    \796\ See, e.g., ABA-NPRM at 12; AFSA-NPRM at 9-10; ARDA-NPRM at 
13; Capital One-NPRM at 5-6; Cox-NPRM at 38; Discover-NPRM at 3; 
Household Auto-NPRM at 8; Household Credit-NPRM at 13; Household 
Finance-NPRM at 13; HSBC-NPRM at 2; Nextel-NPRM at 26; NFIB-NPRM at 
2; NRF-NPRM at 16. See also June 2002 Tr. I at 234-72.
    \797\ See, e.g., ABA-NPRM at 12; AFSA-NPRM at 9-10; ARDA-NPRM at 
13; Capital One-NPRM at 5-6; Cox-NPRM at 38; Discover-NPRM at 3; 
HSBC-NPRM at 2; Nextel-NPRM at 26; NFIB-NPRM at 2; NRF-NPRM at 16. 
See also June 2002 Tr. I at 234-72.
    \798\ See, e.g., ABA-NPRM at 12; AFSA-NPRM at 9-10; ARDA-NPRM at 
13; Capital One-NPRM at 5-6; Cox-NPRM at 38; Discover-NPRM at 3; 
Household Auto-NPRM at 8, 10; Household Credit-NPRM at 13, 15; HSBC-
NPRM at 2; Nextel-NPRM at 26; NFIB-NPRM at 2; NRF-NPRM at 16. See 
also June 2002 Tr. I at 234-72.
    \799\ See June 2002 Tr. I at 237-39.

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

[[Page 4647]]

    The Commission is persuaded that the costs of requiring monthly 
updating outweigh any additional benefits that might accrue to 
consumers from such a provision. Based on the record in this matter, 
the amended Rule modifies the ``safe harbor'' requirement that lists be 
reconciled every 30 days. Instead, re-numbered Sec.  310.4(b)(3)(iv) of 
the amended Rule requires that the seller or telemarketer employ a 
version of the registry obtained not more than three months before any 
call is made, and maintain records documenting the process it uses to 
prevent telemarketing to any number on the list. Thus, telemarketers 
will be required to update their lists at least every three months, a 
time period that is consistent with most state requirements. Instead of 
making the list available on specific dates, the registry will be 
available for downloading on a constant basis, 24 hours a day, seven 
days a week, so telemarketers can access the registry at any time. As a 
result, each telemarketer's three-month period may begin on a different 
date. The Commission intends that the records documenting the process 
to prevent telemarketing calls to telephone numbers on the ``do-not-
call'' registry will include copies of any express agreements the 
seller has obtained from consumers giving their permission for the 
seller to call, as well as documentation showing when and how often the 
seller has reconciled its list of names and/or telephone numbers 
against the national ``do-not-call'' registry.
    The Commission is confident that the additional criteria in the 
amended Rule do not conflict with FCC regulations. FCC regulations are 
silent as to the process to be used, or the specific time frame within 
which the company must reconcile the names on its ``do-not-call'' list 
with its list of prospective customers to be called in a telemarketing 
campaign.\800\ Therefore, any FTC requirement that there be a process 
in place to prevent calls to telephone numbers on a ``do-not-call'' 
list would not conflict with the FCC's regulations. Similarly, 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. 
Furthermore, as discussed more fully above, the Commission believes 
that it is necessary for the amended Rule to diverge from FCC 
regulations by imposing a monitoring requirement in the ``safe harbor'' 
provision in order to clarify the applicability of the safe harbor.
---------------------------------------------------------------------------

    \800\ FCC regulations require companies to reconcile ``do-not-
call'' requests for company-specific lists on a continuing or 
ongoing basis. Specifically, 47 CFR Sec.  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.
---------------------------------------------------------------------------

Sec.  310.4(c) -- Calling time restrictions

    Section 310.4(c) of the original Rule proscribes the making of 
outbound telemarketing calls before 8:00 a.m. and after 9:00 p.m. local 
time at the called person's location.\801\ In response to comments 
received during the Rule Review suggesting further limitations on 
calling times, the Commission noted in the NPRM that it declined to 
adopt further restrictions because the original Rule's calling times 
strike the appropriate balance between protecting consumer privacy and 
not unduly burdening industry.
---------------------------------------------------------------------------

    \801\ See 16 CFR 310.4(c).
---------------------------------------------------------------------------

    In response to the NPRM, the Commission received more than 100 
comments from consumers on this issue, the vast majority of which 
recommended that the calling times be limited in some fashion. Many 
consumers urged that the calling times provision further restrict calls 
during the ``dinner hour,''\802\ or at either end of the day, arguing 
that calls that come at 8:00 a.m. or 9:00 p.m. are inconvenient, 
particularly for families with small children.\803\ Some commenters 
urged the Commission to prohibit telemarketing on Saturdays, Sundays, 
or the entire weekend.\804\ Still others urged the Commission to 
consider the plight of those shift workers for whom the current calling 
hours provide little or no protection from calls during ``sleep 
time.''\805\
---------------------------------------------------------------------------

    \802\ See, e.g., Harvey Butler (Msg. 197); Roy Broman (Msg. 
452); Robert Clifton (Msg. 3762); Ernie and Helen Darrow (Msg. 
9941); SSMBOYLE (Msg. 14401); Worsham-NPRM at 4.
    \803\ See, e.g., John Hallberg Jones (Msg. 1644); Jim Coupal 
(Msg. 3504); Adam Block Willow (Msg. 3513); Donald Nelson (Msg. 
4225); Lolla469 (Msg. 5115); Anonymous (Msg. 27184).
    \804\ See, e.g., Sjkble (Msg. 12060) (no Saturday calls); 
OMEGA217 (no Sunday calls); David Meads (Msg. 13726) (no Sunday 
calls); Lisa Hallman (Msg. 20291) (no Sunday calls); H00Kie (Msg. 
1040) (no weekend calls); Lee C. Clayton (Msg. 1950) (no weekend 
calls); Sherrell Goggin (Msg. 2247) (no weekend calls); Henry Miller 
(Msg. 10173) (no weekend calls); Nanagusgus (Msg. 12471) (no weekend 
calls).
    \805\ See, e.g., Paul Merchant, Jr. (Msg. 387); Bobby Morris 
(Msg. 639); Gayle Tanner (Msg. 4505); Anonymous (Msg. 27196).
---------------------------------------------------------------------------

    The few industry comments regarding calling times were supportive 
of the current hours, but critical of the notion that allowing 
consumers to customize their preferred calling times via the national 
``do-not-call'' registry would be workable.\806\ EPIC noted that it 
favored retaining the current calling times provision, but found it 
desirable to allow consumers who wish to do so to set other preferred 
times via the national ``do-not-call'' registry.\807\
---------------------------------------------------------------------------

    \806\ See ARDA-NPRM at 13 (noting it felt no need to comment on 
this provision because the Commission had proposed no modification, 
and urging that no customizable calling preferences be allowed); 
NAA-NPRM at 17.
    \807\ See EPIC-NPRM at 18, 22 (noting that while generally 
acceptable, the current calling times ``represent only the 
Commission's judgment on what time of day people most value their 
privacy,'' and urging the Commission to allow for customizable 
calling time preferences).
---------------------------------------------------------------------------

    As noted in the NPRM, the Commission believes the current calling 
hours provide a reasonable window for telemarketers to reach their 
existing and potential customers. The Commission recognizes that while 
some consumers may find it objectionable to receive telemarketing calls 
between 8:00 a.m. and 9:00 p.m., the majority of consumers would not 
find calls within these hours to be particularly abusive of their 
privacy. Furthermore, consumers who wish to avoid telemarketing calls 
will, under the amended Rule, have the option of placing their 
telephone numbers on the national ``do-not-call'' registry, thus 
blocking most unwanted calls at all times.\808\ Therefore, the 
Commission declines to modify the calling hours prescribed by Sec.  
310.4(c), and retains this provision without amendment.
---------------------------------------------------------------------------

    \808\ See amended Rule Sec.  310.4(b)(1)(iii)(B), discussed 
above.
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Sec.  310.4(d) -- Required oral disclosures

    Section 310.4(d) of the original Rule requires that a telemarketer 
in an outbound call make certain oral disclosures promptly, and in a 
clear and conspicuous manner. The NPRM proposed to make two minor 
modifications to the wording of this section. First, the Commission 
proposed inserting, after the phrase ``in an outbound telephone call,'' 
the phrase ``to induce the purchase of goods or services.'' This would 
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 proposed to add the word 
``truthful'' to clarify that it is not enough that the disclosures be 
made; the disclosures must also be made

[[Page 4648]]

truthfully. The amended Rule adopts both modifications, but also 
provides additional guidance on when the oral disclosures should be 
made in upsell transactions and what information should be disclosed in 
those situations.
    The Commission received very few comments on these proposed 
changes. NAAG expressed its support for inclusion of the word 
``truthfully'' in this section, noting that however obvious it might 
seem that mandatory disclosures be made truthfully, abuses have 
occurred when, for example, a telemarketer misstates the purpose of the 
call, claiming it is a ``courtesy'' call rather than a sales call.\809\ 
The Commission agrees that the express requirement that the required 
disclosures be ``truthful'' will benefit consumers, and should impose 
no additional burden on telemarketers. Thus, this requirement is 
adopted in the amended Rule.
---------------------------------------------------------------------------

    \809\ See NAAG-NPRM at 47.
---------------------------------------------------------------------------

    A few commenters recommended limiting or expanding the provision. 
ASTA urged the Commission to limit the applicability of parts of the 
oral disclosure provision so that sellers with whom a customer had a 
prior business or personal relationship would be exempt from making two 
particular disclosures: 1) that the purpose of the call is to sell 
goods and services (Sec.  310.4(d)(2)); and 2) the nature of the goods 
and services (Sec.  310.4(d)(3)).\810\ ASTA argued that it does not 
believe ``situations in which there is a prior business or personal 
relationship between the parties, are, in practice, subject to the same 
sort of abuses that the Rule seeks to address by way of [the Sec.  
310.4(d)(2) and (3) disclosures].''\811\ Tribune made a similar 
argument, requesting an exemption from compliance with the Sec.  
310.4(d) disclosures for newspapers with whom a customer has a prior 
business relationship. According to Tribune, in many instances, 
newspapers call current subscribers to ascertain whether the customer 
is satisfied, and then to offer additional services, such as the 
weekday paper in addition to an existing Sunday-only subscription; 
Tribune also believes the required oral disclosures may be off-putting 
to customers.\812\ The Commission does not believe that the existence 
of a prior or even an ongoing business or personal relationship 
obviates the need for the required prompt oral disclosures in calls 
that are, in whole or in part, designed to induce the purchase of goods 
or services. Therefore, the Commission declines to create exemptions to 
Sec.  310.4(d).
---------------------------------------------------------------------------

    \810\ See ASTA-NPRM at 2.
    \811\ ASTA-NPRM at 2.
    \812\ See Tribune--NPRM at 9-10.
---------------------------------------------------------------------------

    DOJ recommended that an additional disclosure--the ``seller's title 
or position in the company''--be added to this section, arguing that 
such a disclosure would directly address the fraudulent practice 
wherein a telemarketing sales agent misrepresents that he or she holds 
a position of great authority within the company on behalf of whom the 
call is made, such as a claim that he or she is the president of the 
company.\813\ Although the Commission agrees that such 
misrepresentations could be injurious to consumers, the Commission does 
not believe that in non-fraudulent solicitations a prompt, truthful 
disclosure of the telemarketing sales representative's position within 
the company would be so beneficial to consumers as to outweigh the 
costs to business of making such an additional disclosure. Further, the 
Commission believes that it is highly likely that fraudulent 
telemarketers who resort to such prevarication to induce sales will be 
in violation of other provisions of the Rule as well.\814\ Therefore, 
the Commission declines to add a disclosure regarding the telemarketing 
sales agent's position within the company.
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    \813\ DOJ-NPRM at 5 (also noting that some fraudulent 
telemarketers claim to be with government agencies. The Commission 
notes that such a misrepresentation would violate amended Rule Sec.  
310.3(a)(2)(vii)).
    \814\ For example, such a ``false and misleading'' statement, if 
made to ``induce any person to pay for goods or services or to 
induce a charitable contribution,'' would violate amended Rule Sec.  
310.3(a)(4).
---------------------------------------------------------------------------

    A few commenters requested further clarification regarding the 
meaning of the term ``promptly,'' suggesting that it is too vague to be 
a useful guideline in the Rule.\815\ One of these commenters also 
sought to clarify the timing of the prompt oral disclosures required by 
this section in a multiple purpose call.\816\ These two issues were 
discussed at length in the NPRM, and the Commission reiterates here 
what it has previously stated: 1) the term ``promptly,'' as used in the 
Rule, means ``at once or without delay, and before any substantive 
information about a prize, product or service is conveyed to the 
customer,'' a standard which allows for some flexibility without 
sacrificing the consumer's need to know certain material information 
prior to the beginning of any sales pitch; and 2) in ``any multiple 
purpose call where the seller or telemarketer plans, in at least some 
of those calls, to sell goods or services, the [Sec.  310.4(d) 
disclosures] must be made 'promptly,' during the first part of the 
call, before the non-sales portion of the call takes place.''\817\ The 
Commission does not believe that any change in the text of the Rule is 
necessary to achieve clarity regarding these two issues, nor does it 
believe the suggested modifications would provide greater clarity; 
thus, the Commission declines to modify this section.
---------------------------------------------------------------------------

    \815\ LSAP-NPRM at 17 (urging that the term ``promptly'' be 
defined as ``at the outset of the call''); NASUCA-NPRM at 16; 
Patrick-NPRM at 3 (suggesting that at least the identity of the 
seller be disclosed ``first, before any other information is 
disclosed'').
    \816\ See NASUCA-NPRM at 16.
    \817\ 67 FR at 4526 (citing the original SBP).
---------------------------------------------------------------------------

    A few commenters suggested that an additional disclosure--of the 
seller's telephone number--should be added.\818\ NASUCA suggested that 
this number be one useful to consumers who wish to be placed on a 
seller's ``do-not-call'' list, while Patrick suggested that the number 
be one consumers could use to report violations of the Rule. Patrick 
suggested, in the alternative, that the Rule prohibit the failure to 
provide name, address, and telephone number information for the seller 
or telemarketer, if such information is requested by the consumer. The 
Commission previously has expressed its concern that if too many 
disclosures are required, particularly in the beginning of the call, 
their effectiveness is diluted. Further, the Commission believes that 
amended Sec.  310.4(a)(7), regarding transmission of Caller ID, and 
Sec.  310.4(b)(1)(iii)(B), creating a national ``do-not-call'' 
registry, will help to mitigate the problem these commenters have 
proposed to cure. Therefore, the Commission declines to require a 
disclosure of the seller's telephone number in this section.
---------------------------------------------------------------------------

    \818\ NASUCA-NPRM at 15; Patrick-NPRM at 4.
---------------------------------------------------------------------------

    As explained in the discussion of Sec.  310.2(dd) above, regarding 
the definition of ``upselling,'' the Commission believes that upsell 
transactions are analogous to outbound telephone calls. Therefore, the 
amended Rule requires that the oral disclosures mandated by Sec.  
310.4(d) must be promptly disclosed at the initiation of the upsell if 
any of the information in these disclosures differs from the 
disclosures made in the initial transaction. For example, in an 
external upsell (where there is a second seller), the consumer must be 
told the identity of the second seller--the one on whose behalf the 
upsell offer is being made. In an internal upsell, however, the 
identity of the seller remains the same in both transactions and need 
not be repeated in the second transaction. Thus, the Commission has 
inserted the phrase ``or internal or external upsell'' after the

[[Page 4649]]

term ``outbound telephone call'' in Sec.  310.4(d) of the amended Rule; 
and has inserted the requirement that ``in any internal upsell for the 
sale of goods or services, the seller or telemarketer must provide the 
disclosures listed in this section only to the extent the information 
in the upsell differs from the disclosures provided in the initial 
telemarketing transaction.'' The goal in this provision is to ensure 
that consumers receive all of the information they need in order to 
make an informed decision whether to make a purchase,\819\ without 
requiring duplicative or irrelevant disclosures.
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    \819\ As the Commission noted in the NPRM:
    ``[I]n 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 . . . 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. 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.''
    67 FR at 4500. The proposed Rule also required telemarketers on 
behalf of charitable organizations to adhere to the requirements for 
upsell transactions. However, the record in this proceeding does not 
show any evidence that upselling is prevalent in the solicitation of 
charitable contributions. Therefore, the Commission has deleted any 
reference to charitable solicitations from the upselling provisions. 
The Commission will continue to monitor this issue, and, if 
necessary, may address it in future rule reviews.
---------------------------------------------------------------------------

Sec.  310.4(d)(4) -- Sweepstakes disclosure

    Section 310.4(d)(4) of the original Rule required 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 NPRM, the Commission proposed 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, which would make the amended Rule's disclosure requirement 
consistent with the requirements for direct mail solicitations under 
the Deceptive Mail Prevention and Enforcement Act (``DMPEA'').\820\ As 
discussed above with regard to the same disclosure in Sec.  
310.3(a)(1)(iv), commenters generally supported this proposal.\821\
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    \820\ Id. 39 U.S.C. 3001(k)(3)(A)(II).
    \821\ NAAG-NPRM at 54-55; NACAA-NPRM at 6-7; NCL-NPRM at 4. See 
also June 2002 Tr. II at 105-15.
---------------------------------------------------------------------------

    PMA maintained that the disclosure was unnecessary and that there 
was no evidence in the record to support adding the disclosure.\822\ 
Nonetheless, PMA stated that, as a gesture of good faith, they would 
not oppose the change.\823\ They asked, however, that the Commission 
allow them flexibility on when to make the disclosure, rather than 
mandating that it be made ``promptly,'' as required by Sec.  310.4(d), 
because the disclosure would be more meaningful if it were delivered in 
conjunction with the sales solicitation rather than the discussion 
about the sweepstakes.\824\
---------------------------------------------------------------------------

    \822\ PMA-NPRM at 4-8.
    \823\ PMA-NPRM at 5, 7; ARDA-NPRM at 14-15. See also June 2002 
Tr. II at 106, 108 (PMA and ARDA state that they do not oppose the 
disclosure).
    \824\ June 2002 Tr. II at 106-07. ARDA also requested 
flexibility in the timing of the disclosure. ARDA-NPRM at 14-15 and 
June 2002 Tr. II at 108.
---------------------------------------------------------------------------

    The Commission believes that it is important that consumers 
promptly be put on notice when a call promoting a sweepstakes also 
includes a sales solicitation. The Commission does not believe it 
necessary to script the telemarketing call or to define with finite 
specificity within how many seconds particular disclosures must be 
made. As with the Rule's requirement that the telemarketer promptly 
disclose that no purchase or payment is necessary to win a prize,\825\ 
the Commission believes that the disclosure that a purchase will not 
enhance the consumer's chances of winning may occur ``before or in 
immediate conjunction with the description of the prize.''\826\ As the 
Commission stated in the original Rule's SBP, this language was 
included in Sec.  310.4(d)(4) ``to prohibit deceptive telemarketers 
from separating the disclosure (in that instance, of the fact that no 
purchase or payment is necessary to win a prize) from the description 
of the prize, thereby negating or diluting its salutary effect.''\827\ 
Although this guidance does not alter the imperative that the 
disclosures be made ``promptly''--i.e., ``at once or without delay,'' 
but ``[a]t a minimum. . . before any sales pitch is given''\828\--it 
should provide telemarketers of prize promotions the necessary 
flexibility in making the requisite disclosures.
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    \825\ This provision is found at Sec.  310.4(d)(4) of the 
original and amended Rules.
    \826\ 16 CFR 310.4(d)(4); 60 FR at 43856.
    \827\ 60 FR at 43856-57.
    \828\ TSR Compliance Guide at 15. See also 60 FR at 43856.
---------------------------------------------------------------------------

    Therefore, the Commission has determined that it is an abusive 
telemarketing act or practice to fail to disclose truthfully, promptly, 
and in a clear and conspicuous manner, in any prize promotion, that no 
purchase or payment is required to win a prize or participate in a 
prize promotion, that any purchase or payment will not increase the 
customer's chances of winning, and, upon request, the no-purchase/no-
payment method of participating in the prize promotion.

Sec.  310.4(e) -- Required oral disclosures in charitable solicitations

    As noted in the NPRM, Sec.  1011(b)(2)(D) of the USA PATRIOT Act 
mandates that the TSR include a requirement to address abusive 
practices in the solicitation of charitable contributions.\829\ 
Specifically, the USA PATRIOT Act directs the Commission to include in 
the Rule:
---------------------------------------------------------------------------

    \829\ See 67 FR at 4522 (discussing the USA PATRIOT Act's 
mandate to include in the TSR certain prompt disclosures in the 
solicitations of charitable contributions).

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 to 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.\830\
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    \830\ Section 1011(b)(2)(D), Pub. L. 107-56 (Oct. 26, 2001).

    In response to this mandate, the Commission included in the 
proposed Rule new Sec.  310.4(e), which requires in calls to solicit 
charitable contributions the truthful, prompt, clear and conspicuous 
disclosure of two pieces of information: 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.\831\ The Commission declined to require the oral 
disclosure of a charitable organization's mailing address because it 
was dubious that requiring disclosure of this information in every 
instance would prove sufficiently beneficial to consumers to justify 
the costs incurred by telemarketers, and the charities for whom they 
solicit, of making this disclosure.\832\ However, the Commission did 
pose specific questions on this issue, including whether the disclosure 
requirement should be triggered only when a donor asks for such 
information.\833\
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    \831\ Proposed Rule Sec.  310.4(e); see also 67 FR at 4522 
(including the discussion of the rationale for including these 
specific disclosures).
    \832\ 67 FR at 4522.
    \833\ 67 FR at 4522, 4539.
---------------------------------------------------------------------------

    Few comments addressed the proposed requirements for disclosures in 
the solicitation of charitable

[[Page 4650]]

contributions.\834\ AFP agreed that the proposed Rule struck the 
appropriate balance, by requiring disclosure of both the identity of 
the charity and the fact that the purpose of the call was to solicit a 
charitable contribution, but not requiring disclosure of the mailing 
address of the charity.\835\ AFP also noted that the required 
disclosures are consistent with its own ethics standards and its belief 
that these disclosures are sufficient to effectuate the purposes of the 
USA PATRIOT Act.\836\ AFP recommended against including a required 
disclosure of the charitable organization's mailing address, arguing 
that such information would be of little use to consumers in discerning 
whether a charity was legitimate, and that the time and distraction 
involved in disclosing an address would be ``counterproductive to the 
charitable contribution process.''\837\
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    \834\ As noted above in the section discussing amended Sec.  
310.3(d), AARP and NCL noted in their comments in response to the 
NPRM that they supported the goal of expanding the Rule's ambit to 
cover charitable solicitations.
    \835\ See AFP-NPRM at 3.
    \836\ Id.
    \837\ Id. (noting, however, that it had no objection to 
requiring the disclosure of the mailing address, provided the donor 
asked for such information).
---------------------------------------------------------------------------

    Hudson Bay expressed its view that both of the proposed disclosures 
are unconstitutional.\838\ According to Hudson Bay, the requirement 
that a telefunder promptly disclose that the call is to solicit a 
charitable contribution runs afoul of the First Amendment because it 
mandates not only what must be said, but when.\839\ Hudson Bay further 
argues that the mandatory disclosure of the name of the charitable 
organization on behalf of which the solicitation is made strips 
charitable organizations of their right to anonymity and violates the 
First Amendment's guarantee of freedom of association.\840\
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    \838\ See Hudson Bay-Goodman-NPRM at 6-7.
    \839\ Id. (citing Riley, 441 [sic] U.S. at 791).
    \840\ Id. at 7 (citing Talley v. California, 362 U.S. 60 
(1960)).
---------------------------------------------------------------------------

    As previously noted, the USA PATRIOT Act directs the Commission to 
include these specific disclosures in the TSR.\841\ Congress' purpose 
in the Telemarketing Act, in requiring telemarketers to disclose basic 
identifying information in unsolicited outbound telemarketing calls, is 
to ensure that the consumer is given information promptly that will 
enable the consumer to decide whether to allow the infringement on his 
or her time and privacy to go beyond the initial invasion. The 
Commission believes that the USA PATRIOT Act amendments are consistent 
with this purpose. Moreover, the Commission believes there is a tight 
nexus between this purpose and the statutory and regulatory means 
employed to achieve this purpose. The Commission also believes that 
these disclosure requirements are very narrowly tailored to impinge as 
little as possible on protected speech while still accomplishing the 
purpose Congress intended. The Commission has exercised restraint in 
implementing this statutory mandate, keeping the disclosure 
requirements for charitable solicitation telemarketing to the bare 
minimum necessary to fulfill the purpose of the USA PATRIOT Act 
amendments. The Commission notes that the Supreme Court has 
specifically noted that requiring a professional fundraiser ``to 
disclose unambiguously his or her professional status . . . [is a] 
narrowly tailored requirement [that] would withstand First Amendment 
scrutiny.''\842\ The Commission believes that if a requirement to 
disclose one's status as a professional fundraiser would pass First 
Amendment scrutiny, then so would a requirement to make the disclosures 
now required by the Rule to fulfill the mandate of the USA PATRIOT Act 
amendments.
---------------------------------------------------------------------------

    \841\ USA PATRIOT Act, Sec.  1011.
    \842\ Riley, 487 U.S. at 799, n.11.
---------------------------------------------------------------------------

    Some commenters recommended that the Commission expand the 
provision to require additional disclosures in certain circumstances. 
For example, NAAG recommended that, in the event a paid telefunder is 
making the charitable solicitation, three additional disclosures be 
required: ``(1) the name of the caller; (2) the name of the 
telemarketing company; and (3) the fact that the caller is being paid 
to solicit.''\843\ NCL concurred, suggesting that the Rule require 
fundraisers to ``identify themselves as well as the charities on whose 
behalf they are operating.''\844\ NAAG and NCL argued that this 
additional set of disclosures would provide three distinct benefits. 
First, such disclosures would prevent donors from being deceived about 
the identity of the solicitor. NAAG noted that in many instances, for-
profit fundraisers ``misrepresent that they are affiliated with, or 
members of, the charity or public safety organization in whose name 
they are calling.''\845\ Second, the information would serve as an 
important means of identifying potential Rule violators.\846\ The third 
benefit from these suggested disclosure requirements would be the 
triggering role they would serve, prompting consumers to inquire, of 
the telefunder or of a state regulatory agency, about the amount of 
their contribution that will go to charity after the fundraiser takes 
its share.\847\
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    \843\ NAAG-NPRM at 52.
    \844\ NCL-NPRM at 11. See also Make-A-Wish-NPRM at 6 
(recommending adding a disclosure that the professional fundraiser 
is being paid for its services); NASCO-NPRM at 6.
    \845\ NAAG-NPRM at 52.
    \846\ NCL-NPRM at 11.
    \847\ NAAG-NPRM at 52; see also NCL at 11.
---------------------------------------------------------------------------

    The Commission declines to add a mandatory disclosure of the name 
of the caller in calls to induce charitable contributions. In the 
initial proposed TSR, the Commission had included such a requirement 
for all outbound telephone calls;\848\ but it was deleted because 
commenters noted that ```desk names' are commonly used in the industry 
to protect the safety and privacy of employees, and to protect against 
potential prejudice and harassment.''\849\ The Commission concluded 
that the disclosure of the seller's identity is most meaningful to 
consumers, not the name of the individual with whom they are speaking. 
The Commission can conceive of no reason why this analysis would not 
apply with equal force in the context of charitable solicitations. 
Moreover, the Commission is not persuaded that disclosure of this 
information is necessary to advance the privacy objectives underlying 
the Commission's authority to prohibit ``abusive'' practices pursuant 
to Sec.  6102(a)(3) of the Telemarketing Act.\850\ Therefore, the 
Commission declines to include in the amended Rule a requirement that 
the caller's name be disclosed in charitable telemarketing 
solicitations.
---------------------------------------------------------------------------

    \848\ See 60 FR at 8331 (Sec.  310.4(d)(1)(i)).
    \849\ 60 FR at 30418.
    \850\ See discussion of Sec.  310.4 above, describing the 
Commission's analysis of its authority to prohibit ``abusive'' 
practices.
---------------------------------------------------------------------------

    The Commission also declines to adopt the suggestion that it 
mandate disclosure of the name of the telemarketing company.\851\ In 
adopting the original Rule, the Commission rejected such a disclosure 
in the context of the sale of goods or services because it was deemed 
unnecessary; rather, a requirement to disclose the identity of the 
seller--which is clearly material to the consumer--was included. In the 
charitable fundraising context, the Commission believes the identity of 
the charity is the analogous material item of

[[Page 4651]]

information. The Commission believes there is a limit to the number of 
distinct items of information that can reasonably be absorbed at the 
beginning of a solicitation call. This being the case, the Commission 
believes that the charity's identity is a more meaningful piece of 
information than the name of the professional fundraising company. In 
this regard, it is noteworthy that the USA PATRIOT Act did not 
specifically require such a disclosure.\852\ Arguably, disclosure of 
the identity of the telemarketer may be beneficial to potential donors 
because it may prompt them to think and inquire about the portion of a 
contribution that will be consumed by a professional fundraiser's fee; 
but the Commission believes the record falls short of showing that the 
benefits of mandating such a disclosure would outweigh the burdens it 
would impose upon legitimate charities who choose to conduct their 
fundraising efforts using professional telemarketers.\853\ Therefore, 
the Commission does not believe the current record supports a finding 
that disclosure of this information is necessary to prevent ``abusive'' 
practices pursuant to Sec.  6102(a)(3) of the Telemarketing Act.\854\
---------------------------------------------------------------------------

    \851\ The Commission notes, however, as discussed by NAAG, that 
at least 20 states have statutes requiring such a disclosure. NAAG-
NPRM at 52. The Commission believes that the states, which have 
extensive regulatory authority over charities, and extensive 
experience in such regulation, may continue to require disclosures 
beyond those mandated by the TSR, and notes that compliance with the 
TSR will not fulfill telemarketers obligations under any such state 
laws or regulations.
    \852\ See USA PATRIOT Act Sec.  1011(b)(2)(D). The absence of 
such a requirement from the USA PATRIOT Act is noteworthy because 
such a disclosure was specifically approved in Riley. 487 U.S. at 
799, n.11.
    \853\ As noted by Not-for-Profit Coalition, Hudson Bay and 
others, telefunders play a critical role in enabling charitable 
organizations, particularly smaller ones, to raise funds necessary 
to fund their missions. Not-for-Profit Coalition-NPRM at 17-20; 
Hudson Bay-Goodman-NPRM at 2.
    \854\ The Commission believes that, as in the case of the 
required oral disclosures in the sale of goods or services, the 
failure to make certain material disclosures in the solicitation of 
a charitable contribution rises to the level of an abusive practice 
under the Rule. As noted in the NPRM, the Commission believes that 
the prompt disclosure of certain information in a telemarketing call 
to induce the sale of goods or services is necessary to enable a 
consumer ``to decide whether to allow the infringement on his or her 
time and privacy to go beyond the initial invasion.'' 67 FR at 4511. 
Similarly, a consumer who receives a telemarketing solicitation to 
induce a charitable contribution must have certain information to 
determine if he or she wishes to continue the call. At this time, 
the Commission believes it prudent to require only the disclosure of 
the name of the charity on whose behalf the fundraising is occurring 
and that the call is being made to induce a charitable contribution. 
However, the Commission will continue to study the issue and will 
revisit it during the next Rule Review.
---------------------------------------------------------------------------

    For similar reasons, the Commission also declines to require a 
mandatory disclosure that the telemarketer is a paid fundraiser. The 
comments on this issue reflect considerable concern about instances 
where only a minuscule portion of contributions are devoted to the 
actual support of a charitable organization's mission, while the 
telefunder's fee gobbles up the lion's share. This occurs in some 
instances,\855\ but the record does not support an inference that such 
a scenario inevitably follows from the use of paid telefunders by 
charitable organizations, and there is evidence on the record tending 
to show that the opposite is often true: the use of professional 
telemarketers saves charitable organizations money--as compared with 
in-house telephone fundraising.\856\
---------------------------------------------------------------------------

    \855\ See, e.g., Pennies for Charity, 2001, New York Attorney 
General, http://www.oag.state.ny.us/charities/pennies01/penintro.html (accessed Oct. 8, 2002) (stating that ``charities 
retained an average of 31.5% of the funds raised by telemarketers 
registered to solicit contributions in New York in 2000. Some of the 
charities received much less than that and some received nothing at 
all.''); NASCO-NPRM at 2 (citing the New York Attorney General's 
report as well as a 1999 report by the California Attorney General 
showing charities received only 48.2 percent of funds raised by 
telemarketers who solicited on their behalf in California that 
year). See also Private Citizen-NPRM at 5.
    \856\ Hudson Bay-Goodman-NPRM at 2.
---------------------------------------------------------------------------

    Additionally, the Commission is concerned here, as it is with the 
other recommended disclosures, about the potential negative 
consequences that derive from overloading the beginning of a charitable 
solicitation call. Further, it is notable that the USA PATRIOT Act did 
not specifically require such a disclosure.\857\ While disclosure of 
the identity of the telemarketer may, arguably, be beneficial to 
potential donors because it may prompt them to think and inquire about 
the proportion of a contribution that will be consumed by a 
professional fundraiser's fee, the Commission believes the record does 
not support mandating such a disclosure because of the burden the 
disclosure would impose on legitimate charities who choose to conduct 
their fundraising efforts using professional telemarketers.\858\ A 
showing of these benefits would be necessary to support a requirement 
for disclosure of this information. Therefore, the Commission declines 
at this time to add a requirement that the telemarketer disclose that 
he or she is being paid to solicit charitable contributions.
---------------------------------------------------------------------------

    \857\ See USA PATRIOT Act Sec.  1011(b)(2)(D). This omission, 
too, is conspicuous in light of the fact that numerous states have 
included this mandatory disclosure and that such a disclosure is, at 
least in dicta, sanctioned by the Court in Riley. See NAAG-NPRM at 
52; Riley, 487 U.S. at 799, n.11.
    \858\ See note 856 above.
---------------------------------------------------------------------------

Other issues regarding abusive practices raised in response to the 
NPRM.

    Commenters responded to the Commission's questions in the NPRM 
regarding additional issues related to abusive practices that had 
surfaced during the Rule Review, in particular, prison-based 
telemarketing. Commenters also raised other issues: telemarketers' use 
of courier services to pick up payments from consumers; telemarketers' 
targeting of vulnerable groups; and the sale of victim lists. Each of 
these issues, and the reasoning behind the Commission's responses to 
them, are discussed in detail below.
    Prisoner telemarketing: During the Rule Review, the Commission 
received several comments describing problems that had occurred when 
sellers or telemarketers used prison inmates to telemarket goods or 
services. These commenters recommended that the Commission ban the use 
of prisoners as telemarketers or, in the alternative, tightly regulate 
it, including requiring that inmates disclose their status as prisoners 
when they make calls to, or receive calls from, the public.\859\ These 
commenters cited several graphic incidents in which inmates have abused 
consumers' information and other resources to which they had access 
through inmate telemarketing to make improper, invasive, and illegal 
contact with members of the public.\860\
---------------------------------------------------------------------------

    \859\ See generally Jordan-RR, S. Gardner-RR, Budro-RR, and 
Warren-RR. In addition, this issue received considerable attention 
during the Rule Review Forum. See RR Tr. at 220-45, 367-75, 443-47.
    \860\ 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 16. 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 individuals 
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 TRIB., June 1, 
2000, at 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 RR Tr. at 371-72.
---------------------------------------------------------------------------

    Specifically, these commenters pointed 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.\861\ In the NPRM, the Commission stated that 
it was extremely concerned about the potential misuse of personal 
information and abusive telemarketing activity in connection with 
prison-based telemarketing, but

[[Page 4652]]

also that some public benefit likely came from inmate work programs 
that entail telemarketing. The Commission noted that the record 
contained insufficient information upon which to base a proposal 
regarding prisoner telemarketing or to assess the costs and benefits of 
such a proposal. Therefore, the NPRM posed several questions to elicit 
comment on what action by the Commission, if any, might be appropriate 
regarding this issue.
---------------------------------------------------------------------------

    \861\ See generally Jordan-RR, Gardner-RR, Warren-RR, and Budro-
RR.
---------------------------------------------------------------------------

    In response to the NPRM, the Commission received several comments 
on this issue.\862\ In addition, the June 2002 Forum devoted a session 
to the topic.\863\ Based on the entire record in this proceeding, the 
Commission has determined that any problems associated with the use of 
prison-based telemarketing would be more appropriately handled by the 
state legislatures and regulatory agencies than by adding a provision 
to the TSR.
---------------------------------------------------------------------------

    \862\ DialAmerica-NPRM at 28; Spiegel-NPRM at 1; Worsham-NPRM at 
6. In addition, see generally CURE-NPRM; CCA-NPRM; UNICOR-NPRM; EPI-
NPRM; and EPI-Supp.
    \863\ June 2002 Tr. III at 115-57.
---------------------------------------------------------------------------

    The comments show that the number of inmates used for commercial 
telemarketing purposes is a small percentage of the prisoners who are 
employed in inmate work programs.\864\ The majority of prison-based 
telemarketing programs are used by federal and state governments, often 
for such tasks as providing information to consumers who call state 
tourist bureaus.\865\ A 1999 GAO Report reveals that only seven percent 
of the inmates who had access to consumer information were performing 
work for private firms, while 93 percent were working for government 
agencies, performing tasks such as answering calls from the public to 
state tourist centers.\866\ Thus, the vast majority of prison-based 
telemarketing would be outside the ambit of the Rule because it does 
not involve ``telemarketing'' as that term is defined in the Rule.\867\
---------------------------------------------------------------------------

    \864\ The comments indicate that federal inmates are not used as 
telemarketers except in connection with sales to the federal 
government. (UNICOR is the trade name for Federal Prison Industries, 
Inc., a wholly-owned government corporation within the U.S. 
Department of Justice, Federal Bureau of Prisons. UNICOR sells its 
products primarily to federal agencies and uses federal prisoners in 
connection with those sales. In addition to calling UNICOR's federal 
government agencies, the federal prisoners also call the businesses 
that support UNICOR's federal sales.) UNICOR-NPRM at 2; see also 
EPI-Supp. at 1. UNICOR's sales using prisoner-based telemarketing 
would not be covered by the TSR. Section 310.6(g) of the Rule 
exempts telemarketing sales to businesses. In addition, sales to 
government entities do not fall within the Rule's definition of 
``person.''
    \865\ EPI-Supp. at 1.
    \866\ ``Prison Work Programs, Inmates'' Access to Personal 
Information,'' GAO/GGD-99-146, cited in EPI-NPRM at 13, n.18. See 
also EPI-Supp. at 1 (All prisoners employed as telemarketers by the 
private sector are inmates in state prisons, regulated by state 
agencies.).
    \867\ ``Telemarketing'' is defined, in part, as a ``plan, 
program or campaign which is conducted to induce the purchase of 
goods or services or a charitable contribution . . .'' The prison-
based telemarketing used by government agencies does not appear to 
involve calls to ``induce the purchase of goods or services.''
---------------------------------------------------------------------------

    EPI estimates that there are only ten private companies in the 
United States who use prisoners as telemarketers, that these ten 
companies employ approximately 300 inmates in prison-based 
telemarketing programs, and that all these programs use inmates housed 
in state prisons.\868\ Commenters noted that the state prison work 
programs are heavily regulated by the state legislatures and 
Departments of Correction.\869\ EPI points out that the federally-
administered Prison Industry Enhancement (``PIE'') program was created 
to encourage the states and local governments to establish inmate work 
programs that mimic the private work environment. In passing the 
legislation, Congress elected to have the states manage these 
programs.\870\
---------------------------------------------------------------------------

    \868\ EPI-NPRM at 2, 3, 9.
    \869\ CCA-NPRM at 2; EPI-NPRM at 3, 14
    \870\ EPI-NPRM at 3.
---------------------------------------------------------------------------

    Opponents of the use of prison-based telemarketing cited the 
potential for misuse of consumers' personal information by inmates, but 
were unable to point to actual incidents other than the isolated 
example raised during the Rule Review.\871\ EPI noted that, after an 
exhaustive search, the 1999 GAO study was able to identify only nine 
incidents of misuse over an eight-year period, and only three of those 
nine incidents were the result of telemarketing for a private 
firm.\872\ Commenters noted that similar problems occur, perhaps with 
even more frequency, among non-prisoner or civilian telemarketers.\873\
---------------------------------------------------------------------------

    \871\ DialAmerica-NPRM at 28; Spiegel-NPRM at 1; Worsham-NPRM at 
6. See also June 2002 Tr. III at 115-57.
    \872\ EPI-NPRM at 10.
    \873\ CURE-NPRM at 1; EPI-NPRM at 13-14. See also June 2002 Tr. 
III 115-57.
---------------------------------------------------------------------------

    The proponents of prison-based telemarketing pointed out the 
significant social and economic benefits that accrue to the inmates, to 
the states, and to society as a whole by having inmates engage in 
productive work that develops skills that can later be transferred to a 
private sector job once the inmate is released.\874\ They indicate that 
inmate jobs serve as a source of funds to compensate crime victims, 
provide financial support to children of inmates, repay taxpayers for 
the inmates' room and board, and are an effective tool for 
rehabilitation and reducing recidivism.\875\ They maintain that inmate 
jobs are ``vital to helping keep prisons safe and secure and offering 
meaningful educational and vocational training to aid in successful re-
entry.''\876\ These commenters outlined the significant precautions 
taken in screening and monitoring inmates for these jobs.\877\
---------------------------------------------------------------------------

    \874\ See generally CURE-NPRM; CCA-NPRM; EPI-NPRM; and UNICOR-
NPRM. See also June 2002 Tr. III at 115-57.
    \875\ Id.
    \876\ CCA-NPRM at 1. See also EPI-NPRM at 5-8; and generally 
CURE-NPRM; and UNICOR-NPRM. See also June 2002 Tr. III at 115-57.
    \877\ EPI-NPRM at 5-8. See also June 2002 Tr. III at 115-57.
---------------------------------------------------------------------------

    Based on the record in this proceeding, the Commission believes 
that, while there is some evidence of consumer injury in a very few 
documented cases, it is not possible to conclude that the risk of 
consumer harm outweighs the countervailing benefits. Such a conclusion 
would be necessary to condemn prison-based telemarketing as an abusive 
practice.\878\ The extensive system of state regulation, coupled with 
the local nature of the work programs, persuades the Commission that 
any problems associated with prison-based telemarketing would best be 
handled at the state level.
---------------------------------------------------------------------------

    \878\ See 67 FR at 4510-12.
---------------------------------------------------------------------------

    Use of couriers: In response to the NPRM, AARP again raised its 
concern that the Commission ban the practice of allowing couriers, 
including overnight mail delivery services, to pick up payment for 
goods and services purchased through telemarketing.\879\ AARP points 
out that the use of couriers in sweepstakes and lottery scams is 
prevalent, and that some unscrupulous telemarketers use couriers not 
only to quickly separate the consumer from his or her money, but to 
make a ``contest seem more `official.'''\880\ AARP notes that, in some 
instances, even legitimate companies benefit unfairly from the use of 
couriers by avoiding oversight by the U.S. Postal Service, and by 
ensuring that non-refundable ``deposits'' are secured, diminishing the 
likelihood, in many instances, that a consumer would back out of a 
transaction.\881\ NACAA concurred, and noted its further concern that 
in-person payment pickups by those posing as public safety officers is 
a practice perhaps even more harmful to consumers who are intimidated 
into quickly giving a contribution.\882\
---------------------------------------------------------------------------

    \879\ AARP-NPRM at 9-10.
    \880\ Id. (citing NAAG's comment in the original rulemaking 
proceeding).
    \881\ AARP-NPRM at 9-10.
    \882\ See NACAA-NPRM at 10-11.

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

[[Page 4653]]

    The record does not contain any new evidence regarding the 
potential harm that accrues from the use of couriers, or any new 
evidence regarding the benefits to legitimate companies of being able 
to use couriers to collect payment. Although the Commission recognizes 
that fraudulent telemarketers often use couriers to collect payment, it 
continues to believe that ``[t]here is nothing inherently deceptive or 
abusive about the use of couriers by legitimate business.''\883\ 
Moreover, the Commission reiterates its view that telemarketers who 
seek to use courier services to defraud consumers are likely to 
``engage in other acts or practices that clearly are deceptive or 
abusive, and that are prohibited by this Rule.''\884\ Therefore, the 
Commission declines to adopt the recommendation to ban the use of 
couriers to collect payment for goods or services sold through 
telemarketing.
---------------------------------------------------------------------------

    \883\ 60 FR at 30415.
    \884\ Id.
---------------------------------------------------------------------------

    Targeting vulnerable groups and the sale of victim lists: DOJ 
proposed that the Commission include in the amended Rule a provision 
that ``would prohibit a seller or telemarketer who is engaged in any 
act or practice that violates Sec. Sec.  310.3(a), (c), or (d) or 
310.4(a)-(e) from purchasing lists of prospective contacts from any 
source.''\885\ This suggested change responds to the problems of the 
sale of victim lists and the targeting of vulnerable groups. As DOJ 
explains, such a provision would ``ensure that any injunctive relief it 
sought in enforcement proceedings would include a prohibition on any 
further purchases of `mooch lists' by any individual or corporate 
defendants in the action,'' and lay the foundation for criminal 
contempt proceedings if such an injunction were violated.\886\ DOJ also 
argued that such an injunction, served on ``any list provider known to 
have done business with the fraudulent telemarketer,'' would limit such 
telemarketer's ability to resume fraudulent solicitations.\887\ 
Finally, DOJ noted that such a provision ``would enable the Commission 
to address, at least in part, the targeting of vulnerable victims by 
fraudulent telemarketers, without having to grapple with the 
difficulties of defining what constitutes ``vulnerability'' or 
``targeting.''\888\
---------------------------------------------------------------------------

    \885\ DOJ-NPRM at 7.
    \886\ Id.
    \887\ Id.
    \888\ Id.
---------------------------------------------------------------------------

    After careful consideration, the Commission has determined not to 
adopt the provision proposed by DOJ. The Commission believes that it is 
unnecessary to include an explicit prohibition against Rule violators 
purchasing lists of prospective contacts to provide the benefits 
detailed by DOJ in its comment. In numerous cases, the Commission has 
already included a similar prohibition in final orders that achieves 
the goals articulated by DOJ.\889\ Thus, the Commission declines to 
include a provision to this effect in the amended Rule.
---------------------------------------------------------------------------

    \889\ See, e.g., FTC v. Fed. Data Servs., No. 00-6462-CV-
Ferguson (S.D. Fla. filed Apr. 3, 2000) (Stipulated final judgment 
entered Jan. 9, 2001); FTC v. Data Med. Capital, Inc., No. SA-CV-99-
1266AHS (EHC) (S.D. Cal. filed Oct. 14, 1999) (Stipulated final 
order for permanent injunction and other settlement of claims 
entered July 13, 2001); FTC v. RJB Telecom, Inc., No. 
CIV002017PHXEHC (D. Ariz. filed Oct. 25, 2000) (Stipulated final 
judgment and order for permanent injunction filed Aug. 27, 2001); 
FTC v. Story d/b/a Network Publ'ns., No. 3-99CV0968-L (N.D. Tex. 
filed Apr. 25, 1999) (Stipulated order for permanent injunction and 
civil penalty filed June 6, 2000).
---------------------------------------------------------------------------

E. Section 310.5 -- Recordkeeping

    Section 310.5 of the original Rule identifies the kinds of records 
that must be kept by sellers and telemarketers, and the time period for 
retention of these records.\890\ In the NPRM, the Commission noted that 
it had declined to adopt any of the suggested modifications to this 
section submitted pursuant to the Rule Review. Specifically, the 
Commission declined to: (1) reduce the record retention period to less 
than 24 months; or (2) tie the duration of record retention either to 
the value of the goods or services sold or the refund policy of the 
seller, believing that such modifications would minimize the 
effectiveness of this provision in law enforcement.\891\ The Commission 
did note that the effect of the USA PATRIOT Act amendments was to 
extend the recordkeeping requirement to include not only calls to 
induce the purchase of goods or services, but also calls to induce 
charitable contributions.\892\ The only explicit change to the language 
of the section to implement the USA PATRIOT Act amendments was to add 
the phrase ``or solicitations of charitable contributions'' to Sec.  
310.5(a)(4) following the phrase ``employees directly involved in 
telephone sales.''\893\
---------------------------------------------------------------------------

    \890\ 16 CFR 310.5.
    \891\ 67 FR at 4527-28.
    \892\ 67 FR at 4528.
    \893\ Due to an oversight, the text of the NPRM noted the 
correct language of the provision (``or solicitations of charitable 
contributions''), while the text of the proposed Rule included an 
abbreviated version (``or solicitations'').
---------------------------------------------------------------------------

    Very few comments addressed the recordkeeping requirements set 
forth in Sec.  310.5. ARDA noted that it ``agrees with the Commission 
and feels that the current provisions are adequate.''\894\ DMA-
NonProfit stated that ``imposing burdensome and lengthy (two-year) 
recordkeeping responsibilities'' on charities would hurt the ability of 
charities, especially small ones, because it would divert funds away 
from fulfillment of charities' missions.\895\ The Commission believes 
that the recordkeeping burden on telemarketers who solicit on behalf of 
charities will be minimal. As noted in the SBP for the original Rule, 
the recordkeeping provision was already tailored to ``strike a balance 
between minimizing the recordkeeping burden on industry and retaining 
the records necessary to pursue law enforcement actions. . .''\896\ In 
addition, the Commission believes that the records required to be 
maintained are those commonly maintained by businesses in the ordinary 
course of business.\897\ The Commission believes that, as applied to 
telemarketers who solicit on behalf of charities, the burden of 
compliance with the recordkeeping provision will be further lessened 
because many of the recordkeeping provisions will be inapplicable in 
the charitable solicitation context, or are burdens typically borne by 
the telemarketer, not the organization on whose behalf the calls are 
made.\898\
---------------------------------------------------------------------------

    \894\ ARDA-NPRM at 17. ARDA did reiterate, however, its concern 
that ``overlapping, inconsistent, and conflicting state laws create 
a substantial burden.''
    \895\ DMA-NonProfit-NPRM at 16.
    \896\ 60 FR at 43857.
    \897\ Id.
    \898\ For example, Sec.  310.5(a)(2) only applies when the offer 
includes a prize promotion, a circumstance unlikely to be implicated 
in most charitable solicitations. Section 310.5(a)(3) only applies 
in the commercial solicitation context, as it requires maintenance 
of records showing information about ``customers.'' Section 
310.5(a)(4) is a requirement typically borne by telemarketers, and 
the Commission believes that charitable organizations are unlikely 
to incur additional costs of compliance with this provision as a 
result of the Rule's inclusion of charitable solicitations. The 
Commission does not believe that compliance with amended Sec.  
310.5(a)(5), which requires that all verifiable authorizations or 
records of express informed consent or express agreement required to 
be provided under the Rule be maintained will be unduly burdensome 
to charities who are less likely to avail themselves of the 
marketing methods that implicate these Rule requirements. Therefore, 
the only provision of the recordkeeping section that is likely to 
affect charities is Sec.  310.5(a)(1), the requirement that ``[a]ll 
substantially different advertising, brochures, telemarketing 
scripts, and promotional materials'' be maintained. To the extent 
that retention of such materials is not already customary in the 
non-profit sector, the Commission believes that the burden of 
compliance is offset by the corresponding law enforcement benefits 
that accrue from this provision.
---------------------------------------------------------------------------

    NEMA requested that the Commission consider the recordkeeping 
burden on energy marketers who must, pursuant to their self-regulatory 
guidelines, already

[[Page 4654]]

maintain certain records.\899\ As noted above in the discussion of the 
express verifiable authorization provision, Sec.  310.3(a)(3)(ii), the 
Commission believes that sellers, when they accept payment via methods 
that are novel or lack certain fundamental consumer protections, must 
obtain express verifiable authorization by any of the three means 
allowed by the amended Rule. The maintenance of such records is also 
necessary to ensure the law enforcement goals of the recordkeeping 
provision.
---------------------------------------------------------------------------

    \899\ NEMA-NPRM at 8-10.
---------------------------------------------------------------------------

    Finally, ERA noted in its supplemental comment that it believed 
that it would be expensive for telemarketers conducting upsells to 
comply with the Rule's recordkeeping requirements.\900\ As addressed 
above in the discussion of Sec.  310.4(a)(6), the Commission believes 
that both because the cost of digital audio recording and storage is 
decreasing, and because of the limited circumstances in which such 
recording is required under the Rule, the burden on sellers who choose 
to market goods and services using a combination of a ``free-to-pay 
conversion'' coupled with preacquired account information is offset by 
the consumer protection benefits that will accrue from recording and 
maintaining consumers' express informed consent in these circumstances.
---------------------------------------------------------------------------

    \900\ ERA-Supp. at 7.
---------------------------------------------------------------------------

    Thus, the only modification to the language of Sec.  310.5(a)(5) in 
the amended Rule is to require that in addition to retaining all 
verifiable authorizations, a seller or telemarketer must keep all 
``records of express informed consent or express agreement'' for 24 
months. This modification is necessitated by the introduction of these 
two terms in Sec.  310.4(a)(6), dealing with unauthorized billing, and 
Sec.  310.4(b)(1)(iii)(B)(i), addressing permission to a seller to call 
despite a consumer's inclusion on the national ``do-not-call'' 
registry. The Commission believes it is necessary for a seller or 
telemarketer to retain such records of express informed consent and 
express agreement to enable the Commission and the states to determine 
compliance with these provisions of the Rule.

F. Section 310.6 -- Exemptions

    Section 310.6 exempts certain telemarketing activities from the 
Rule's coverage.\901\ The exemptions to the Rule were designed to 
ensure that legitimate businesses are not unduly burdened by the 
Rule.\902\ Based on the record in this proceeding, and on its law 
enforcement experience, the Commission has determined to add an 
exemption, Sec.  310.6(a), to specifically exempt outbound calls to 
solicit charitable contributions from the national ``do-not-call'' 
registry provisions of the amended Rule. In addition, the Commission 
has determined to modify each of the subsections of the original Rule 
that are now found in renumbered Sec.  310.6(b).
---------------------------------------------------------------------------

    \901\ Specifically, the original Rule exempts: (1) goods and 
services subject to the Commission's Pay-Per-Call Rule and Franchise 
Rule; (2) telemarketing sales consummated after 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 nondurable office or 
cleaning supplies).
    \902\ 60 FR at 43859.
---------------------------------------------------------------------------

    The Commission amends newly renumbered Sec. Sec.  310.6(b)(1), (2), 
and (3)\903\ 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.
---------------------------------------------------------------------------

    \903\ These exemptions were found at Sec.  Sec.  310.6(a), (b), 
and (c) of the original Rule.
---------------------------------------------------------------------------

    The Commission amends renumbered Sec.  310.6(b)(4),\904\ which 
exempts inbound calls that are not a result of a solicitation, to make 
this exemption unavailable to upsell transactions and to calls in 
response to a message left pursuant to the abandoned call safe harbor 
provision in Sec.  310.4(b)(4)(iii).
---------------------------------------------------------------------------

    \904\ This provision was Sec.  310.6(d) in the original Rule.
---------------------------------------------------------------------------

    The Commission amends the general media exemption, now renumbered 
Sec.  310.6(b)(5),\905\ and the direct mail exemption, now renumbered 
Sec.  310.6(b)(6),\906\ to make these exemptions unavailable to 
upsells, and to telemarketers of credit card loss protection plans and 
business opportunities other than business arrangements covered by the 
Franchise Rule. In addition, the amended Rule makes clear that email 
and facsimile messages are direct mail for purposes of the Rule. 
Finally, the amended Rule modifies the proposed business-to-business 
exemption, now at Sec.  310.6(b)(7)\907\ to clarify that sellers and 
telemarketers of nondurable office or cleaning supplies need not comply 
with the amended Rule's ``do-not-call'' provisions.
---------------------------------------------------------------------------

    \905\ The general media exemption was at Sec.  310.6(e) in the 
original Rule.
    \906\ The direct mail exemption was at Sec.  310.6(f) in the 
original Rule.
    \907\ The business-to-business exemption was at Sec.  310.6(g) 
in the original Rule.
---------------------------------------------------------------------------

    In addition, the amended Rule removes the proposal that would have 
made the business-to-business exemption unavailable to the 
telemarketing of Web services, Internet services, and charitable 
solicitations to businesses. Pursuant to the USA PATRIOT Act amendments 
to the Telemarketing Act, the Commission amends the Rule to expand 
several of the exemptions to encompass calls to induce charitable 
solicitations. Thus, the amended Rule exempts: charitable solicitation 
calls that are followed by face-to-face payment, Sec.  310.6(b)(3); 
prospective donors' inbound calls not prompted by a solicitation, Sec.  
310.6(b)(4); charitable solicitation calls placed in response to 
general media advertising, Sec.  310.6(b)(5); and donors' inbound calls 
placed in response to direct mail solicitations that comply with Sec.  
310.4(e). In the NPRM, the Commission proposed to make the business-to-
business exemption unavailable for charitable solicitation calls. Based 
upon the record in this proceeding, the Commission has determined that 
it should not proceed with this proposal.

Sec. Sec.  310.6(b)(1), (2), and (3) -- Exemptions for pay-per-call 
services, franchising, and face-to-face transactions

    Section 310.6(a) of the original Rule exempts all transactions 
subject to the Commission's Pay-Per-Call Rule.\908\ Similarly, Sec.  
310.6(b) exempts transactions subject to the Commission's Franchise 
Rule.\909\ Section 310.6(c) exempts 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.\910\ In the NPRM, the Commission proposed to retain the 
exemptions for pay-per-call services, franchising, and face-to-face 
transactions,\911\ and require

[[Page 4655]]

telemarketers selling these exempted goods and services to comply with 
Sec.  310.4(a)(1) (prohibiting threats, intimidation, or use of profane 
or obscene language), Sec.  310.4(a)(7) (requiring transmission of 
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).
---------------------------------------------------------------------------

    \908\ The renumbered exemption in the amended Rule is found at 
Sec.  310.6(b)(1).
    \909\ The renumbered exemption in the amended Rule is found at 
Sec.  310.6(b)(2).
    \910\ 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 429. This exemption has 
been renumbered in the amended Rule and is now found at Sec.  
310.6(b)(3).
    \911\ No modifications to Sec.  Sec.  310.6(b)(1) and (2) 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, it is 
necessary to amend Sec.  310.6(b)(3) to exempt charitable 
solicitations that entail a face-to-face meeting before the donor 
pays.
---------------------------------------------------------------------------

    The NPRM pointed out that the Rule Review record contained ample 
evidence of consumers' increasing frustration with unwanted 
telemarketing calls, including those soliciting for pay-per-call 
services or sales appointments.\912\ A number of participants in the 
Rule Review 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.\913\ For these reasons, 
the Commission proposed making face-to-face, franchise, and pay-per-
call transactions subject to the ``do-not-call,'' calling time 
restriction, and certain other abusive practices provisions in Sec.  
310.4.
---------------------------------------------------------------------------

    \912\ 67 FR at 4516-18. One consumer who spoke during the public 
participation portion of the DNC 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. See generally DNC 
Tr. at 241-46 (Mey). See also FTC v. Access Resource Servs., No. 02-
60226 CIV GOLD (S.D. Fla. filed Feb. 13, 2002) (regarding Miss 
Cleo's psychic services where psychics continued to call consumers 
despite repeated requests from the consumer to stop calling).
    \913\ See RR Tr. at 291-96.
---------------------------------------------------------------------------

    Consumer and privacy advocates, as well as state regulators, 
supported the Commission's proposal to make these transactions subject 
to the ``do-not-call'' and certain other provisions of Sec.  
310.4.\914\ They recommended that, in order to be effective, a ``do-
not-call'' registry should have as few exemptions as possible. PRC 
pointed out:
---------------------------------------------------------------------------

    \914\ EPIC-NPRM at 20; PRC-NPRM at 3-4 (there should be no 
exemptions whatsoever from ``do-not-call'' registry); FCA-NPRM at 1-
2 (intrastate calls should not be exempt); NAAG-NPRM at 57; NFDA-
NPRM at 5 (in connection with the face-to-face transaction 
exemption, telemarketers should also be required to comply with the 
oral disclosure requirements of Sec.  310.4(d)).

[T]elemarketing as a business practice transcends the boundaries of 
regulated and unregulated industries. So-called ``cold calling'' is 
a common marketing technique, used by the most established regulated 
entity down to the fraudulent ``boiler room'' that is here today and 
gone tomorrow.
Each type of entity--and all those in between that make unwanted 
telephone calls to a private home--contribute to privacy invasions, 
costs for devices to stop the invasions, and the overall annoyance 
factor voiced so strongly by the public. For this reason, 
telemarketing abuses can only be curtailed if the practice itself-- 
rather than the type of business involved--is subject to the 
Commission's rules.\915\
---------------------------------------------------------------------------

    \915\ PRC-NPRM at 3-4.

    The Commission received no comments opposing application of the 
``do-not-call'' and other abusive practices provisions to pay-per-call 
transactions. With regard to transactions subject to the Commission's 
Franchise Rule, industry commenters expressed concern about ambiguities 
on how the ``do-not-call'' and calling time restrictions would be 
applied when inbound calls are converted to outbound calls.\916\ The 
Commission has addressed this issue in its discussions above of the 
definition of ``outbound call'' and required disclosures in upsell 
transactions. IFA also noted that compliance with a national ``do-not-
call'' registry would be costly, particularly if the registry does not 
contain an exemption for established business relationships and does 
not preempt state ``do-not-call'' laws.\917\ The Commission has 
addressed these issues in its discussion above regarding the national 
``do-not-call'' registry.
---------------------------------------------------------------------------

    \916\ Car Wash Guys-NPRM at 51-56; IFA-NPRM at 2; NFC-NPRM at 3.
    \917\ IFA-NPRM at 2.
---------------------------------------------------------------------------

    Face-to-face transactions: Industry commenters generally opposed 
making face-to-face transactions subject to the ``do-not-call,'' 
calling time restriction, and certain other abusive practices 
provisions.\918\ These commenters argued that face-to-face transactions 
should continue to be exempt because their practices are already 
heavily regulated by the states and by the Commission through other FTC 
rules and thus are less susceptible to abusive practices.\919\ However, 
the national ``do-not-call'' registry is not focused on fraud, but 
rather on consumer privacy. The Commission agrees that the incidence of 
fraud may be diminished in face-to-face transactions, where the 
transactions are subject to regulation by other Commission rules or by 
state regulations. For that reason, the Commission has retained the 
exemption for face-to-face transactions from the provisions of the Rule 
that address deceptive or other abusive practices. However, the 
commenters failed to provide arguments showing why they should be 
exempted from regulations covering the particular abusive practices set 
forth in the Commission's proposal-- i.e., a national ``do-not-call'' 
registry, calling time restrictions, the prohibition against denying or 
interfering with a consumer's right to be placed on a ``do-not-call'' 
list, the requirement to transmit Caller ID information, and the 
prohibition against threats and intimidation.
---------------------------------------------------------------------------

    \918\ See generally Craftmatic-NPRM; DSA-NPRM; NAR-NPRM; ICFA-
NPRM at 2-3; Insight-NPRM. See also June 2002 Tr. III at 157-226. 
But see ARDA-NPRM at 2, 7-9, which supports creation of a national 
``do-not-call'' registry as long as the registry preempts state laws 
and the Commission provides an exemption for established business 
relationships.
    \919\ See, e.g. DSA-NPRM at 6-7; NAR-NPRM at 4; June 2002 Tr. 
III 157-226.
---------------------------------------------------------------------------

    NAR argued that Congress intended the TSR to address abusive, 
deceptive, and fraudulent telemarketing practices, not to regulate or 
prohibit a single telephone call from a real estate professional that 
simply provides information to a consumer.\920\ Transactions subject to 
the Commission's amended Rule (and thus subject to the national ``do-
not-call'' registry) are those that fall within the definition of 
``telemarketing,'' i.e., ``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.''\921\ A single, isolated telephone 
call would not be part of a plan, program, or campaign and thus would 
not fall within the definition of ``telemarketing.'' Furthermore, it is 
unlikely that the majority of real estate agents conduct campaigns of 
outbound calls to solicit potential customers who live out-of-state. 
Most of the outbound solicitation calls made by real estate agents are 
probably intrastate calls that would be excluded from the Rule's 
coverage. However, if a real estate agent routinely places outbound 
calls to solicit potential customers in other states, those calls, in 
the aggregate, would fall within the definition of ``a plan, pattern, 
or campaign'' of outbound calls and would be subject to the Rule.
---------------------------------------------------------------------------

    \920\ NAR-NPRM at 1-2. Similarly, DSA notes that many of the 
calls by direct sellers involve single telephone calls to 
individuals with whom the seller has a personal relationship. DSA 
maintains that calls to individuals with whom an on-going commercial 
or personal relationship exists are reasonable, frequently welcome, 
and expected by the consumer, and therefore suggests that the 
Commission provide an exemption for a prior business or personal 
relationship. DSA-NPRM at 5-8. As discussed above in the section 
regarding the national ``do-not-call'' registry, the amended Rule 
provides an exemption for ``established business relationships.''
    \921\ Amended Rule Sec.  310.2(cc).
---------------------------------------------------------------------------

    NAR also argued that a call to set up a meeting does not fall 
within the definition of ``telemarketing'' because such calls do not 
involve the inducement to purchase using the telephone, but rather non-
deceptive

[[Page 4656]]

communication of information about services that are not offered or 
made available for purchase in a phone conversation.\922\ However, the 
definition of ``telemarketing'' does not require that the purchase be 
made during the telephone conversation. The definition simply states 
that the call be ``conducted to induce the purchase of goods or 
services.'' The inducement could be made during the telephone call, or 
it could be in the form of setting up a subsequent face-to-face meeting 
at which an additional sales presentation could take place.
---------------------------------------------------------------------------

    \922\ NAR-NPRM at 3-4. See also ICFA-NPRM at 1-2 (regarding 
funeral goods and services).
---------------------------------------------------------------------------

    In summary, 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 of the 
consumer's right to privacy, as well as restrictions on calling 
times.\923\ The rulemaking record shows that face-to-face transactions 
are not less susceptible to certain abusive practices prohibited in 
Sec.  310.4.\924\ For this reason, the Commission has determined that 
telemarketing calls to solicit a face-to-face presentation or the 
purchase of pay-per-call services should be subject to certain Rule 
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.
---------------------------------------------------------------------------

    \923\ 15 U.S.C. 6102(a)(1) and (3)(A)-(B).
    \924\ See Gindin-RR at 1; Mey-RR generally; DNC Tr. at 241-46; 
RR Tr. at 291-95.
---------------------------------------------------------------------------

    Therefore, the Commission retains the exemptions for pay-per-call 
services, franchising, and face-to-face transactions set out in 
Sec. Sec.  310.6(b)(1)-(3), but amends the TSR to require that 
telemarketers making these types of calls comply with Sec. Sec.  
310.4(a)(1) and (7), and Sec. Sec.  310.4(b) and (c). The amended Rule 
continues to exempt such calls from the requirements of Sec.  310.3 
relating to deceptive practices and from the recordkeeping requirements 
set out in Sec.  310.5.\925\ 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 amended Rule 
requires that, even when a call falls within these exemptions, a 
telemarketer may not engage in the following practices:
---------------------------------------------------------------------------

    \925\ 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)(3) regarding compliance with the amended 
Rule's ``do-not-call'' requirements. The safe harbor relating to 
abandoned calls, discussed in Sec.  310.4(b)(4), also includes a 
requirement to maintain certain records.
---------------------------------------------------------------------------

[sbull] threatening or intimidating a customer, or using obscene 
language;
[sbull] failing to transmit Caller ID information;
[sbull] causing any telephone to ring or engaging a person in 
conversation with intent to annoy, abuse, or harass the person called;
[sbull] denying or interfering with a persons's right to be placed on a 
``do-not-call'' registry;
[sbull] calling persons whose telephone numbers have been placed on the 
national ``do-not-call'' registry maintained by the Commission, unless 
an established business relationship exists between the seller and the 
person (telemarketers seeking charitable solicitations are exempted 
from this requirement);
[sbull] calling persons who have placed their names on that seller's or 
charitable organization's ``do-not-call'' list; and
[sbull] calling outside the time periods allowed by the Rule.

Sec.  310.6(b)(4) -- Inbound calls not in response to a solicitation

    The amended Rule revises Sec.  310.6(b)(4) to expressly except from 
the exemption any upsell following an exempt transaction initiated by 
the consumer. When the Commission issued the original Rule in 1995, 
this exemption was intended to apply to a single telemarketing 
transaction initiated by the consumer without any solicitation by the 
seller or telemarketer. Since then, the practice of upselling has 
emerged, and has grown dramatically, particularly in the inbound 
telemarketing context. The reasons for exempting a telemarketing 
transaction pursuant to Sec.  310.6(b)(4) do not apply to an upsell 
linked to that initial transaction.
    Section 310.6(b)(4) of the amended Rule exempts calls initiated by 
consumers without solicitation by the seller or telemarketer because 
such calls are not part of a ``plan, program, or campaign to induce the 
purchase of goods or services.''\926\ Thus, these calls do not fall 
within the definition of ``telemarketing.'' The exemption was intended 
to cover
---------------------------------------------------------------------------

    \926\ See S. REP. NO. 103-80, at 8 (1993).

incidental uses of the telephone that are not in response to a 
direct solicitation, e.g., calls from a customer to make hotel, 
airline, car rental, or similar reservations, to place carry-out or 
restaurant delivery orders, or to obtain information or customer 
technical support.\927\
---------------------------------------------------------------------------

    \927\ 60 FR at 43860.

Furthermore, in these calls, the consumer presumably is in control of 
the transaction that the consumer initiated, absent any outbound call 
or direct mail piece.
    In contrast, the upsell is a direct solicitation for a product or 
service other than that for which the consumer initiated the call. As 
such, upsells are part of a telemarketing ``plan, program, or campaign 
to induce the purchase of goods or services'' and thus do fall within 
the definition of ``telemarketing.'' Furthermore, in upsells, the 
consumer does not initiate the sales transaction; the sales 
solicitation is initiated by the seller. When the consumer initiates an 
unsolicited inbound call, the consumer does not necessarily expect to 
be offered a good or service during the course of that call (such as in 
the case of a technical support call), or to be offered additional 
goods or services (in the case where the consumer was calling to make a 
purchase). Some commenters suggested that upsells appended to inbound 
calls should be exempted.\928\ However, the Commission's experience 
indicates that upsells appended to unsolicited inbound calls open the 
door to potential deception and abuse in the subsequent upsell 
transaction.\929\ Accordingly, the amended Rule excepts upsell 
transactions from the exemption provided for unsolicited inbound calls 
by consumers in Sec.  310.6(b)(4).
---------------------------------------------------------------------------

    \928\ See, e.g., AFSA-NPRM at 15.
    \929\ Indeed, NAAG noted that the states' law enforcement 
experience revealed that upsells often proved problematic when 
appended to inbound calls initiated by the consumer, or by general 
media advertisements. NAAG-NPRM at 33 (``[Upsells] are usually 
inbound calls during which the company receiving the call completes 
the purpose for which the consumer initiated the call and then 
entices the consumer to consider another seller's products. The 
upsell can follow either a sales call or a call related to customer 
service such as a call about an account payment or product 
repair.'') See, e.g., New York v. Ticketmaster and Time, Inc., 
(Assurance of Discontinuance).
---------------------------------------------------------------------------

    There was substantial comment on the potential cost of subjecting 
upsells associated with inbound calls to any provisions beyond the 
Rule's disclosure requirements.\930\ The original Rule exempted most 
inbound calls entirely, since most would fall within either this 
exemption for calls initiated by the consumer, or into renumbered 
Sec. Sec.  310.4(b)(5) or (6) for general media advertisements or 
certain direct mail solicitations--each of which is discussed below. As 
a result, sellers and telemarketers were not required to

[[Page 4657]]

comply with the Rule's recordkeeping requirements with respect to these 
exempt telephone calls. While the amended Rule retains these exemptions 
(although with some modification), upsell transactions are excluded 
from those exemptions. Thus, to the extent that the Rule requires that 
records be maintained, including recordings of express verifiable 
authorization or express informed consent, such records must be 
maintained regarding these inbound upsells.
---------------------------------------------------------------------------

    \930\ See, e.g., DMA-NPRM at 38; ERA-NPRM at 11; PMA-NPRM at 9-
13.
---------------------------------------------------------------------------

    Commenters expressed concern primarily about the potential need for 
sellers and telemarketers to record certain inbound transactions.\931\ 
These commenters suggested that call centers accustomed to handling 
only inbound telemarketing calls were not necessarily equipped with 
recording equipment, and that obtaining and implementing the necessary 
systems would be prohibitively expensive for many such 
organizations.\932\ However, the Commission notes that taping is 
required only in one circumstance: under new Sec.  310.4(a)(6)(i)(C), 
the seller or telemarketer must make and maintain a recording of the 
entire sales transaction any time a telemarketing transaction involves 
both preacquired account information and a ``free-to-pay conversion'' 
feature.\933\ In instances where it is necessary to obtain the 
consumer's express verifiable authorization pursuant to Sec.  
310.3(a)(3), the amended Rule provides alternatives to making a 
recording of the consumer's oral authorization.\934\ Thus, the number 
of industry members who would be required to obtain recording equipment 
is relatively limited. Moreover, with the growth of digital recording 
technology, the capital investment in recording equipment and record 
storage is rapidly declining.\935\
---------------------------------------------------------------------------

    \931\ CCC-NPRM at 12-13; June 2002 Tr. II at 224 (CCC); June 
2002 Tr. II at 232-33 (MPA).
    \932\ CCC-NPRM at 12-13; June 2002 Tr. II at 224 (CCC); MPA-NPRM 
at 28-29; June 2002 Tr. II at 232-33 (MPA).
    \933\ See discussion of Sec.  Sec.  310.2(o) and (w), and Sec.  
310.4(a)(6) above for a detailed explanation of these provisions.
    \934\ See discussion of Sec.  310.3(a)(3) above.
    \935\ See note 480 above.
---------------------------------------------------------------------------

    CCC argued that in inbound calls not currently subject to the Rule, 
the impact of these amendments would be to ``unnecessarily increase 
inbound call length by 50 percent or more and thereby increase the cost 
of goods or services to consumers.''\936\ CCC also suggested that 
additional recordkeeping, ``public disclosure,'' and taping 
requirements will be overly burdensome.\937\ While the Commission 
recognizes that, to the extent telemarketers have not been subject to 
the Rule, there is potential for additional burdens, the obligations of 
the Rule are minimal, and generally reflect regular practices already 
in place for most sellers and telemarketers in the ordinary course of 
business--such as the basic disclosure requirements, prohibition on 
misrepresentations, and recordkeeping requirements.\938\ Moreover, the 
taping requirement is limited to those transactions that involve both 
preacquired account information and a ``free-to-pay conversion'' offer. 
Thus, only those sellers and telemarketers that choose to structure 
their upselling campaigns in this fashion will be subject to this 
additional requirement. The Commission therefore believes that any 
additional burden caused by these new requirements will be minimal. 
Ultimately, the Commission believes that the benefits to consumers of 
receiving the appropriate disclosures in an upsell transaction outweigh 
the costs to industry of providing those disclosures and ensuring that 
any charges are authorized by the consumer.
---------------------------------------------------------------------------

    \936\ CCC-NPRM at 16.
    \937\ Id.
    \938\ 60 FR at 32682-83 (June 23, 1995).
---------------------------------------------------------------------------

    Additionally, it should be clear that telephone calls initiated by 
a customer or donor in response to a telemarketer's transmission of 
Caller ID information or use of a recorded message under the abandoned 
call safe harbor provision described in Sec.  310.4(b)(4) are excepted 
from this exemption, as the customer or donor in this context would 
have had no reason to initiate a telephone call but for the 
solicitation efforts of the seller, charitable organization, or 
telemarketer. The transmission of Caller ID information and the use of 
a recorded message are considered forms of solicitation by a seller, 
charitable organization, or telemarketer under this exemption because 
they are part of a telemarketer's efforts to induce the purchase of 
goods or services or a charitable contribution. Although the 
information displayed on a consumer's caller identification service or 
provided via a recorded message will not include a sales pitch, it is a 
``result of [a] solicitation'' and therefore outside the scope of the 
exemption described in this section.

310.6(b)(5) -- Exemption for general media advertisements

    The Commission received few comments addressing its proposal to 
narrow the general media exemption by adding two additional categories 
of goods or services to the list of its exceptions: credit card loss 
protection plans, and business opportunities other than those covered 
by the Franchise Rule or any subsequent rule covering business 
opportunities the Commission may promulgate.\939\ The proposed 
expansion of the exemption to cover charitable solicitations pursuant 
to the USA PATRIOT Act yielded no comments.
---------------------------------------------------------------------------

    \939\ This section was found at Sec.  310.6(e) in the proposed 
Rule.
---------------------------------------------------------------------------

    Several of the commenters who addressed the general media exemption 
opposed having any exemption at all for general media, and therefore 
supported any effort to narrow it.\940\ NCL stated that if the 
Commission determined to retain the general media exemption, it 
supported the addition of credit card loss protection plans and 
business opportunities other than those covered by the Franchise Rule 
to the list of goods and services excepted from the exemption. In 
support of its position, NCL noted that in 35 percent of the work-at-
home complaints made to the NFIC in the year 2001, consumers reported 
that they were solicited through print media.\941\ Since work-at-home 
solicitations are not ``business arrangements covered by the Franchise 
Rule,'' the exception from the general media exemption will now ensure 
that inbound calls in response to general media advertisements touting 
work-at-home opportunities will be subject to the Rule. NCL also noted 
that although most of the solicitations for credit card loss protection 
plans were made by telephone, these services should be covered by the 
Rule regardless of how they are promoted ``given the egregious nature 
of these complaints.''\942\
---------------------------------------------------------------------------

    \940\ See, e.g., EPIC-NPRM at 25-26; NCL-NPRM at 12; NAAG-NPRM 
at 58; June 2002 Tr. III at 177, 182-83 (NAAG has historically 
opposed the exemption; AARP supports NAAG position).
    \941\ NCL-NPRM at 12.
    \942\ Id.
---------------------------------------------------------------------------

    While commenters and forum participants generally endorsed the 
proposed narrowing of the general media exemption, some urged the 
Commission to reconsider whether a general media exemption is 
``appropriate and workable,'' arguing that consumers who call in 
response to such advertisements are vulnerable to fraud and deception 
unless certain minimal disclosures are made.\943\ NCL acknowledged that 
the Commission could combat such deception using its authority under 
Section 5 of the FTC Act, but argued that consumer injury could better 
be prevented if disclosures

[[Page 4658]]

were required. NCL further advanced the proposition that all 
telemarketers should be subject to the express verifiable authorization 
requirements when consumers' accounts will be billed, regardless of 
whether calls are outbound or inbound, and, in the latter instance, 
even when such calls are in response to an advertisement delivered by 
general media or direct mail.\944\ EPIC noted its position that 
``[g]eneral media advertising may be deceptive, abusive or merely lack 
the information required to be disclosed under the Rule, thus 
substantially reducing the level of protection otherwise afforded to 
consumers by the Rule.''\945\
---------------------------------------------------------------------------

    \943\ Id. See also June 2002 Tr. III at 177-83 (NAAG and AARP).
    \944\ NCL-NPRM at 12.
    \945\ EPIC-NPRM at 25-26.
---------------------------------------------------------------------------

    The Commission declines to adopt these recommendations to further 
regulate inbound calls resulting from general media advertisements. In 
the SBP issued with the original Rule, the Commission explained that in 
its experience ``calls responding to general media advertising do not 
typically involve the forms of deception and abuse the Act seeks to 
stem.''\946\ The Commission's experience since the promulgation of the 
Rule continues to support the exemption for general media advertising, 
with targeted exceptions for certain goods or services that have 
routinely been touted by fraudulent sellers using general media 
advertising to generate inbound calls. In response to the suggestion 
that express verifiable authorization be required in all telemarketing 
transactions when the consumer's account will be billed, the Commission 
notes that the parameters of the amended express verifiable 
authorization provision, and the Commission's rationale in adopting it, 
are discussed above in the analysis of Sec.  310.3(a)(3).\947\
---------------------------------------------------------------------------

    \946\ 60 FR at 43860.
    \947\ The Commission also notes that new Sec.  310.4(a)(6) 
requires that, in every instance, a seller or telemarketer secure 
the consumer's express informed consent to be charged for the goods 
or services or charitable contribution, and to be charged using the 
identified account.
---------------------------------------------------------------------------

    NAAG expressed concern about the growing number of sellers of 
membership or buying club opportunities that operate using an 
``upsell'' technique after an initial inbound call is placed by 
consumers in response to an advertisement for a completely different 
product.\948\ NAAG suggested that the Commission amend the general 
media exemption to ensure that the Rule does not inadvertently exempt 
upselling transactions that occur when a consumer calls a seller or 
telemarketer in response to a general media advertisement.\949\ The 
Commission agrees that this scenario would be an unwelcome consequence 
of the provision's wording and thus has amended this provision to 
clarify that the exemption may not be claimed in any instances of 
upselling that occur in the call.
---------------------------------------------------------------------------

    \948\ NAAG-NPRM at 58-59.
    \949\ Id. See also EPIC-NPRM at 25 (agreeing that upselling 
calls should be subject to the Rule). Cf. Capital One-NPRM at 5 
(requesting clarification that upselling calls are exempt, at least 
in an internal upsell).
---------------------------------------------------------------------------

    NAAG also recommended that the list of exceptions to the general 
media exemption be expanded to include other transactions that involve 
a high risk of abuse, such as discount buyers clubs and offers 
involving ``opt out free trials.''\950\ The Commission agrees that the 
telemarketing of these products or services frequently involves 
fraudulent or deceptive practices. However, there is no evidence on the 
record indicating that these products or services are telemarketed 
through general media advertisements. Rather, the states and the 
Commission have brought law enforcement actions challenging the 
deceptive telemarketing of these products predominantly when they are 
sold via outbound cold calls or in upselling, after the consumer has 
called to purchase another product or service in response to a general 
media advertisement.\951\ As discussed above, the amended Rule contains 
a modified general media exemption, which makes the exemption 
unavailable to upselling transactions that occur in a call in response 
to a general media advertisement. In addition, the amended Rule 
contains specific requirements for negative option, ``free-to-pay 
conversion,'' and upselling transactions.\952\ Therefore, the 
Commission finds it unnecessary to except discount buyers clubs and 
offers involving ``opt out free trials'' from the general media 
exemption.
---------------------------------------------------------------------------

    \950\ NAAG-NPRM at 59.
    \951\ See, e.g., FTC v. Smolev., No. 01-8922 CIV ZLOCH (S.D. 
Fla. 2001); New York v. MemberWorks, Inc., Assurance of 
Discontinuance (Aug. 2000); Minnesota v. MemberWorks, Inc., No. 
MC99-010056 (4th Dist. Minn. 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. Soc'y, Inc., No. 2:97 CM 472 
(E.D. Va. filed May 31, 1997).
    \952\ See amended Rule Sec.  Sec.  310.3(a)(1)(vii), 
310.3(a)(2)(ix), 310.3(a)(3)(iii), 310.4(a)(6), 310.4(a)(7), and 
310.4(d).
---------------------------------------------------------------------------

    DSA opposed the amendment of the general media exemption provision, 
expressing the concern that the exception for ``business opportunities 
other than business arrangements covered by the Franchise Rule'' will 
require individual direct sellers to comply with the Rule when they 
solicit customers or salespeople through general media 
advertisements.\953\ DSA argues that ``[t]here is nothing inherently 
deceptive or abusive about communications over the telephone 
(particularly those initiated by the consumer) regarding a business 
opportunity'' and that ``there should be even fewer concerns about 
communications related to prospective transactions involving activities 
clearly deemed de minimis by the Franchise Rule.''\954\ As the 
Commission stated in the NPRM, it has determined, based on the record 
and in particular on its extensive law enforcement experience in this 
area, that ``telemarketing fraud perpetrated by the advertising of 
work-at-home and other business opportunity schemes in general media 
sources is a prevalent and growing phenomenon.''\955\ Outbound 
telephone calls to induce the purchase of a business opportunity not 
regulated by the Franchise Rule have been subject to the Rule's 
coverage since it was promulgated, and the new exception for general 
media advertisements merely expands that requirement when an inbound 
call results from the advertisement of such ventures in the general 
media.\956\ Moreover, if a direct seller is marketing its underlying 
product to customers, the exception would not bring such activity under 
the Rule because it would not implicate the sale of a business 
opportunity.\957\ Furthermore, as the Commission noted in the SBP for 
the original Rule, DSA's concern about recruitment of persons to engage 
in the direct sale of goods or services is likely unfounded because the 
face-to-face exemption takes such efforts outside the Rule's 
coverage.\958\
---------------------------------------------------------------------------

    \953\ DSA-NPRM at 8-9.
    \954\ Id.
    \955\ 67 FR at 4530-31 (this determination is equally applicable 
to the advertisement by direct mail of business opportunities other 
than business arrangements covered by the Franchise Rule).
    \956\ The Commission noted in the original SBP that ``[w]hen a 
business venture is not covered by the Franchise Rule, then 
consumers do not receive the protection afforded by that Rule's pre-
sale disclosure requirements. Therefore, it is appropriate that 
telephone sales of such ventures should be covered by this Rule, so 
that consumers may receive the benefit of its protections.'' 60 FR 
at 4360. The addition of the exception provisions to the direct mail 
and general media exemptions merely expands upon the initial 
requirement.
    \957\ For example, the exception to the general media exemption 
would bring under the Rule an effort by a direct seller to recruit 
others to market its products, but not the sale by the direct seller 
of cosmetics to its own end-customers.
    \958\ 60 FR at 43860, n.185.
---------------------------------------------------------------------------

    Based on its review of the record in this matter, and its law 
enforcement experience, the Commission has determined to retain the 
proposed general media provision in the amended

[[Page 4659]]

Rule with two changes. First, the phrase ``or any subsequent rule 
covering business opportunities the Commission may promulgate'' has 
been deleted in the amended Rule. Should the Commission promulgate a 
rule covering business opportunities, the nexus between the TSR and any 
such rule will be considered, and any necessary conforming amendments 
made to the TSR at that time. Second, Sec.  310.6(b)(5) has also been 
amended to expressly except from the general media exemption any upsell 
following the exempt transaction associated with the general media 
solicitation. As with telephone calls initiated by the consumer without 
any solicitation by the seller or telemarketer, the reasons for 
exempting a telemarketing transaction following certain general media 
solicitations do not apply to an upsell linked to that initial 
transaction.\959\ The original Rule exempts calls in response to a 
general media advertisement because ``calls responding to general media 
advertising do not typically involve the forms of deception and abuse 
the Act seeks to stem.''\960\ However, the Commission recognized that 
some fraudulent telemarketers and sellers have used general media 
advertisements to entice victims to call, and thus has excepted those 
problem areas from the exemption. Upselling is one of the problem areas 
where general media advertisements have provided the opening for 
subsequent deception and abuse.\961\ In addition, an upsell transaction 
is not similar to a general media advertisement. It is a wholly new 
sales offer targeted at the consumer a seller or telemarketer has on 
the line for some other purpose, whether it be in response to a general 
media advertisement about a different product or service, or a customer 
service call initiated by the consumer. Accordingly, the amended Rule 
excepts upsell transactions from the general media exemption in Sec.  
310.6(b)(5).
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    \959\ The reasons for this exception are explained in greater 
detail in the discussion of amended Rule Sec.  310.6(b)(4) above.
    \960\ 60 FR at 43860.
    \961\ FTC v. Smolev (a/k/a Triad Discount Buying Service) is one 
example of an internal upsell triggered by consumer response to a 
general media advertisement. Smolev, No. 01-8922-CIV ZLOCH (S.D. 
Fla. 2001). New York v. Ticketmaster (Settlement announced on Jan. 
7, 2002).
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Sec.  310.6(b)(6) -- Exemption for direct mail solicitations

    Section 310.6(b)(6) of the original Rule exempts from the Rule's 
requirements inbound telephone calls resulting from a direct mail 
solicitation that clearly, conspicuously, and truthfully disclosed all 
material information required by Sec.  310.3(a)(1). Certain categories 
of transactions, specifically those in which the solicitation was for a 
prize promotion, investment opportunity, credit repair service, 
``recovery'' service, or advance fee loan, were excepted from this 
exemption because the record and the Commission's law enforcement 
experience made clear that these particular products and services were 
so often subject to abuse by fraudulent telemarketers that regulation 
under the TSR was appropriate.
    The proposed Rule retained the direct mail exemption provision, but 
clarified that advertisements sent via facsimile or electronic mail 
were considered direct mail for purposes of this exemption.\962\ The 
proposed Rule also added two new categories of transactions to be 
excepted from the direct mail exemption: credit card loss protection 
plans and business opportunities other than those covered by the 
Franchise Rule or any subsequent Rule covering business opportunities 
the Commission may promulgate. Finally, pursuant to the USA PATRIOT 
Act, the proposed Rule expanded the exemption to exclude from the 
Rule's coverage inbound calls to solicit a charitable contribution made 
in response to a direct mail solicitation that complies with Sec.  
310.3(a)(1).
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    \962\ The direct mail exemption provision is found in the 
proposed Rule at Sec.  310.6(f).
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    The Commission has determined, based on a review of the record and 
its own law enforcement experience, to adopt the proposed amendments to 
the direct mail exemption, renumbered in the amended Rule as Sec.  
310.6(b)(6). The amended Rule, however, differentiates between the 
requirements for direct mail solicitations for goods or services and 
direct mail solicitations for charitable contributions. The amended 
Rule retains unchanged the requirements of the original Rule--i.e., the 
direct mail solicitation must clearly, conspicuously, and truthfully 
disclose all material information required by Sec.  310.3(a)(1). 
However, because Sec.  310.3(a)(1) applies only to goods and services 
and not to charitable solicitations, the amended Rule modifies the 
direct mail exemption language to ensure that prospective donors who 
receive direct mail solicitations for charitable contributions have 
protections similar to those enjoyed by consumers who purchase goods or 
services. Thus, the amended Rule adds language to the direct mail 
exemption provision prohibiting material misrepresentations regarding 
any item contained in Sec.  310.3(d) in charitable solicitations sent 
by direct mail to donors.
    In the proposed Rule, the Commission stated that the direct mail 
exemption would be applicable to inbound calls made in response to a 
direct mail charitable solicitation that complies with Sec.  
310.3(a)(1). NAAG suggested that inbound calls resulting from a direct 
mail charitable solicitation be exempt instead if the direct mail piece 
clearly, conspicuously, and truthfully sets forth the disclosure in 
Sec.  310.4(e)(1) (the identity of the charitable organization) and the 
fact that the organization is soliciting a charitable 
contribution.\963\ NAAG further recommended that, at a minimum, several 
categories of information (including the nature of the goods or 
services and the facts relating to a charitable contribution) deemed 
important to consumers and donors be expressly referenced in Sec.  
310.6(f).\964\ The Commission agrees that the specific disclosures 
required by Sec.  310.3(a)(1)--targeted at the sale of goods or 
services--are an imperfect fit with the type of information a potential 
donor would need to determine if he or she wished to contact a 
charitable organization in response to a solicitation received via 
direct mail. Therefore, the amended Rule requires that, in order for 
the telemarketer to take advantage of the direct mail exemption for 
inbound calls in response to any direct mail charitable solicitation, 
such solicitation contain no material misrepresentation regarding any 
item contained in Sec.  310.3(d) of the Rule.
---------------------------------------------------------------------------

    \963\ NAAG-NPRM at 59-60.
    \964\ Id.
---------------------------------------------------------------------------

    Section 310.6(b)(6) has also been amended to expressly except from 
the direct mail exemption any upsell following the exempt transaction 
associated with the direct mail advertisement. As with telephone calls 
initiated by the consumer without any solicitation by the seller or 
telemarketer, or in response to general media solicitations, the 
reasons for exempting a telemarketing transaction triggered by a direct 
mail advertisement do not apply to an upsell linked to that initial 
transaction.\965\ Section 310.6(b)(6) of the amended Rule exempts 
direct mail solicitations only if the disclosures required by Sec.  
310.3(a)(1) are truthfully, clearly, and conspicuously provided in the 
direct mail piece. The Commission

[[Page 4660]]

exempted these direct mail solicitations because such solicitations
---------------------------------------------------------------------------

    \965\ The reasons for this exception are discussed in greater 
detail in the explanation of Sec. Sec.  310.6(b)(4) and (5) above. 
Capital One requested clarification of the applicability of this 
exemption to upselling transactions. Capital One-NPRM at 5-6. EPIC 
requested that upselling be subject to the Rule. EPIC-NPRM at 25.

are not uniformly related to the forms of deception and abuse the 
Act seeks to stem, nor are they uniformly related to such 
misconduct. Rather, in certain discrete areas of telemarketing, such 
solicitations often provide the opening for subsequent deception and 
abuse. The Commission has drawn upon its enforcement experience, 
identified those problem areas, and excluded them from this 
exemption.\966\
---------------------------------------------------------------------------

    \966\ 60 FR at 43860.

Upselling transactions are one of the problem areas where direct mail 
solicitations have provided the opening for subsequent deception and 
abuse.\967\ Upon receiving a direct mail solicitation in which all of 
the material terms of the offer may be available to evaluate in the 
direct mail piece, the consumer has the time and the information 
necessary to make an informed decision whether to call and inquire 
further or make a purchase. By contrast, an upsell presentation 
provides the consumer no opportunity to review the material disclosures 
pertinent to the offer. Once again, the upsell is more akin to an 
unsolicited outbound call to the consumer, who does not necessarily 
expect to be solicited for a purchase, and who has none of the material 
information he or she needs to evaluate the offer and make a purchasing 
decision. Accordingly, the amended Rule excepts upselling transactions 
from the direct mail exemption in Sec.  310.6(b)(6).
---------------------------------------------------------------------------

    \967\ See, e.g., United States v. Prochnow, No. 1 02-cv-917 
(N.D. Ga. 2002).
---------------------------------------------------------------------------

    Finally, the phrase ``or any subsequent rule covering business 
opportunities the Commission may promulgate'' has been deleted in the 
amended Rule. Should the Commission promulgate a rule covering business 
opportunities, the nexus between the TSR and any such rule will be 
considered, and any necessary conforming amendments made to the TSR at 
that time.
    Facsimile and electronic mail solicitations as ``direct mail'': NCL 
and ARDA supported the Commission's view that facsimile and electronic 
mail solicitations are analogous to direct mail sent via the U.S. 
Postal Service, and should be considered direct mail for purposes of 
the exemption.\968\ NCL noted that facsimile (``fax'') or electronic 
mail (``email'') solicitations are often sent to promote fraudulent 
goods or services.\969\ For example, in ``Nigerian money offer'' 
schemes, the fastest growing category of telemarketing fraud reported 
to NCL, faxes and emails are the primary methods of solicitation.\970\ 
NCL noted that faxes and email are also used to solicit businesses for 
a variety of telemarketing scams.\971\ DMA also supported the 
interpretation that advertisements sent via fax or email should be 
considered as ``direct mail'' pieces for purposes of the Rule.\972\
---------------------------------------------------------------------------

    \968\ See ARDA-NPRM at 17; NCL-NPRM at 12.
    \969\ See NCL-NPRM at 12.
    \970\ Id.
    \971\ Id.
    \972\ See DMA-NPRM at 56.
---------------------------------------------------------------------------

    Some commenters opposed the inclusion of fax and email 
advertisements in the exemption,\973\ and some expressed concern that 
the Commission's interpretation could actually increase the number of 
unwanted solicitations sent to consumers by fax and email.\974\ NCL 
stated that unsolicited fax advertisements were prohibited under the 
TCPA because of their intrusive impact on recipients' privacy, and 
expressed concern that exempting calls in response to unsolicited faxes 
from the Rule, even if the information in them is accurate and 
complete, ``would ignore this important public policy 
determination.''\975\ NCL recommended that the Commission ban the 
sending of unsolicited fax advertisements as an abusive practice under 
the Rule.\976\
---------------------------------------------------------------------------

    \973\ See, e.g., EPIC-NPRM at 26.
    \974\ See, e.g., CNO-NPRM at 6; NCL-NPRM at 12.
    \975\ See NCL-NPRM at 12-13.
    \976\ NCL-NPRM at 13.
---------------------------------------------------------------------------

    The record in this matter provides no support for the assertion 
that the number of unwanted, but truthful, fax and email solicitations 
may increase as a result of being exempted from the TSR. The Commission 
notes that the TCPA, enforced by the FCC, already bans unsolicited fax 
messages.\977\ The FCC has promulgated rules effectuating the 
Congressional ban and has enforced those regulations.\978\ Thus, the 
Commission's determination that, for the purposes of the TSR, faxes and 
email are forms of ``direct mail'' should have no impact on the number 
of unsolicited faxes that are sent. To presume such would be to 
anticipate that sellers would blatantly ignore the FCC's regulations. 
To be entirely clear, however, the Commission wishes to state that its 
interpretation of the term ``direct mail'' in no way alters the 
legality of the underlying direct mail contact. Rather, the new TSR 
provision will require that, to the extent that a fax or email 
solicitation is allowed by law, these direct mail solicitations must 
include the required disclosures, or else resulting inbound calls from 
consumers will be subject to the entire TSR.\979\
---------------------------------------------------------------------------

    \977\ 47 U.S.C. 227(b). In its recent Notice of Proposed 
Rulemaking, the FCC noted that complaints about unsolicited faxes 
have been steadily increasing, from 519 in 1996 to over 2100 in 
2000. FCC TCPA 2002 (see note 633 above), at para. 8. There is no 
suggestion in the FCC's NPRM that a spike in the actual number of 
unsolicited faxes has occurred or that any increase is attributable 
to the FTC's determination that faxes and email are forms of direct 
mail for purposes of the TSR.
    \978\ 47 CFR 64.1200(a)(3). See also FCC Press Release: ``FCC 
Cracks Down on `Junk Fax' Violations,'' http://www.fcc.gov/cgb/news/080802.junkfax.html; FCC's 2002 NPRM at para. 7, n.40.
    \979\ If the fax or email advertisement is sent in violation of 
state or other federal law, the sender would be liable under those 
federal or state laws, but not under the TSR, unless the fax or 
email also failed to include the requisite disclosures and the 
seller or telemarketer, in any subsequent telemarketing effort, 
failed to abide by the Rule.
---------------------------------------------------------------------------

    Although it favored the Commission's proposed interpretation which 
viewed faxes and email as ``direct mail'' for purposes of the Rule, DMA 
argued that the Rule should allow the disclosures of material 
information to be made in the telephone call, rather than in the fax or 
email advertisement.\980\ As support for its position, DMA stated that 
to do otherwise could result in increased expense to sellers who use 
email to reach their target audience, due to the increased length of 
the message. DMA further argued that the Commission lacks authority to 
dictate the content of either email or fax advertisements. Finally, DMA 
posited that, if the intent of the provision is to mandate disclosures, 
the NPRM failed to evaluate the costs of requiring such disclosures, 
particularly in email solicitations.\981\
---------------------------------------------------------------------------

    \980\ DMA-NPRM at 58 (``The types of disclosures proposed by the 
Commission are worthwhile, so long as they can be provided over the 
phone by the telemarketer.''). See also Associations-NPRM at 4; 
Associations-Supp. at 8.
    \981\ In their supplemental comment, Associations, of which DMA 
is a member, noted only that inclusion of the required disclosures 
in an email or fax ``imposes significant costs on businesses. 
Particularly on email communications, `real estate' and location 
have significant financial value.'' Associations-Supp. at 8. This 
mere assertion remains all that exists on the record regarding the 
cost of requiring the Sec.  310.3(a)(1) disclosures in an email or 
fax, and the Commission finds this insufficient to cause it to 
reconsider its position based on the financial harm argument 
asserted by Associations.
---------------------------------------------------------------------------

    The Commission believes that, to warrant exemption of the inbound 
call in response to a direct mail solicitation from the Rule, it is 
critical that a consumer receive the required disclosures (or, in the 
case of a charitable solicitation, that the solicitation not contain 
misrepresentations) at the time the consumer contemplates contacting 
the seller or charitable organization by telephone. The amended Rule 
follows the reasoning of the original Rule, which requires that any 
direct mail

[[Page 4661]]

solicitation contain the required disclosures in order to afford the 
consumer an opportunity to know certain material information before 
determining whether to call the telemarketer. Apart from DMA's comment, 
the Commission finds no record evidence to support alteration of this 
requirement simply because the direct mail solicitations are sent by 
email rather than the U.S. Postal Service. It is not the intent of the 
Commission to use this provision to require new disclosures 
surreptitiously; indeed, the disclosures required (and 
misrepresentations prohibited, in the case of a charitable 
solicitation) are merely those that a telemarketer must make in the 
course of any non-exempt telemarketing transaction. Sellers remain free 
to choose the most advantageous method by which to contact consumers, 
and those opting for direct mail solicitations sent by email must 
determine whether the costs of making the relevant disclosures\982\ are 
offset by the savings attained by being exempt from the rest of the 
Rule.
---------------------------------------------------------------------------

    \982\ Presumably in the solicitation of a charitable 
contribution, there is no cost associated with refraining from 
making misrepresentations.
---------------------------------------------------------------------------

    Exceptions to the direct mail exemption: Commenters were generally 
supportive of the Commission's proposal to narrow the direct mail 
exemption to make it unavailable to sellers of credit card loss 
protection and business opportunities other than business arrangements 
covered by the Franchise Rule or any subsequent rule covering business 
opportunities the Commission may adopt. In expressing its support, NCL 
noted that, although most solicitations for credit card loss protection 
plans were made via outbound telephone calls, it endorsed excepting 
such plans from the exemption to ensure that they will be covered by 
the Rule regardless of how they are promoted.\983\ Similarly, NCL 
supported the exclusion from the direct mail exemption of work-at-home 
solicitations, noting that in 2001, 42 percent of the victims of work-
at-home scams said that the initial method of contact was direct 
mail.\984\ Because work-at-home solicitations are not ``business 
arrangements covered by the Franchise Rule,'' the exception from the 
direct mail exemption will now ensure that inbound calls in response to 
direct mail advertising work-at-home opportunities will be subject to 
the Rule.
---------------------------------------------------------------------------

    \983\ NCL-NPRM at 12.
    \984\ Id.
---------------------------------------------------------------------------

    Some consumer advocates and law enforcement officials argued, 
however, that by simply narrowing the categories of offers eligible for 
the exemption, the proposed Rule did not go far enough to protect 
consumers.\985\ Instead of narrowing the exemption, NCL recommended 
that the Commission eliminate the direct mail exemption 
altogether,\986\ a position with which NAAG and AARP concurred at the 
June 2002 Forum.\987\ NCL argued that telemarketing fraud and abuse 
could be prevented if those currently exempt from the Rule's coverage 
were required to adhere to its provisions, particularly those Rule 
provisions mandating material disclosures and express verifiable 
authorization.\988\ As an alternative to eliminating the direct mail 
exemption, NCL suggested that all telemarketers should be required to 
obtain customers' express verifiable authorization in every call, even 
those that would otherwise be exempt, such as inbound calls in response 
to a direct mail solicitation.\989\ NAAG suggested that the Rule should 
also except from the direct mail exemption transactions that involve a 
high risk of abuse, such as the sale of memberships for discount buyers 
clubs and for transactions involving negative option features.\990\
---------------------------------------------------------------------------

    \985\ See NCL-NPRM at 12 (expressing concern that increasing the 
number of exceptions to exemptions is confusing to businesses and 
consumers).
    \986\ NCL-NPRM at 12.
    \987\ June 2002 Tr. III at 177, 182-83.
    \988\ NCL-NPRM at 12.
    \989\ Id.
    \990\ See NAAG-NPRM at 59.
---------------------------------------------------------------------------

    Based on a review of the record, the Commission declines to adopt 
these suggestions. In the SBP of the original Rule, the Commission 
noted that the direct mail exemption was included in the Rule because, 
in its experience, direct mail solicitations were not ``uniformly 
related to the forms of deception and abuse the Act seeks to 
stem.''\991\ Based on this understanding, and in an effort to strike 
the appropriate balance between reining in fraudulent telemarketers and 
not unduly burdening legitimate industry, the Commission included the 
direct mail exemption in the original Rule. While it may be true that 
fraudulent telemarketing scams might be reduced if the direct mail 
exemption were excised from the Rule, the Commission believes that to 
do so would tip the balance and unnecessarily burden legitimate 
telemarketers without bringing commensurate benefits to consumers. 
Therefore, the Commission declines to eliminate the exemption entirely.
---------------------------------------------------------------------------

    \991\ 60 FR at 43860.
---------------------------------------------------------------------------

    The Commission also declines to require express verifiable 
authorization in all calls. The parameters of the amended express 
verifiable authorization provision, and the Commission's rationale in 
adopting it, are discussed above in the analysis of Sec.  310.3(a)(3). 
Finally, the Commission declines to add the sale of discount buyers 
club memberships and solicitations in which there is a negative option 
feature to the exceptions to the direct mail exemption. The record does 
not demonstrate that the sale of membership clubs or solicitations in 
which there is a negative option feature are particularly subject to 
abuse in conjunction with direct mail solicitations, and thus does not 
support including such exceptions.\992\
---------------------------------------------------------------------------

    \992\ The record does show that buyers club memberships have 
frequently been associated with complaints regarding preacquired 
account telemarketing, a practice that is addressed by amended Rule 
Sec.  Sec.  310.4(a)(5) and (6). Similarly, goods or services 
offered in conjunction with a ``free-to-pay conversion'' negative 
option feature have been shown to result in complaints of 
unauthorized charges, and are addressed by amended Rule Sec.  
310.4(a)(6) and Sec.  Sec.  310.3(a)(1)(vii) and 310.3(a)(2)(ix).
---------------------------------------------------------------------------

Other suggested changes

    Some commenters raised concerns about the situation where there is 
a disparity between the disclosures made in a direct mail solicitation 
and those made in the subsequent telephone call. NAAG urged the 
Commission to clarify that a pre-call mailing is not truthful if it is 
inconsistent in some material way with what is stated during the 
call.\993\
---------------------------------------------------------------------------

    \993\ NAAG-NPRM at 59-60.
---------------------------------------------------------------------------

    In order to avail itself of the exemption, a direct mail 
solicitation must provide the material disclosures required by Sec.  
310.3(a)(1) to ensure that the material information about the offer is 
in the hands of the consumer when the consumer elects whether to place 
a call to a telemarketer, including information about the total cost 
and quantity of the goods or services, all material restrictions, 
limitations or conditions to the offer, and certain information 
regarding refund policies and prize promotions. By its very definition, 
this material information is presumed ``likely to affect a person's 
choice of goods or services, or their conduct regarding them.''\994\ 
Thus, in order to meet the Rule's requirement that the information in 
the direct mail solicitation be ``truthful,'' the information provided 
to the consumer in the telemarketing call should not vary in any 
material respect from the disclosures provided in the direct mail 
solicitation.\995\
---------------------------------------------------------------------------

    \994\ Cliffdale, 103 F.T.C. at 165.
    \995\ The Commission recognizes that, in some instances, prices 
may be subject to change, or may only be in effect for a specified 
period of time. A disclosure to that effect in the direct mail 
solicitation should provide the consumer with sufficient notice that 
the price may fluctuate or may not be available after a particular 
date.

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[[Page 4662]]

    AFSA expressed concern over the ``specter of vicarious liability'' 
for telemarketers who receive inbound calls in response to direct mail 
solicitations sent by another party in which the required disclosures 
are not made ``truthfully.'' The Commission believes that under Sec.  
310.3(b), the assisting and facilitating provision, liability would 
only attach if a telemarketer knew or consciously avoided knowing that 
there was a disparity between the material representations in a direct 
mail piece and the telemarketing script being used in inbound calls in 
response to that solicitation.
    EFSC requested, in connection with the proposal to broaden the 
direct mail provision to include solicitations by email and fax, that 
the Commission explicitly state that ``a telemarketer's electronic 
disclosure of the material information satisfies'' the telemarketer's 
obligation under the Rule.\996\ EFSC argued that the E-SIGN Act makes 
such electronic disclosures permissible, and that the Commission should 
explicitly state that such is the case.\997\ As noted above, in the 
response to DMA's suggestion that it should be permissible to make the 
required disclosures in the email or fax or in the subsequent 
telemarketing call, the Commission believes that to avail itself of the 
direct mail exemption, the seller must include the required disclosures 
in the direct mail piece itself, for to make these disclosures outside 
that context would defeat the consumer protection purpose of that 
requirement.\998\ Thus, for the same reason, the Commission believes 
that in the case of any direct mail solicitation conveyed by email or 
fax, the required disclosures would have to be included in the email or 
fax itself in order for any subsequent telemarketing call to benefit 
from the Sec.  310.6(b)(6) exemption.
---------------------------------------------------------------------------

    \996\ EFSC-NPRM at 12.
    \997\ Id.
    \998\ The Commission believes that for purposes of Sec.  
310.6(b)(6), it is critical that telemarketing calls in response to 
direct mail solicitations be exempt only on the condition that the 
direct mail piece contains the requisite disclosures. The 
requirement that these disclosures be displayed in the direct mail 
piece itself ensures that these disclosures are proximate in time 
and location to the direct mail solicitation, which makes it more 
likely that consumers will be made aware of certain material 
information that is useful or necessary to evaluate the sales 
transaction proposed in the solicitation before responding to it. 
The Commission notes that this outcome is consistent with Sec.  
101(f) of the E-SIGN Act, which states that, ``Nothing in this title 
affects the proximity required by any statute, regulation, or other 
rule of law with respect to any warning, notice, disclosure, or 
other record required to be posted, displayed, or publicly 
affixed.'' (emphasis added).
---------------------------------------------------------------------------

    Finally, NFC requested that the Commission clarify whether the 
direct mail exemption applies to franchisors.\999\ The Commission 
believes that Sec.  310.6(b)(2) makes clear that sales of franchises 
subject to the Commission's Franchise Rule are exempt from the TSR. The 
sale of business opportunities not covered by the Franchise Rule, 
however, is subject to regulation by the Rule. Section 310.6(b)(6) of 
the amended Rule expressly states that a seller of ``business 
opportunities other than business arrangements covered by the Franchise 
Rule'' would not be able to avail itself of the direct mail exemption, 
and thus would be required to comply with the Rule's provisions. 
Therefore a business opportunity seller, if not eligible for exemption 
pursuant to Sec.  310.6(b)(2), would be ineligible for the direct mail 
exemption because of the specific exception for the sale of such 
services under Sec.  310.6(b)(6).
---------------------------------------------------------------------------

    \999\ NFC-NPRM at 4-5.
---------------------------------------------------------------------------

Sec.  310.6(b)(7) -- Business-to-business telemarketing

    Section 310.6(g) of the original Rule exempts from the Rule's 
requirements telemarketing calls to businesses, except calls to induce 
the sale of nondurable office or cleaning supplies. Based on the 
Commission's law enforcement experience, the Commission proposed in the 
NPRM to add two more categories to the list of exceptions to the 
exemption for calls to businesses: the sale of Internet or Web 
services, and charitable solicitations.\1000\ The Commission has 
determined, however, based upon comments received in response to the 
NPRM, not to include in the amended Rule the exception of the sale of 
Internet or Web services and charitable solicitations from the 
business-to-business exemption. The amended Rule retains unchanged the 
wording in the original Rule, except to add language clarifying that 
the Commission's national ``do-not-call'' registry provisions do not 
apply to the telemarketing of nondurable office or cleaning supplies to 
businesses. The provision is also renumbered, and can be found at Sec.  
310.6(b)(7) of the amended Rule.
---------------------------------------------------------------------------

    \1000\ See NPRM discussion regarding proposed Sec.  310.6(g), 67 
FR at 4531-32.
---------------------------------------------------------------------------

    Consumer groups and state law enforcement officials argued that the 
Rule should not contain any exemption for business-to-business 
telemarketing, but if the Commission were to retain the exemption, they 
supported narrowing the exemption as much as possible so that sellers 
and telemarketers of those products or services that have particularly 
been subject to abuse would not benefit from the exemption.\1001\ Thus, 
these commenters generally supported the Commission's proposal to 
``carve out'' the telemarketing of Internet and Web services from the 
business exemption, citing extensive law enforcement efforts to combat 
the proliferation of fraudulent telemarketing of website design, 
hosting, and maintenance services to small businesses.\1002\
---------------------------------------------------------------------------

    \1001\ See, e.g., NAAG-NPRM at 60; NCL-NPRM at 11.
    \1002\ NAAG-NPRM at 60; NCL-NPRM at 11.
---------------------------------------------------------------------------

    On the other hand, industry commenters uniformly opposed the 
``carve out'' of Internet and Web services from the business-to-
business exemption.\1003\ These commenters argued that the proposed 
definitions of these services were overly broad and that there was 
insufficient record evidence to support regulation of all Internet and 
Web services.\1004\ They noted that federal and state law enforcement 
efforts had focused on website design, development, hosting, and 
maintenance services, but that the record does not reveal a pattern of 
fraud in the sale of Internet access services, including wireless 
Internet access services.\1005\ Industry commenters argued that if the 
Commission persisted in requiring that the telemarketing of Internet 
and Web services comply with the TSR, the effect would be to chill 
innovation and development in a nascent industry that is rapidly 
changing.\1006\ They also argued that such an action would be 
anticompetitive because it would subject those sellers and 
telemarketers who are within the FTC's jurisdiction to the TSR's 
requirements, while exempting competitors who happen to be common 
carriers.\1007\ Furthermore, these commenters stated that although the 
Commission's goal is to protect small business from fraud in the sale 
of Internet and Web services, the Commission's proposal would actually

[[Page 4663]]

harm those small businesses because it would increase their costs and 
hamper their use of Web-based advertising such as online Yellow 
Pages.\1008\ Industry commenters argued that current law enforcement 
tools, coupled with active industry self-regulation, are sufficient to 
challenge deceptive and fraudulent telemarketing of Internet or Web 
services.\1009\
---------------------------------------------------------------------------

    \1003\ See, e.g., Comcast-NPRM at 5; Cox-NPRM at 30-32; ICC-NPRM 
at 1-2; Nextel-NPRM at 23, 24; Reed-Elsevier-NPRM at 5; SBC-NPRM at 
2, 13; SIIA-NPRM at 1-2; YPIMA-NPRM at 5. See also June 2002 Tr. III 
at 210-20, 222-23, 226.
    \1004\ See, e.g., Nextel-NPRM at 23; SBC-NPRM at 3; SIIA-NPRM at 
1-2. June 2002 Tr. III at 210-20, 222-23, 226.
    \1005\ See, e.g., Nextel-NPRM at 23; SIIA-NPRM at 1-2. See also 
June 2002 Tr. III at 213-14, 217-18, 224.
    \1006\ Nextel-NPRM at 24; Reed-Elsevier-NPRM at 7; SBC-NPRM at 
14; SIIA-NPRM at 1-2. See also June 2002 Tr. III at 210-24.
    \1007\ See, e.g., DMA-NPRM at 9. See also June 2002 Tr. III at 
213-14, 217-18, 224.
    \1008\ See, e.g., SBC-NPRM at 15; SIIA-NPRM at 2. See also June 
2002 Tr. III at 213-14, 217-18, 224.
    \1009\ See, e.g., Reed-Elsevier-NPRM at 4-5 (noting, for 
example, that industry has adopted the Best Billing Practices 
guidelines set forth by the FCC to address unauthorized billing or 
``cramming'' problems); SBC-NPRM at 14. See also June 2002 Tr. III 
at 213-14, 217-18, 224.
---------------------------------------------------------------------------

    The Commission finds persuasive industry's arguments that the 
proposal to make the business-to-business exemption unavailable to 
telemarketing of Internet and Web services is overbroad and likely to 
produce perverse results for the small businesses it was intended to 
protect. The Commission believes that, although coverage by the Rule 
would provide benefits to law enforcement efforts, current federal and 
state consumer protection statutes have been effective tools in 
challenging fraudulent practices in this industry.\1010\ Furthermore, 
the Commission believes that it is preferable to move cautiously so as 
not to chill innovation in the development of cost-efficient methods 
for small businesses to join in the Internet marketing revolution. 
Therefore, the Commission has removed the proposed exception for 
Internet and Web services sales to businesses by telephone, which will 
continue to be exempt from the Rule's coverage. The Commission will, 
however, continue to monitor closely the practices in the telemarketing 
of Internet and Web services, and may revisit this issue in subsequent 
Rule Reviews should circumstances warrant.
---------------------------------------------------------------------------

    \1010\ See E-Commerce Fraud Targeted at Small Business: Hearings 
on Web Site Cramming Before the Senate Committee on Small Business 
(Oct. 25, 1999) (statement of Jodie Bernstein, Director of the 
Bureau of Consumer Protection, FTC); FTC Press Release: ``FTC Cracks 
Down on Small Business Scams: Internet Cramming is Costing Companies 
Millions,'' June 17, 1999, http://www.ftc.gov/opa/1999/small9.htm. 
See also, e.g., FTC v. Shared Network Servs., LLC., No. S-99-1087-
WBS JFM (E.D. Cal. filed June 12, 2000); FTC v. U.S. Republic 
Communications, Inc., No. H-99-3657 (S.D. Tex. filed Oct. 21, 1999) 
(Stipulated Final Order for Permanent Injunction and Other Equitable 
Relief entered Oct. 25, 1999); FTC v. WebViper LLC, No. 99-T-589-N, 
(M.D. Ala. June 9, 1999); FTC v. Wazzu Corp., No. SA CV-99-762 AHS 
(ANx) (C.D. Cal. filed June 7, 1999).
---------------------------------------------------------------------------

    Consumer groups and state law enforcement officials also supported 
the Commission's proposal to make the business-to-business exemption 
unavailable to entities soliciting charitable contributions, citing the 
extensive problems with telefunders soliciting on behalf of public 
safety organizations (so-called ``badge fraud'' operators) who often 
target small businesses.\1011\ DMA-NonProfit and Not-For-Profit 
Coalition were among the few non-profit organizations that addressed 
the business-to-business exemption,\1012\ arguing that the legislative 
history of the USA PATRIOT Act does not support extending the Rule's 
coverage to charitable solicitations directed to businesses, 
particularly in the absence of substantial evidence of abuse.\1013\ As 
discussed above, the Commission already has determined to exempt 
telemarketing on behalf of charitable organizations from the national 
``do-not-call'' registry, thus addressing the principal concern of the 
non-profit organizations.
---------------------------------------------------------------------------

    \1011\ See, e.g., NAAG-NPRM at 60-61; NCL-NPRM at 11. See also 
June 2002 Tr. III at 224-25.
    \1012\ Most non-profit organizations commented on the 
application of the national ``do-not-call'' registry to their 
solicitation efforts, not on whether they should be otherwise 
excepted from the business-to-business exemption. See, e.g., 
Childhood Leukemia-NPRM at 1; Community Safety-NPRM at 1-2; 
California FFA-NPRM at 1-2; FPIR-NPRM at 1-2; HRC-NPRM at 1-2; OSU-
NPRM at 1; SO-AZ-NPRM at 1-2.
    \1013\ See DMA-NonProfit-NPRM at 14-15; Not-for-Profit 
Coalition-NPRM at 46-48. There is scant legislative history on the 
USA PATRIOT Act with regard to this issue.
---------------------------------------------------------------------------

    The Commission notes that ``badge fraud'' telemarketing directed at 
businesses has been a particularly pernicious practice that has been 
attacked on a regular basis by both the Commission and state 
regulators.\1014\ Commenters have made it clear, however, that many 
legitimate non-profit organizations rely heavily on business 
contributions as a major portion of their donor base.\1015\ The 
Commission seeks to protect businesses--particularly small businesses--
from fraudulent fundraising, without burdening legitimate non-profit 
organizations with the cost of complying with unnecessary regulations. 
As some commenters pointed out, many legitimate non-profit 
organizations operate on a very narrow margin, and such costs may have 
a very significant impact on the viability of an organization's 
fundraising efforts or even the very viability of the organization 
itself.\1016\
---------------------------------------------------------------------------

    \1014\ See, e.g., FTC. v. Southwest Mktg. Concepts, Inc., No. H-
97-1070 (S.D. Tex. filed 1999) (Stipulated Final Judgment and Order 
for Permanent Injunction and Monetary Relief entered May 28, 1999); 
FTC v. Saja, No. CIV-97-0666 PHX SMM (D. Ariz. filed Apr. 1997); FTC 
v. Dean Thomas Corp., Inc., No. 1:97CV0129 (N.D. Ind. 1997) 
(Stipulated Final Judgment entered Jan. 19, 1998); FTC v. Century 
Corp., No. 1:97CV0130 (N.D. Ind. filed Apr. 7, 1998) (Stipulated 
Final Judgment and Order entered April 8, 1998); FTC v. Image Sales 
& Consultants, Inc., No. 1:97CV0131, (N.D. Ind.) (Stipulated Final 
Judgment and Order entered June 9, 1998); FTC v. Omni Adver., Inc., 
No. 1:98CV0301 (N.D. Ind. filed Oct. 9, 1998); FTC v. T.E.M.M. 
Mktg., Inc., No. 1:98CV0300, (N.D. Ind. filed Oct. 5, 1998); FTC v. 
Tristate Adver. Unlimited, Inc., No. 1:98CV0302 (N.D. Ind. filed Oct 
5, 1998); FTC v. Gold, No. CV 99-99-2895-WDK (AlJx) (C.D. Calif. 
filed 1998); FTC v. Eight Point Communications, Inc., No. 98-74855 
(E.D. Mich. filed Nov. 10, 1998). See also Pa. Stat. Ann. tit. 10 
Sec.  162.15(A)(11) (West 2000).
    \1015\ See, e.g., DMA-NonProfit-NPRM passim; Not-for-Profit 
Coalition-NPRM passim. See also June 2002 Tr. III at 110, 205-10, 
220-21.
    \1016\ Id.
---------------------------------------------------------------------------

    The Commission also notes that law enforcement actions attacking 
badge fraud under Section 5 and analogous state laws have been 
effective on a case-by-case basis.\1017\ Furthermore, several of the 
entities that were targets of these law enforcement efforts also 
telemarketed to individuals, which would bring them within the purview 
of the amended Rule with respect to those transactions.\1018\ In 
addition, the Commission recognizes that there are many legitimate 
public safety organizations that solicit funds for their charitable 
purposes in a non-deceptive manner. Therefore, the Commission believes 
that the more prudent course is to continue to rely upon its authority 
under Section 5 and the states' authority under their analogous laws to 
address fraudulent fundraising, and, at this time, to leave beyond the 
scope of the TSR legitimate charitable fundraising directed to 
businesses. This issue could be revisited in subsequent Rule Reviews 
should evidence develop that the Commission has not struck the correct 
balance in making this determination.
---------------------------------------------------------------------------

    \1017\ See note 1015 above.
    \1018\ See, e.g., Saja, No. CIV-97-0666 PHX SMM; and Eight Point 
Communications, No. 98-74855.
---------------------------------------------------------------------------

Other recommendations by commenters

    Some commenters recommended that the Rule be amended to include 
more exemptions. For example, several commenters advocated that their 
industry be exempt from compliance with the national ``do-not-call'' 
registry and/or from all of the Rule's provisions.\1019\ The Commission 
notes that many of those who requested

[[Page 4664]]

exemptions already are exempt from the Rule and, therefore, there is no 
reason to expressly restate that exemption in the Rule.\1020\ The 
Commission also declines to add additional exemptions on behalf of 
specific industry segments, with the exception of charitable 
organizations. As noted above in the discussion on exempting charities 
from compliance with the national ``do-not-call'' registry provision, 
the Commission believes that charitable solicitations present unique 
circumstances that make an exemption necessary and appropriate. The 
Commission declines, however, to introduce further limitations to the 
applicability of the ``do-not-call'' registry because it believes such 
action would be inconsistent with the privacy mandate of the 
Telemarketing Act and would likely result in consumer confusion and 
frustration.
---------------------------------------------------------------------------

    \1019\ See, e.g., Tribune-NPRM at 2-3 (exempt newspapers because 
of their ``unique position and mission in our society''); Herald 
Bulletin-NPRM at 1 (exempt newspapers); CNHI-NPRM at 1-2 (exempt 
newspapers); AFSA-NPRM at 10 (exempt debt collection calls); ACA-
NPRM at 2-4 (expressly exempt debt collection activities from the 
Rule); DBA-NPRM at 5 (expressly exempt debt collectors from the 
``do-not-call'' registry provision); AFSA-NPRM at 14 (exempt 
financial services companies with an established business 
relationship); CASE-NPRM at 3 (exempt educational institutions from 
``do-not-call'' registry provision); ANA-NPRM at 7 (explicitly 
exempt market researchers); Green Mountain-NPRM passim (exempt 
energy marketers).
    \1020\ For example, debt collection and market research 
activities are not covered by the Rule because they are not 
``telemarketing''--i.e., they are not calls made ``to induce the 
purchase of goods or services.'' Of course, if the debt collection 
or market research call also included an upsell, the upsell portion 
of the call would be subject to the Rule as long as it met the 
criteria for ``telemarketing'' and was not otherwise exempt from the 
Rule.
---------------------------------------------------------------------------

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

    Section 310.7 in the original and proposed Rules sets forth the 
procedures by which the states and private persons may bring actions 
under the Rule, as is provided for in the Telemarketing Act.\1021\ In 
the NPRM, the Commission noted that it received no comments directly on 
this section, but that commenters were generally supportive of the 
Rule's enforcement scheme allowing the Commission, the states, and 
private parties to bring actions under the TSR.\1022\ The Commission 
noted that the record at that time contained evidence of two sources of 
frustration regarding enforcement of the Rule: 1) the $50,000 monetary 
threshold required for a private party to bring suit under the Rule; 
and 2) the difficulty in identifying Rule violators, particularly those 
who violate the abusive practices section of the Rule.\1023\ The 
Commission noted then that the amount in controversy requirement was 
included in the Telemarketing Act, and it is therefore up to Congress 
to make any change to this amount.\1024\ With regard to the difficulty 
in identifying violators, the Commission expressed its belief that two 
proposed provisions--the prohibition on blocking Caller ID information, 
and the prohibition on denying or interfering with a consumer's right 
to be placed on a ``do-not-call'' list--would be beneficial in 
addressing these concerns.\1025\
---------------------------------------------------------------------------

    \1021\ 15 U.S.C. 6103 (states) and 6104 (private persons).
    \1022\ 67 FR at 4532-33.
    \1023\ 67 FR at 4533.
    \1024\ Id.
    \1025\ Id.
---------------------------------------------------------------------------

    The Commission received no comments on this section in response to 
the NPRM, and thus no modifications are included in the amended 
Rule.\1026\
---------------------------------------------------------------------------

    \1026\ Some commenters did advocate for meaningful Rule 
enforcement, including random monitoring and publicity regarding 
enforcement. See AARP-NPRM at 10 (meaningful enforcement and 
publicity); EPIC-NPRM at 27 (suggesting random monitoring and also 
recommending registration and bonding requirements, which the 
Commission declines to adopt noting the states already have such 
requirements in many instances, and that further duplication of that 
effort would not enhance the Commission's law enforcement efforts). 
The Commission believes that the enforcement record for the TSR to 
date, with over 139 cases brought and $200 million in judgments, 
shows that the Commission and its state law enforcement partners 
have made enforcement of the Rule a top priority. Moreover, 
enforcement actions under the Rule often have been conducted as part 
of a ``sweep'' of cases, often accompanied by a media advisory and 
public education campaign, which serves as a means of raising public 
awareness of certain kinds of telemarketing fraud. In regard to the 
suggestion that call centers be randomly monitored for compliance 
with the Rule, the Commission notes that it has used, and will 
continue to use, a variety of law enforcement techniques to ensure 
compliance with the Rule.
---------------------------------------------------------------------------

H. Section 310.8 -- Fees.

    This section of the Rule, now allocated for the new provision on 
fees, is reserved. When completed, the fee section will be included 
here.

I. Section 310.9 -- Severability.

    This provision of the Rule is retained in the amended Rule, but 
renumbered as Sec.  310.9. Section 310.8, formerly the section number 
for the Severability provision, now contains the provision regarding 
fees for the national ``do-not-call'' registry.

J. Rulemaking Review Requirement.

    The original Rule required that a Rule Review proceeding be 
commenced within five years of the effective date of the original Rule. 
The amended Rule does not contain an equivalent provision. The 
Commission has a policy of reviewing all of its Rules and guides on a 
periodic basis to ensure that they continue to meet their goals and 
provide the protections that were intended when they were promulgated. 
This periodic review also provides an opportunity to examine the 
economic costs and benefits of the particular Rule or guide under 
review. The Commission believes that this periodic review should be 
sufficient for the amended Rule, and that it is unnecessary to include 
a specific provision regarding review within the text of the amended 
Rule.

K. Effective Date.

    The amended Rule is effective on March 31, 2003, and full 
compliance with all provisions of the amended Rule--except Sec.  
310.4(a)(7), the caller identification transmission provision, and 
Sec.  310.4(b)(1)(iii)(B), the national ``do-not-call'' registry 
provision--is required by that date. The Commission believes that 
making the amended Rule effective on March 31, 2003 will provide more 
than sufficient time for sellers and telemarketers to change their 
practices to conform to the amended Rule. The publication of the 
proposed Rule in January 2002 provided industry members with ample 
notice of the proposed changes in the Rule, and making the amended Rule 
effective on March 31, 2003 will give industry members sufficient 
additional time to familiarize themselves with the requirements of the 
amended Rule, and to ensure that their operations are in full 
compliance with all except two provisions of the amended Rule.
    The Commission has determined that additional time may be required 
to allow sellers and telemarketers to come into full compliance with 
the caller identification transmission requirement. Therefore, full 
compliance with Sec.  310.4(a)(7) is required by January 29, 2004. The 
Commission will announce at a future time the date by which full 
compliance with Sec.  310.4(b)(1)(iii)(B), the ``do-not-call'' registry 
provision, will be required. The Commission anticipates that full 
compliance with the ``do-not-call'' provision will be required 
approximately seven months from the date a contract is awarded to 
create the national registry.

IV. Paperwork Reduction Act

    In light of both changes to the Rule following the NPRM and public 
comments received on Commission staff's prior PRA burden analysis for 
the NPRM, staff will submit for OMB review and clearance a supporting 
statement detailing its revised burden analysis.

V. Regulatory Flexibility Act

A. Need for and Objectives of the Rule.

    The amendments to the TSR announced here are the result of a review 
of the existing Rule as required by the Telemarketing Act.\1027\ As 
discussed above in this SBP, and in the NPRM, the objective of the 
amendments is to fulfill the mandate of the Telemarketing Act to ensure 
that consumers are protected from

[[Page 4665]]

``deceptive telemarketing acts or practices and other abusive 
telemarketing acts or practices.''\1028\ Other amendments, relating to 
the solicitation of charitable contributions through telemarketing, are 
made pursuant to the USA PATRIOT Act.\1029\
---------------------------------------------------------------------------

    \1027\ 15 U.S.C. 6108.
    \1028\ 15 U.S.C. 6102.
    \1029\ Pub. L. 107-56 (Oct. 26, 2001).
---------------------------------------------------------------------------

B. Summary of the Significant Issues.

    The public comments on the proposed Rule are discussed above 
throughout the SBP, as are the changes that have been made in response 
to comments indicating that the costs of some of the proposed 
amendments would be excessive. Many of the commenters did not focus 
specifically on the costs faced by small businesses relative to those 
that would be borne by other firms. Rather, they argued that the costs 
to be borne by all firms--including small firms--would be excessive. In 
response to these comments, the Commission has made a number of 
modifications in the amended Rule. These changes should significantly 
reduce the burden on all businesses, including small businesses.

Calls permitted where there is an existing business relationship.

    One proposal that commenters contended would impose particularly 
great costs on small businesses was the proposed national ``do-not-
call'' registry. Commenters were particularly concerned with the 
requirement that businesses could only call consumers who had put their 
telephone numbers on the ``do-not-call'' registry if they had obtained 
the consumer's express verifiable authorization to make calls to that 
consumer. For example, Community Bankers expressed the concern that its 
members would be unable to use outside telemarketers to contact their 
existing customers. This would, they suggested, force community banks 
to do their own telemarketing, at higher cost, because calls made by 
third party telemarketing bureaus would be covered by FTC 
regulations.\1030\ Another commenter noted that small firms may not 
have the recording equipment that would be needed to establish that 
they had obtained the consumer's express verifiable authorization to 
accept calls from that seller.\1031\
---------------------------------------------------------------------------

    \1030\ Community Bankers-User Fee at 3.
    \1031\ AmEx-NPRM at 2. One small company reported that in order 
to comply with Oregon's ``do-not-call'' requirements, they had been 
forced to spend $12,500 to get a computer program written and have 
hired two additional employees at a cost of approximately $800 per 
week. (Celebrity Prime Foods-User Fee at 1).
---------------------------------------------------------------------------

    Furthermore, many small businesses may not keep their customer 
records in a form that would permit them to economically compare the 
telephone numbers of their customers with those on the national ``do-
not-call'' registry and avoid calling those numbers that appear on the 
registry.\1032\ According to NRF, converting their customer lists to a 
form that can be feasibly compared to the numbers on the national ``do-
not-call'' registry could cost small businesses up to $1.00 per name. 
Furthermore, even after the records are converted, the NRF reports that 
the cost of eliminating names that appear on the ``do-not-call'' 
registry would be higher for small firms than for larger ones. Whereas, 
it might cost $0.01 per name to purge a large list, the cost for a 
small list is put at $0.10 to $0.15 per name.\1033\
---------------------------------------------------------------------------

    \1032\ See, e.g., Ameriquest-NPRM at 9.
    \1033\ NRF-NPRM at 4-5. ERA placed the cost of comparing a 
company's calling lists against the ``do-not-call'' registry at $3 
to $5 per 1,000 names, while CCC suggested that the cost would be in 
the neighborhood of $50 per hour and that it would take two hours 
for the average firm to compare their calling lists to the national 
``do-not-call'' registry and delete from the company's lists any 
numbers that appear on the ``do-not-call'' registry. ERA-NPRM at 36; 
Miller Study at 11-12.
---------------------------------------------------------------------------

    As discussed above in the SBP, the Commission has decided to alter 
the ``do-not-call'' provision proposed in the NPRM. One of the changes 
is to create an exemption that will allow a seller and its telemarketer 
to call consumers with whom the seller has an established business 
relationship, even if the consumer has placed his or her telephone 
number on the ``do-not-call'' registry.\1034\ The effect of this change 
will be that businesses--and in particular small businesses--will not 
need to check their lists of existing customers against the national 
``do-not-call'' registry. There will also be no need to obtain express 
verifiable permission before calling someone with whom the business has 
an established business relationship. Thus, most, if not all, of the 
costs described above will not be faced by small businesses.\1035\
---------------------------------------------------------------------------

    \1034\ See discussion of Sec.  310.4(b)(1)(iii) above.
    \1035\ While small businesses that wish to telemarket their 
products to consumers who are not existing customers will still have 
to check their calling lists against the ``do-not-call'' registry, 
they will not necessarily have to perform this work themselves. It 
is the Commission's understanding that small businesses often find 
it more economical to employ telemarketing bureaus who make such 
calls on the behalf of these businesses. A seller that employs a 
telemarketing bureau can arrange to have the telemarketer compare 
the names and/or telephone numbers on its lists against the ``do-
not-call'' registry.
---------------------------------------------------------------------------

Quarterly access to ``do-not-call'' registry.

    In addition, as discussed above, the Commission has decided not to 
require sellers and telemarketers to scrub their calling lists against 
the national ``do-not-call'' registry on a monthly basis. Instead, such 
updating will only be required on a quarterly basis.\1036\ Commenters 
argued that this change was necessary to reasonably limit the costs 
imposed by the ``do-not-call'' registry.\1037\ It should significantly 
reduce the expense associated with complying with the ``do-not-call'' 
requirements since firms will not need to scrub their lists twelve 
times per year at an expense that has been estimated at around $100 per 
seller or telemarketer each time its lists must be scrubbed.\1038\
---------------------------------------------------------------------------

    \1036\ Amended Rule Sec.  310.4(b)(3).
    \1037\ Household Bank-User Fee at 2.
    \1038\ Miller Study at 11-12.
---------------------------------------------------------------------------

Harmonization with state ``do-not-call'' regulations.

    Many industry representatives argued that in order to avoid 
imposing an undue burden on business, particularly small businesses, it 
was essential that the proposed national ``do-not-call'' registry not 
simply be added on to the existing set of state ``do-not-call'' lists. 
Rather, in the view of industry, the national registry should 
incorporate existing and any future state lists and all of the lists 
should operate under a single, unified set of regulations.\1039\ While 
many industry representatives argued that the way to achieve the 
necessary level of coordination between the state and federal lists was 
for the Commission to preempt inconsistent state regulations, the 
Commission has declined to do so at this time. Instead, as discussed 
above in the SBP, the Commission is engaged in a process of active 
consultation with the states that have enacted ``do-not-call'' statutes 
and with the FCC in order to develop procedures that will result in one 
harmonized ``do-not-call'' registry.\1040\ Once fully effectuated, this 
harmonization should substantially reduce the burden of having to scrub 
against a large number of separate lists.
---------------------------------------------------------------------------

    \1039\ See, e.g., Household Bank-User Fee at 2-3; ARDA-User Fee 
at 1; Ameriquest-User Fee at 9-10; ICIA-User Fee at 1; NEMA-User Fee 
at 4.
    \1040\ This approach is consistent with the recommendation of 
the Small Business Administration (``SBA''), Office of Advocacy. See 
SBA-User Fee at 5-6.
---------------------------------------------------------------------------

For-profit fundraisers exempted from national ``do-not-call'' registry 
compliance.

    The burden placed on small charities by the ``do-not-call'' 
requirements has also been significantly reduced. As discussed above, 
the Commission has determined that for-profit firms that make 
fundraising calls on behalf of

[[Page 4666]]

charitable organizations will not be required to ensure that they are 
not making calls to consumers who have placed their telephone numbers 
on the national ``do-not-call'' registry.\1041\ Rather, they will only 
have to honor individual consumer requests not to be called by the 
particular charity.\1042\
---------------------------------------------------------------------------

    \1041\ Amended Rule Sec.  310.6(a).
    \1042\ Amended Rule Sec.  310.4(b)(1)(iii).
---------------------------------------------------------------------------

    This change is likely to be of significant benefit to smaller 
charitable organizations since these organizations often find it more 
efficient to employ for-profit firms to make their calls rather than 
developing and maintaining the capacity to make such calls using their 
own staff.\1043\ For example, APTS reported that 75 percent of their 
members chose to hire other firms to manage their telemarketing 
operations. They further reported that the average annual cost of 
outsourcing these operations was $182,000, whereas the estimated cost 
of the stations doing the same amount of telemarketing with its own 
personnel was $224,000, an increase of almost 25 percent.\1044\ 
Similarly, Red Cross commented that it is more economical to hire a 
third party to operate short term blood-donor recruitment programs than 
to hire and maintain a full-time staff to perform such functions. 
According to Red Cross ``[s]uch trained third party professionals offer 
expertise and operational efficiencies that cannot be rapidly 
duplicated by Red Cross to respond to the volatile demand for 
blood.''\1045\
---------------------------------------------------------------------------

    \1043\ Hudson Bay-Goodman-NPRM at 2. Hudson Bay noted that 
``[i]nstead of renting space, buying computers and phone equipment, 
hiring supervisors and so on, HBC's clients find it cheaper to 
contact their members and donors by sharing these resources. Even 
after paying HBC's fee, which ranges from 4 to 7%, it is much 
cheaper for these non-profits to centralize these services. The 
savings achieved by phone company volume discounts alone pays more 
than half of HBC's fee.''
    \1044\ APTS-NPRM at 3-4.
    \1045\ Red Cross-NPRM at 3-4.
---------------------------------------------------------------------------

Written confirmation as express verifiable authorization.

    Another change that should reduce the burden on small firms 
involves the procedures a firm may use to obtain the consumer's express 
verifiable authorization to use an account other than the consumer's 
credit card or debit card to pay for a purchase. In the NPRM, the 
Commission proposed to eliminate a procedure by which a firm was 
permitted to obtain authorization by sending the consumer written 
confirmation prior to the time the account was charged. In part this 
proposal was based on the impression that very few firms used this 
method of obtaining express verifiable authorization.\1046\ However, 
commenters indicated that this was not the case and that many smaller 
firms--particularly newspapers--used this method.\1047\ In response, 
the Commission has decided to retain the written confirmation method of 
obtaining express verifiable authorization, with certain modifications, 
including an exception that makes it unavailable in cases where the 
transaction involves a ``free-to-pay conversion'' feature and 
preacquired account information.\1048\
---------------------------------------------------------------------------

    \1046\ 67 FR at 4508.
    \1047\ See, e.g., June 2002 Tr. III at 32-33 (NAA).
    \1048\ See amended Rule Sec.  310.3(a)(3)(iii), and discussion 
of that provision above.
---------------------------------------------------------------------------

No ban on preacquired account information.

    Another proposal in the NPRM that attracted considerable business 
opposition was the prohibition on the disclosure or receipt of any 
consumer's billing information. Commenters argued that such a 
prohibition on the use of preacquired account information would 
increase the costs of telemarketing. While these costs were not argued 
to be specific to small businesses, the costs faced by small businesses 
would be increased along with those of larger ones. According to CCC, 
requiring the consumer to provide an account number would add between 
60 and 90 seconds to the length of a telemarketing call in those 
instances where the telemarketer already has the consumer's account 
information.\1049\ MPA estimated the cost of requiring consumers to 
repeat their account information in the case of an upsell to be between 
35 and 60 seconds.\1050\ In addition, MPA suggested that requiring 
consumers to read their account numbers in all instances would lead 
some consumers to decide not to purchase the item being offered. The 
effect could be, they suggested, a reduction of five to 30 percent in 
consumer purchases in response to particular offers.\1051\ Finally, a 
ban on the use of preacquired account information could increase the 
costs of engaging in telemarketing because of errors in the account 
information obtained from the consumer--either because the consumer 
misreads the account number or because the telemarketer makes a mistake 
in taking down the number.\1052\
---------------------------------------------------------------------------

    \1049\ Miller Study at 17. According to the Miller Study, the 
total cost of this prohibition would have been approximately $1.5 
billion. However, this estimate appears to be based on the incorrect 
assumption that the prohibition on the use of preacquired account 
information would add 60 to 90 seconds to every sale made in an 
outbound telemarketing call. In fact, the only sales that would be 
affected are those where the seller would otherwise obtain payment 
using preacquired account information.
    \1050\ MPA-NPRM at 24.
    \1051\ Id. at 19.
    \1052\ ABA-NPRM at 8; Assurant-NPRM at 3-4; BofA-NPRM at 7; 
Cendant-NPRM at 7.
---------------------------------------------------------------------------

    As discussed in the SBP above, the Commission has decided not to 
prohibit the acquisition and use of preacquired account information. 
Instead, the Commission is limiting the prohibition to unencrypted 
account information and is requiring that telemarketers and sellers 
obtain the consumer's express informed consent before any purchase is 
charged to a consumer's account using preacquired account information. 
Except for transactions that involve a ``free-to-pay conversion'' 
feature combined with preacquired account information, the only steps a 
seller or telemarketer is required to undertake to obtain this consent 
are to provide the consumer with sufficient information for the 
consumer to understand the account that will be charged and to obtain 
the consumer's express agreement to have the purchase charged to that 
account. Since both of these are practices that an honest business 
would follow even in the absence of a rule provision, it is clear that 
the costs businesses argued would follow from the original proposal 
have been eliminated.

Relaxed regulation of abandoned calls.

    Another proposal contained in the NPRM that businesses argued would 
significantly increase the costs of telemarketing was the proposal to 
prohibit telemarketers from ``abandoning'' telemarketing calls--that 
is, to prohibit making a call unless a telemarketing sales 
representative is available to talk to the consumer if the consumer 
answers. Critics of this proposal argued that it would effectively ban 
the use of predictive dialers.\1053\ This would, they argued, 
significantly reduce the amount of time the individual telemarketing 
sales person spends talking to consumers. According to CCC, a 
telemarketing sales person can handle 13 to 14 calls per hour using a 
predictive dialer set to abandon five percent of calls. Without a 
predictive dialer, the same agent can only handle around eight calls 
per hour--a reduction of about 40 percent.\1054\ Another source 
suggested that a telemarketer using a predictive dialer could make 20 
calls per hour, whereas only five calls per hour would be possible 
without the dialer.\1055\
---------------------------------------------------------------------------

    \1053\ June 2002 Tr. I at 211 (CCC); PMA-NPRM at 30; PCIC-NPRM 
at 2.
    \1054\ Miller Study at 15.
    \1055\ Marketlink-NPRM at 3. This estimate, and perhaps the 
estimate of CCC, may overestimate the efficiency losses from 
prohibiting abandoned calls in that the five calls per hour figure 
is based on the assumption that calls are dialed ``manually.'' This 
suggests that the estimate may be based on an operation in which the 
individual sales representative actually dials the number to be 
called. A requirement not to abandon calls would not require that 
sales representatives dial their own calls. It would still be 
possible, if it were cost efficient, to use computer systems to dial 
the calls, and this could generate some efficiencies relative to 
manual dialing. What would not be permitted is to dial a call prior 
to the time a sales representative becomes available or to dial more 
than one call at a time for each available sales representative.

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[[Page 4667]]

    As discussed in the SBP, the Commission has determined to create a 
safe harbor to the prohibition on abandoned calls. This safe harbor 
will allow firms to avoid being cited for violation of this provision 
of the Rule provided they play a recording that identifies the seller 
and provides the seller's phone number when a sales representative is 
not available to handle a call and provided that this occurs in three 
percent or less of calls that are answered by a consumer. This change 
should substantially reduce the burden that would have been imposed by 
a total prohibition on abandoned calls.\1056\
---------------------------------------------------------------------------

    \1056\ As CCC testified at the workshop, ``[W]hat we found out 
is that ... below 5 percent or 4 percent or 3 percent [rate of 
abandonment], you're really beginning to raise costs....'' June 2002 
Tr. I at 212 (CCC).
---------------------------------------------------------------------------

Regulation of upselling.

    Finally, the Commission has eliminated an unintended burden that 
would have resulted from treating any upsell as a separate outbound 
telemarketing call. As several people have noted, this would have 
required telemarketers who receive inbound calls to comply with the 
``do-not-call'' provisions of the Rule as well as the calling hours 
provision before offering any upsell product.\1057\ Such a requirement 
would have imposed substantial burdens on sellers who receive inbound 
telemarketing calls. However, it was never the intention of the 
Commission to require compliance with either the ``do-not-call'' 
provisions or the calling hour provisions in this context,\1058\ and 
this requirement has been eliminated in the amended Rule which provides 
a separate definition of an upsell and clarifies that these provisions 
do not apply to an upsell.
---------------------------------------------------------------------------

    \1057\ See, e.g., June 2002 Tr. I at 210 (CCC); June 2002 Tr. II 
at 214-15 (DMA).
    \1058\ June 2002 Tr. I at 210-11 (FTC); June 2002 Tr. II at 215 
(FTC).
---------------------------------------------------------------------------

C. Description of Small Entities to Which the Rule Will Apply.

    This Rule will primarily impact firms that make telephone calls to 
consumers in an attempt to sell their products or services or entities 
that make calls to solicit charitable contributions. That is, the Rule 
will primarily impact entities that make outbound calls to consumers. 
Also affected will be firms that provide such services for others on a 
contract basis. It has been estimated that outbound calls to consumers 
resulted in total sales of $274.2 billion in 2001, and that the 
telemarketing industry that markets to consumers employs 4.1 million 
workers.\1059\
---------------------------------------------------------------------------

    \1059\ DMA-NPRM at 5. ATA estimates employment in business-to-
consumer telemarketing at 5.4 million. ATA-NPRM at 3.
---------------------------------------------------------------------------

    The number of firms making such outbound telemarketing calls, and 
the number that qualify as small entities, cannot be reliably 
estimated. According to the Office of Advocacy of the SBA, United 
States Census data shows that there are 2,305 firms that are identified 
as telemarketing bureaus. Of these, 1,279 are classified as being small 
businesses because they have sales of less than $5 million per 
year.\1060\ These are firms that provide telemarketing services for 
other firms. However, not all of these firms will be impacted by the 
Rule to the same extent. According to NAICS, firms that are classified 
as telemarketing bureaus include firms that provide ``telemarketing 
services on a contract or fee basis for others, such as (1) promoting 
clients' products or services by telephone, (2) taking orders for 
clients by telephone, and (3) soliciting contributions or providing 
information for clients by telephone.''\1061\ Firms that take orders 
for clients by telephone, as well as some firms that provide 
information for their clients by telephone, are going to be responding 
to calls made by consumers and not making calls themselves. Unless such 
firms are engaging in upselling of products or services that involve a 
``free-to-pay conversion'' feature, they will not be impacted by the 
proposed Rule to any significant extent.
---------------------------------------------------------------------------

    \1060\ SBA-User Fee at 3. The size of telemarketing bureaus that 
qualify as being small businesses was increased to $6 million as of 
October 2, 2002. See SBA, Small Business Size Standards Matched to 
North American Industry Classification System (NAICS), http://www.sba.gov/size/sizetable2002.html.
    \1061\ U.S. Census Bureau, 1997 NAICS Definitions, 561 
Administrative and Support Services, http://www.census.gov/pub/epcd/naics/NDEF561.HTM.
---------------------------------------------------------------------------

    In addition to firms that provide telemarketing services for 
others, the Rule will have an effect on firms that use telemarketing as 
a way to market their own products. These may include, among others, 
retailers, manufacturers, and financial service providers.\1062\ The 
number of such firms--and the number of those that are classified as 
small businesses--cannot be determined because such firms generally 
think of themselves as producers or sellers of particular products and 
not as telemarketers. Similarly, in the available statistics, these 
firms will be classified as producers or sellers of particular products 
and not as telemarketers.\1063\
---------------------------------------------------------------------------

    \1062\ ATA-User Fee at 2.
    \1063\ Some commenters suggested that small firms are more 
likely to rely on telemarketing to sell their products because they 
cannot afford other, more expensive forms of advertising. See, e.g., 
Ameriquest-User Fee at 6; ATA-NPRM at 4.
---------------------------------------------------------------------------

D. Description of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Rule.

    As discussed above in the SBP, the amended Rule alters some 
collection of information requirements. The effect of those 
requirements on all businesses is discussed in detail in the PRA 
section of this Notice. First, the amended Rule requires firms that use 
preacquired account information in conjunction with a ``free-to-pay 
conversion'' feature to tape record all such transactions to show that 
they have obtained the consumer's express informed consent to charge 
the consumer's account.\1064\ Section 310.5(a)(5) requires that the 
seller or telemarketer maintain copies of such audio recordings for 24 
months. Similarly, Sec.  310.5(a)(5) requires that firms retain for 24 
months copies of any written express agreements received from consumers 
permitting the company to call the consumer even though the consumer's 
phone number is included on the ``do-not-call'' registry.\1065\ 
Finally, the amended Rule extends the recordkeeping requirements of 
Sec.  310.5 to include charitable solicitations in a non-sales context, 
as required by the USA PATRIOT Act. All other amendments to the Rule 
relate to the Rule's disclosures or other compliance requirements and 
are necessary to prevent telemarketing fraud and abuse.
---------------------------------------------------------------------------

    \1064\ See Sec.  310.4(a)(6)(i)(C).
    \1065\ The provision allowing for such consent is at Sec.  
310.4(b)(1)(iii)(B)(i).
---------------------------------------------------------------------------

    The classes of small entities affected by the amendments include 
telemarketers or sellers engaged in acts or practices covered by the 
Rule. The types of professional skills required to comply with the 
Rule's recordkeeping, disclosure, or other requirements would include 
attorneys or other skilled labor needed to ensure compliance.

E. Steps Taken to Minimize Impact on Small Entities.

    As discussed above, the Telemarketing Act directs the Commission to 
enact ``rules prohibiting deceptive telemarketing acts or practices and 
other abusive telemarketing acts or

[[Page 4668]]

practices.''\1066\ Each of the amendments in the amended Rule is 
intended to better protect consumers from deceptive and abusive 
telemarketing practices. In order to achieve this end, the Commission 
believes that it is necessary to enact regulations that cover small and 
large firms equally. Based on the Commission's enforcement experience, 
it is clear that many of the firms that engage in fraudulent 
telemarketing activities are small firms. A failure to include such 
small firms within the requirements of the regulations would, 
therefore, fail to prohibit deceptive practices by the types of firms 
that account for a significant share of the problems the Commission 
encounters.
---------------------------------------------------------------------------

    \1066\ 15 U.S.C. 6102(a)(1).
---------------------------------------------------------------------------

    At the same time, as discussed above both in the SBP and in the 
``Summary of Significant Issues Raised by the Public Comments in 
Response to the IRFA,'' the Commission has sought to minimize as much 
as possible the burdens imposed on all affected entities, including 
small businesses. In general, the changes made in response to public 
comments have further reduced the burdens. The amendments to the 
disclosure and recordkeeping provisions of the TSR are generally 
consistent with the business practices that most sellers and 
telemarketers, regardless of size, would choose to follow, even absent 
legal requirements.
    The Commission has taken care in developing the amendments to the 
Rule to set performance standards, which establish the objective 
results that must be achieved by regulated entities, but do not 
establish a particular technology that must be employed in achieving 
those objectives. For example, the Commission does not specify the form 
in which records required by the TSR must be kept. It also allows a 
seller and a telemarketer making calls on the seller's behalf to 
allocate between themselves the responsibility for maintaining required 
records.

VI. National Environmental Policy Act

    Under the Commission's Rules of Practice implementing the National 
Environmental Policy Act of 1969 (``NEPA''),\1067\ no ``major action 
significantly affecting the quality of the human environment will be 
instituted unless an environmental impact statement ('EIS') has been 
prepared,'' if such is required.\1068\ To determine if such an impact 
statement is required, the Commission generally prepares an 
``environmental assessment.'' However, such an environmental assessment 
is not necessary in every circumstance. For example, in circumstances 
when the ``environmental effects, if any, would appear to be . . . so 
uncertain that environmental analysis would be based on speculation,'' 
no ``environmental assessment'' is required.\1069\ The Commission 
believes, for the reasons set forth below, that this exception is 
applicable in the instant case, and that because the environmental 
effects, if any, of the amended TSR are uncertain and based on 
speculation, the Commission is not required to prepare an environmental 
assessment.
---------------------------------------------------------------------------

    \1067\ 42 U.S.C. 4321 et seq.
    \1068\ 16 CFR 1.81, 1.82.
    \1069\ 16 CFR 1.83. See also National Citizens Comm. for Broad. 
v. FCC, 567 F.2d 1095, 1098 n.3 (D.C. Cir. 1977).
---------------------------------------------------------------------------

    The amended TSR would modify the original Rule in several ways. 
Each of these is outlined above in Section I (F), which summarizes the 
changes in the amended Rule. However, the only comment that raised the 
issue of the environmental effects of the Rule did so solely with 
regard to the national ``do-not-call'' registry provision. Because the 
Commission does not believe that any other modification in the amended 
Rule implicates any impact on the environment, the analysis is confined 
to this provision.
    The ``do-not-call'' registry provision will establish a centralized 
means for consumers across the country to notify sellers and 
telemarketers of their preference not to receive unsolicited outbound 
telemarketing calls.\1070\ As discussed in greater detail above, in the 
section discussing Sec.  310.4(b)(1)(iii), the ``do-not-call'' registry 
provision supplements the original Rule's provision that allows 
consumers to exercise their ``do-not-call'' rights on a company-by-
company basis. The Commission determined, based on the extensive record 
evidence from the rulemaking proceeding, that a national ``do-not-
call'' registry is necessary to effectuate the purposes of the 
Telemarketing Act.\1071\
---------------------------------------------------------------------------

    \1070\ See discussion of Sec.  310.4(b)(1)(iii) above.
    \1071\ 15 U.S.C. 6102(a)(3)(A) (mandating that the Commission 
include in its Rule ``a requirement that telemarketers may not 
undertake a pattern of unsolicited telephone calls which the 
reasonable consumer would consider coercive or abusive of such 
consumer's right to privacy'').
---------------------------------------------------------------------------

    The comment that addressed the potential environmental impact of 
the proposed national ``do-not-call'' registry stated, in relevant 
part,

For obvious reasons the FTC's proposed action may drastically reduce 
the ability to sell goods and services via telemarketing. In 
addition, and for the reasons stated above [wherein the commenter 
argues that the national ``do-not-call'' registry will negatively 
impact inbound call centers who rely upon a combination of inbound 
and outbound calling to survive],\1072\ consumers' ability to 
themselves purchase via catalogs may be compromised as well, as 
``call centers'' are forced to close in the face of insufficient 
``outbound telemarketing work.'' Either event would force consumers 
to climb into their cars and return to the mall for their wares, a 
result that itself would increase gas consumption and cause more air 
pollution.\1073\
---------------------------------------------------------------------------

    \1072\ DeHart-NPRM at 2-3 (although the commenter alludes to a 
study that corroborates its assertion on this point, no title or 
citation is provided for such study).
    \1073\ DeHart-NPRM at 3.

DeHart concluded, based on its belief that the ``do-not-call'' registry 
provision would increase the number of consumers driving to shopping at 
malls as a result of the implementation of the national ``do-not-call'' 
registry provision, that the Commission must prepare an EIS or, at 
minimum, an environmental assessment.\1074\
---------------------------------------------------------------------------

    \1074\ Id. The Commission believes that this allegation would 
constitute, at most, ``indirect effects'' under the NEPA 
implementing regulations, or those ``which are caused by the action 
and are later in time or farther removed in distance, but are still 
reasonably foreseeable.'' 40 CFR 1508.8(b). The Commission does not 
believe that the ``do-not-call'' registry provision has been or 
could reasonably be alleged to have ``direct effects'' or those 
``caused by the action and occur at the same time and place.'' 40 
CFR 1508.8(a).
---------------------------------------------------------------------------

    The underlying premise in the DeHart comment, that a national ``do-
not-call'' registry will have a negative impact on call centers that 
rely in part on inbound telemarketing and in part on outbound 
telemarketing for their livelihood, is unsupported in the comment. No 
evidence, other than a mere allusion to a study that purportedly shows 
that some firms' cost of providing inbound call center service would 
increase if their outbound telemarketing load decreased, is provided by 
DeHart, nor is support for this proposition found in the record as a 
whole. Therefore, the fundamental assumption on which DeHart's argument 
is based is one that appears to be mere speculation.
    The Commission believes that speculation, and indeed, logic, could 
as easily lead to the conclusion that a diminution in outbound calling, 
resulting from consumers' decision to place their telephone numbers on 
the national ``do-not-call'' registry, could lead sellers to use other 
channels of distance marketing to sell their products, including 
channels that would significantly increase inbound telemarketing, such 
as direct mail, catalog sales, and Internet sales. This would mean 
that, even if many consumers utilize the ``do-not-call'' registry, 
inbound calling may benefit, not suffer, from such a result. Moreover, 
DeHart cites no authority for the

[[Page 4669]]

proposition that local retail shopping has, to date, been reduced as a 
result of inbound or outbound telemarketing. And, the fact remains 
that, other than DeHart, none of the commenters, including major 
sellers, telemarketers, and industry groups, provides any evidence 
relating to the potential for a national ``do-not-call'' registry to 
result in a reduction in service or an increase in cost for inbound 
telemarketing, nor in a concomitant increase in retail shopping done in 
local malls.
    Moreover, the Commission believes there can be no hard evidence on 
which to base a prediction of consumers' actions following the 
implementation of the ``do-not-call'' registry provision. It seems 
likely, based on the experience of states that have implemented 
statewide ``do-not-call'' lists, and the overwhelmingly high response 
of consumers to the Commission's proposal, that many consumers will 
avail themselves of the opportunity to place their telephone numbers on 
the national ``do-not-call'' registry. However, as noted above, this 
may or may not have any impact on consumers' decision to shop at local 
malls, or on their choice of transportation. Thus, while consumer 
behavior may change as a result of the promulgation of amendments to 
the Rule, such changes cannot be quantified or even reasonably 
estimated because consumer decisions are influenced by many variables 
other than existence of the ``do-not-call'' registry. Any indirect 
impact of the amended Rule on the environment would therefore be highly 
speculative and impossible to accurately predict or measure.
    The Commission does not believe that any alternative to creating a 
national ``do-not-call'' registry would both provide the benefits of 
the registry and ameliorate all potential concerns regarding 
environmental impact. For example, the Commission does not believe that 
given its justification for the necessity of the registry, eliminating 
the provision from the amended Rule would be appropriate based solely 
on the unsupported allegations of indirect environmental effect raised 
in the DeHart comment. Furthermore, the Commission can think of no 
alternative other than eliminating the national ``do-not-call'' 
registry that would address DeHart's unsupported and highly speculative 
concern.
    In sum, although any evaluation of the environmental impact of the 
amendments to the TSR is uncertain and highly speculative, the 
Commission finds no evidence of avoidable adverse impacts stemming from 
the amended Rule. Therefore, the Commission has determined, in 
accordance with Sec.  1.83 of the FTC's Rules of Practice, that no 
environmental assessment or EIS is required.\1075\
---------------------------------------------------------------------------

    \1075\ 16 CFR 1.83. See also National Citizens Comm. for Broad. 
v. FCC, 567 F.2d 1095, 1098 n.3 (D.C. Cir. 1977).
---------------------------------------------------------------------------

List of Subjects in 16 CFR Part 310.

    Telemarketing, Trade practices.

    Accordingly, title 16, part 310 of the Code of Federal Regulations, 
is 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 Reserved: Fee for access to ``do-not-call'' registry.
310.9 Severability.

    Authority: 15 U.S.C. 6101-6108.


Sec.  310.1  Scope of regulations in this part.

    This part implements the Telemarketing and Consumer Fraud and Abuse 
Prevention Act, 15 U.S.C. 6101-6108, 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 enables any person to 
access a customer'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.
    (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) Established business relationship means a relationship between 
a seller and a consumer based on:
    (1) the consumer's purchase, rental, or lease of the seller's goods 
or services or a financial transaction between the consumer and seller, 
within the eighteen (18) months immediately preceding the date of a 
telemarketing call; or
    (2) the consumer's inquiry or application regarding a product or 
service offered by the seller, within the three (3) months immediately 
preceding the date of a telemarketing call.
    (o) Free-to-pay conversion means, in an offer or agreement to sell 
or provide any goods or services, a provision under which a customer 
receives a product or service for free for an initial period and will 
incur an obligation to pay for the product or service if he or she does 
not take affirmative action to cancel before the end of that period.
    (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, goods or services or 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

[[Page 4670]]

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) Negative option feature means, in an offer or agreement to sell 
or provide any goods or services, a provision under which the 
customer's silence or failure to take an affirmative action to reject 
goods or services or to cancel the agreement is interpreted by the 
seller as acceptance of the offer.
    (u) Outbound telephone call means a telephone call initiated by a 
telemarketer to induce the purchase of goods or services or to solicit 
a charitable contribution.
    (v) Person means any individual, group, unincorporated association, 
limited or general partnership, corporation, or other business entity.
    (w) Preacquired account information means any information that 
enables a seller or telemarketer to cause a charge to be placed against 
a customer's or donor's account without obtaining the account number 
directly from the customer or donor during the telemarketing 
transaction pursuant to which the account will be charged.
    (x) 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.
    (y) 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.
    (z) 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.
    (aa) 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.
    (bb) Telemarketer means any person who, in connection with 
telemarketing, initiates or receives telephone calls to or from a 
customer or donor.
    (cc) 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.
    (dd) Upselling means soliciting the purchase of goods or services 
following an initial transaction during a single telephone call. The 
upsell is a separate telemarketing transaction, not a continuation of 
the initial transaction. An ``external upsell'' is a solicitation made 
by or on behalf of a seller different from the seller in the initial 
transaction, regardless of whether the initial transaction and the 
subsequent solicitation are made by the same telemarketer. An 
``internal upsell'' is a solicitation made by or on behalf of the same 
seller as in the initial transaction, regardless of whether the initial 
transaction and subsequent solicitation are made by the same 
telemarketer.


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; and
    (vii) If the offer includes a negative option feature, all material 
terms and conditions of the negative option feature, including, but not 
limited to, the fact that the customer's account will be charged unless 
the customer takes an affirmative action to avoid the charge(s), the 
date(s) the charge(s) will be submitted for payment, and the specific 
steps the customer must take to avoid the charge(s).
    (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;

[[Page 4671]]

    (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;
    (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;
    (viii) That any customer needs offered goods or services to provide 
protections a customer already has pursuant to 15 U.S.C. 1643; or
    (ix) Any material aspect of a negative option feature including, 
but not limited to, the fact that the customer's account will be 
charged unless the customer takes an affirmative action to avoid the 
charge(s), the date(s) the charge(s) will be submitted for payment, and 
the specific steps the customer must take to avoid the charge(s).
    (3) Causing billing information to be submitted 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, except when the method of 
payment used is a credit card subject to protections of the Truth in 
Lending Act and Regulation Z,\3\ or a debit card subject to the 
protections of the Electronic Fund Transfer Act and Regulation E.\4\ 
Such authorization shall be deemed verifiable if any of the following 
means is employed:
---------------------------------------------------------------------------

    \3\ Truth in Lending Act, 15 U.S.C. 1601 et seq., and Regulation 
Z, 12 CFR part 226.
    \4\ Electronic Fund Transfer Act, 15 U.S.C. 1693 et seq., and 
Regulation E, 12 CFR part 205.
---------------------------------------------------------------------------

    (i) Express written authorization by the customer or donor, which 
includes the customer's or donor's signature;\5\
---------------------------------------------------------------------------

    \5\ For purposes of this Rule, the term ``signature'' shall 
include an 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 audio-recorded and made 
available upon request to the customer or donor, and the customer's or 
donor's bank or other billing entity, and which evidences clearly both 
the customer's or donor's authorization of payment for the goods or 
services or charitable contribution that are the subject of the 
telemarketing transaction and the customer's or donor's receipt of all 
of the following information:
    (A) The number of debits, charges, or payments (if more than one);
    (B) The date(s) the debit(s), charge(s), or payment(s) will be 
submitted for payment;
    (C) The amount(s) of the debit(s), charge(s), or payment(s);
    (D) The customer's or donor's name;
    (E) The customer's or donor's billing information, identified with 
sufficient specificity such that the customer or donor understands what 
account will be used to collect payment for the goods or services or 
charitable contribution that are the subject of the telemarketing 
transaction;
    (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; or
    (iii) Written confirmation of the transaction, identified in a 
clear and conspicuous manner as such on the outside of the envelope, 
sent to the customer or donor via first class mail prior to the 
submission for payment of the customer's or donor's billing 
information, and that includes all of the information contained in 
Sec. Sec.  310.3(a)(3)(ii)(A)-(G) and a clear and conspicuous statement 
of the procedures by which the customer or donor can obtain a refund 
from the seller or telemarketer or charitable organization in the event 
the confirmation is inaccurate; provided, however, that this means of 
authorization shall not be deemed verifiable in instances in which 
goods or services are offered in a transaction involving a free-to-pay 
conversion and preacquired account information.
    (4) Making a false or misleading statement to induce any person to 
pay for goods or services or to induce a charitable contribution.
    (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 Sec. Sec.  
310.3(a), (c) or (d), or Sec.  310.4 of this Rule.
    (c) Credit card laundering. Except as expressly permitted by the 
applicable credit card system, it is a deceptive telemarketing act or 
practice and a violation of this Rule for:
    (1) A merchant to present to or deposit into, or cause another to 
present to or deposit into, the credit card system for payment, a 
credit card sales draft generated by a telemarketing transaction that 
is not the result of a telemarketing credit card transaction between 
the cardholder and the merchant;
    (2) Any person to employ, solicit, or otherwise cause a merchant, 
or an employee, representative, or agent of the merchant, to present to 
or deposit into the credit card system for payment, a credit card sales 
draft generated by a telemarketing transaction that is not the result 
of a telemarketing credit card transaction between the cardholder and 
the merchant; or
    (3) Any person to obtain access to the credit card system through 
the use of a business relationship or an affiliation with a merchant, 
when such access is not authorized by the merchant agreement or the 
applicable credit card system.
    (d) Prohibited deceptive acts or practices in the solicitation of 
charitable contributions. 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;
    (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; or
    (6) A charitable organization'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:

[[Page 4672]]

    (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 arranging a loan or other extension of 
credit for a person;
    (5) Disclosing or receiving, for consideration, unencrypted 
consumer account numbers for use in telemarketing; provided, however, 
that this paragraph shall not apply to the disclosure or receipt of a 
customer's or donor's billing information to process a payment for 
goods or services or a charitable contribution pursuant to a 
transaction;
    (6) Causing billing information to be submitted for payment, 
directly or indirectly, without the express informed consent of the 
customer or donor. In any telemarketing transaction, the seller or 
telemarketer must obtain the express informed consent of the customer 
or donor to be charged for the goods or services or charitable 
contribution and to be charged using the identified account. In any 
telemarketing transaction involving preacquired account information, 
the requirements in paragraphs (a)(6)(i) through (ii) of this section 
must be met to evidence express informed consent.
    (i) In any telemarketing transaction involving preacquired account 
information and a free-to-pay conversion feature, the seller or 
telemarketer must:
    (A) obtain from the customer, at a minimum, the last four (4) 
digits of the account number to be charged;
    (B) obtain from the customer his or her express agreement to be 
charged for the goods or services and to be charged using the account 
number pursuant to paragraph (a)(6)(i)(A) of this section; and,
    (C) make and maintain an audio recording of the entire 
telemarketing transaction.
    (ii) In any other telemarketing transaction involving preacquired 
account information not described in paragraph (a)(6)(i) of this 
section, the seller or telemarketer must:
    (A) at a minimum, identify the account to be charged with 
sufficient specificity for the customer or donor to understand what 
account will be charged; and
    (B) obtain from the customer or donor his or her express agreement 
to be charged for the goods or services and to be charged using the 
account number identified pursuant to paragraph (a)(6)(ii)(A) of this 
section; or
    (7) Failing to transmit or cause to be transmitted the telephone 
number, and, when made available by the telemarketer's carrier, the 
name of the telemarketer, to any caller identification service in use 
by a recipient of a telemarketing call; provided that it shall not be a 
violation to substitute (for the name and phone number used in, or 
billed for, making the call) the name of the seller or charitable 
organization on behalf of which a telemarketing call is placed, and the 
seller's or charitable organization's customer or donor service 
telephone number, which is answered during regular business hours.
    (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 indirectly, 
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);
    (iii) Initiating any outbound telephone call to a person when:
    (A) that person previously has stated that he or she does not wish 
to receive an outbound telephone call made by or on behalf of the 
seller whose goods or services are being offered or made on behalf of 
the charitable organization for which a charitable contribution is 
being solicited; or
     (B) that person's telephone number is on the ``do-not-call'' 
registry, maintained by the Commission, of persons who do not wish to 
receive outbound telephone calls to induce the purchase of goods or 
services unless the seller
    (i) has obtained the express agreement, in writing, of such person 
to place calls to that person. Such written agreement shall clearly 
evidence such person's authorization that calls made by or on behalf of 
a specific party may be placed to that person, and shall include the 
telephone number to which the calls may be placed and the signature\6\ 
of that person; or
---------------------------------------------------------------------------

    \6\ For purposes of this Rule, the term ``signature'' shall 
include an 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) has an established business relationship with such person, and 
that person has not stated that he or she does not wish to receive 
outbound telephone calls under paragraph (b)(1)(iii)(A) of this 
section; or
    (iv) Abandoning any outbound telephone call. An outbound telephone 
call is ``abandoned'' under this section if a person answers it and the 
telemarketer does not connect the call to a sales representative within 
two (2) seconds of the person's completed greeting.
    (2) It is an abusive telemarketing act or practice and a violation 
of this Rule for any person to sell, rent, lease, purchase, or use any 
list established to comply with Sec.  310.4(b)(1)(iii)(A), or 
maintained by the Commission pursuant to Sec.  310.4(b)(1)(iii)(B), for 
any purpose except compliance with the provisions of this Rule or 
otherwise to prevent telephone calls to telephone numbers on such 
lists.
    (3) A seller or telemarketer will not be liable for violating Sec.  
310.4(b)(1)(ii) and (iii) if it can demonstrate that, as part of the 
seller's or telemarketer's routine business practice:
    (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

[[Page 4673]]

the procedures established pursuant to Sec.  310.4(b)(3)(i);
    (iii) The seller, or a telemarketer or another person acting on 
behalf of the seller or charitable organization, has maintained and 
recorded a list of telephone numbers the seller or charitable 
organization may not contact, in compliance with Sec.  
310.4(b)(1)(iii)(A);
    (iv) The seller or a telemarketer uses a process to prevent 
telemarketing to any telephone number on any list established pursuant 
to Sec. Sec.  310.4(b)(3)(iii) or 310.4(b)(1)(iii)(B), employing a 
version of the ``do-not-call'' registry obtained from the Commission no 
more than three (3) months prior to the date any call is made, and 
maintains records documenting this process;
    (v) 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)(3)(i); and
    (vi) Any subsequent call otherwise violating Sec.  310.4(b)(1)(ii) 
or (iii) is the result of error.
    (4) A seller or telemarketer will not be liable for violating 
310.4(b)(1)(iv) if:
    (i) the seller or telemarketer employs technology that ensures 
abandonment of no more than three (3) percent of all calls answered by 
a person, measured per day per calling campaign;
    (ii) the seller or telemarketer, for each telemarketing call 
placed, allows the telephone to ring for at least fifteen (15) seconds 
or four (4) rings before disconnecting an unanswered call;
    (iii) whenever a sales representative is not available to speak 
with the person answering the call within two (2) seconds after the 
person's completed greeting, the seller or telemarketer promptly plays 
a recorded message that states the name and telephone number of the 
seller on whose behalf the call was placed\7\; and
---------------------------------------------------------------------------

    \7\ This provision does not affect any seller's or 
telemarketer's obligation to comply with relevant state and federal 
laws, including but not limited to the TCPA, 47 U.S.C. 227, and 47 
CFR part 64.1200.
---------------------------------------------------------------------------

    (iv) the seller or telemarketer, in accordance with Sec.  310.5(b)-
(d), retains records establishing compliance with Sec.  310.4(b)(4)(i)-
(iii).
    (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 or internal or 
external upsell 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; provided, 
however, that, in any internal upsell for the sale of goods or 
services, the seller or telemarketer must provide the disclosures 
listed in this section only to the extent that the information in the 
upsell differs from the disclosures provided in the initial 
telemarketing transaction.
    (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:
    (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;\8\
---------------------------------------------------------------------------

    \8\ 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.
---------------------------------------------------------------------------

    (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 or records of express informed 
consent or express agreement 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 same manner, format, or place as they 
keep such records in the ordinary course of business. Failure to keep 
all records required by Sec.  310.5(a) shall be a violation of this 
Rule.
    (c) The seller and the telemarketer calling on behalf of the seller 
may, by written agreement, allocate responsibility between themselves 
for the recordkeeping required by this Section. When a seller and 
telemarketer have entered into such an agreement, the terms of that 
agreement shall govern, and the seller or telemarketer, as the case may 
be, need not keep records that duplicate those of the other. If the 
agreement is unclear as to who must maintain any required record(s), or 
if no such agreement exists, the seller shall be responsible for 
complying with Sec. Sec.  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.

    (a) Solicitations to induce charitable contributions via outbound 
telephone calls are not covered by Sec.  310.4(b)(1)(iii)(B) of this 
Rule.
    (b) The following acts or practices are exempt from this Rule:
    (1) The sale of pay-per-call services subject to the Commission's 
Rule

[[Page 4674]]

entitled ``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.  Sec.  310.4(a)(1), (a)(7), (b), and (c);
    (2) The sale of franchises subject to the Commission's Rule 
entitled ``Disclosure Requirements and Prohibitions Concerning 
Franchising and Business Opportunity Ventures,'' (``Franchise Rule'') 
16 CFR Part 436, provided, however, that this exemption does not apply 
to the requirements of Sec.  Sec.  310.4(a)(1), (a)(7), (b), and (c);
    (3) 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 or 
donation presentation by the seller or charitable organization, 
provided, however, that this exemption does not apply to the 
requirements of Sec.  Sec.  310.4(a)(1), (a)(7), (b), and (c);
    (4) Telephone calls initiated by a customer or donor that are not 
the result of any solicitation by a seller, charitable organization, or 
telemarketer, provided, however, that this exemption does not apply to 
any instances of upselling included in such telephone calls;
    (5) 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 advertisements 
involving goods or services described in Sec.  Sec.  310.3(a)(1)(vi) or 
310.4(a)(2)-(4); or to any instances of upselling included in such 
telephone calls;
    (6) 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 
discloses all material information listed in Sec.  310.3(a)(1) of this 
Rule, for any goods or services offered in the direct mail 
solicitation, and that contains no material misrepresentation regarding 
any item contained in Sec.  310.3(d) of this Rule for 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 goods or services described in Sec. Sec.  
310.3(a)(1)(vi) or 310.4(a)(2)-(4); or to any instances of upselling 
included in such telephone calls; and
    (7) Telephone calls between a telemarketer and any business, except 
calls to induce the retail sale of nondurable office or cleaning 
supplies; provided, however, that Sec.  310.4(b)(1)(iii)(B) and Sec.  
310.5 of this Rule shall not apply to sellers or telemarketers of 
nondurable office or cleaning supplies.


Sec.  310.7  Actions by states and private persons.

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

[[Page 4675]]

Sec.  310.8  [Reserved: Fee for access to ``do-not-call'' registry.]


Sec.  310.9  Severability.

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

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


    Note: Appendices A and B are published for informational 
purposes only and will not be codified in Title 16 of the Code of 
Federal Regulations.


Appendix A

List of Acronyms for Rule Review Commenters

February 28, 2000 Request for Comment

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--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
TeleSource--Morgan-Francis/Tele-Source Industries
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.

Appendix B

List of Acronyms for NPRM Commenters

Acronym -- Commenter

1-800-DoNotCall--1-800-DoNotCall, Inc.
AARP--AARP
ACA--ACA International
ACUTA--ACUTA
Advanta--Advanta Corp.
Aegis--Aegis Communications Group
Alabama Police--Alabama State Police Association, Inc.
AAST--American Association of State Troopers
ABA--American Bankers Association
ABIA--American Bankers Insurance Association
American Blind--American Blind Products, Inc.
ACE--American Council on Education
ADA--American Diabetes Association
AmEx--American Express
AFSA--American Financial Services Association
Red Cross--American Red Cross
ARDA--American Resort Development Association
ARDA-2--American Resort Development Association-Do Not Call Registry
American Rivers--American Rivers
ASTA--American Society of Travel Agents
ATA--American Teleservices Association
Blood Centers--America's Blood Centers
Community Bankers--America's Community Bankers
Ameriquest--Ameriquest Mortgage Company
Armey--Armey, The Honorable Dick (U.S. House of Representatives)
AFP--Association of Fundraising Professionals
APTS--Association of Public Television Stations
ANA--Association of National Advertisers
Associations--joint comment of: American Teleservices Association, 
Direct Marketing Association, Electronic Retailing Association, 
Magazine Publishers Association, and Promotion Marketing Association
Assurant--Assurant Group
Avinta--Avinta Communications, Inc.
Ayres--Ayres, Ian
Baldacci--Baldacci, The Honorable John Elias (U.S. House of 
Representatives)
BofA--Bank of America
Bank One--Bank One Corporation
Beautyrock--Beautyrock, Inc.
BellSouth--BellSouth Corporation
Best Buy--Best Buy Company, Inc.
BRI--Business Response Inc.
CCAA--California Consumer Affairs Association
CATS--Californians Against Telephone Solicitation
Capital One--Capital One Financial Corporation
Car Wash Guys--WashGuy Systems
Carper--Carper, The Honorable Thomas R. (U.S. Senate)
Celebrity Prime Foods--Celebrity Prime Foods
Cendant--Cendant Corporation
Chamber of Commerce--Chamber of Commerce of the United States of 
America
CRF--Charitable Resource Foundation, Inc.
Chicago ADM--Chicago Association of Direct Marketing
Childhood Leukemia--Childhood Leukemia Foundation
CDI--Circulation Development, Inc.
CURE--Citizens United for Rehabilitation of Errants
Citigroup--Citigroup Inc.
Civil Service Leader--Civil Service Leader
Collier Shannon-Collier Shannon Scott
Comcast--Comcast
CNHI--Community Newspaper Holdings, Inc.
Community Safety--Community Safety, LLC
Connecticut--Connecticut Commissioner of Consumer Protection
CBA--Consumer Bankers Association
CCC--joint comment of: Consumer Choice Coalition, ACI Telecentrics, 
Coverdell & Company, Discount Development Services, HSN LP d/b/a HSN 
and Home Shopping Network, Household Credit Services, MBNA America 
Bank, MemberWorks

[[Page 4676]]

Incorporated, Mortgage Investors Corporation, Optima Direct, TCIM 
Inc., Trilegiant Corporation and West Corporation
CMC--Consumer Mortgage Coalition
Consumer Privacy--Consumer Privacy Guide
Convergys--Convergys Corporation
CCA--Corrections Corporation of America
CASE--Council for Advancement and Support of Education
Cox--Cox Enterprises
Craftmatic--Craftmatic Organization, Inc.
Davis--Davis, The Honorable Tom (U.S. House of Representatives)
DBA--Debt Buyers Association
DeHart--DeHart & Darr Associates
Deutsch--Deutsch, The Honorable Peter (U.S. House of 
Representatives)
DialAmerica--DialAmerica Marketing, Inc.
DMA--Direct Marketing Association/U.S. Chamber of Commerce
DMA-NonProfit--Direct Marketing Association NonProfit Federation
DSA--Direct Selling Association
Discover--Discover Bank
DC--District of Columbia, Office of the People's Counsel
Eagle--Eagle Bank
EFSC--Electronic Financial Services Council
EPIC--Joint comment: Electronic Privacy Information Center, Center 
for Digital Democracy, Junkbusters Corp, International Union UAW, 
Privacy Rights Clearinghouse, Consumers Union, Evan Hendricks of 
Privacy Times, Privacyactivisim, Consumer Action, Consumer Project 
on Technology, Robert Ellis Smith of Privacy Journal, Consumer 
Federation of America, Computer Scientists for Social 
Responsibility, and Private Citizen, Inc.
ERA--Electronic Retailing Association
EPI--Enterprise Prison Institute
Experian--Experian Marketing Information Solutions, Inc.
Fiber Clean--Fiber Clean
Roundtable--Financial Services Roundtable
Fire Fighters Associations:
Asheville FFA--Asheville (NC) Fire Fighters Association
Bethelehem FFA--Bethlehem (PA), IAFF Local 735
Boone FFA--Boone (IA)
California FFA--California Professional Firefighters
Cedar Rapids FFA--Cedar Rapids (IA), IAFF Local 11
Cedar Rapids Airport FFA--Cedar Rapids Airport (IA)
Chattanooga FFA--Chattanooga (TN) Fire Fighters Association, Local 
820
Edwardsville FFA--Edwardsville (IL) Fire Fighters Local 1700
Greensboro FFA--Greensboro (NC)
Hickory FFA--Hickory (NC) Firefighters Association, IAFF Local 2653
Indiana FFA--Indiana, Professional Fire Fighters Union of
Iowa FFA--Iowa Professional Firefighters
Missouri FFA--Missouri State Council of Fire Fighters
North Carolina FFA--North Carolina, Professional Fire Fighters & 
Paramedics of
North Maine FFA--North Maine (Des Plaines, IL) Firefighters, IAFF 
Local 224
Ottumwa FFA--Ottumwa (IA)
Roanoke FFA--Roanoke (VA) Fire Fighters Association
Springfield FFA--Springfield (MO) Firefighters Association, Local 52
Sycamore FFA--Sycamore, IAFF Local 3046
Utah FFA--Utah, Professional Firefighters of
Vermont FFA--Vermont, Professional Firefighters of
Wisconsin FFA--Wisconsin, Professional Fire Fighters of
FireCo--FireCo, L.L.C.
Fleet--FleetBoston Financial Corporation
FOP--Fraternal Order of Police, Grand Lodge
FPIR--Fund for Public Interest Research, Inc.
FCA--Funeral Consumers Alliance, Inc.
Gannett--Gannett Co., Inc.
Gottschalks--Gottschalks, Inc.
Greater Niagara--Greater Niagara Newspapers
Green Mountain--Green Mountain Energy Company
Gryphon--Gryphon Networks
Hagel, Johnson & Carper--Joint letter from: The Honorable Chuck 
Hagel, Tim Johnson, and Thomas R. Carper (U.S. Senate)
Hastings--Hastings, The Honorable Doc (U.S. House of 
Representatives)
Herald Bulletin--Herald Bulletin
Horick--Horick, Bob
Household International:
Household Auto--Joint comment: Household Finance Corp, OFL-A 
Receivables Corp., and Household Automotive
Household Credit--Household Bank, Credit Card Services
Household Finance--Household Finance Corporation
Household-Montalvo--Montalvo, David
HSBC--HSBC Bank USA
Hudson Bay-Anderson--Hudson Bay Company of Illinois-owner
Hudson Bay-Goodman--Hudson Bay Company-Goodman
HRC--Human Rights Campaign
IBM--IBM
ICT--ICT Group, Inc.
Illinois Police--Illinois Council of Police & Sheriffs
Infocision--Infocision Management Corporation
Inhofe--Inhofe, The Honorable James (U.S. Senate)
Insight--Insight Realty, Inc.
ITC--Interactive Teleservices Corp.
ICFA--International Cemetery & Funeral Association
IFA--International Franchise Association
IUPA--International Union of Police Associations
ICC--Internet Commerce Coalition
Intuit--Intuit Inc.
Italian American Police--Italian American Police Society of New 
Jersey
Johnson--Johnson, The Honorable Tim (U.S. Senate)
Kansas--Kansas, House of Representatives
KeyCorp--KeyCorp.
Lautman--Lautman & Associates
LSAP--Legal Services Advocacy Project
Leggett & Platt--Leggett & Platt
Lenox--Lenox Inc.
Leukemia Society--Leukemia & Lymphoma Society
Life Share--Life Share
Lucas--Lucas, The Honorable Ken (U.S. House of Representatives)
MPA--Magazine Publishers Association
Make-A-Wish--Make-A-Wish Foundation of America
Manzullo--Manzullo, The Honorable Donald A. (U.S. House of 
Representatives)
March of Dimes--March of Dimes Birth Defects Foundation
Marketlink--Marketlink, Inc.
MBA--Massachusetts Bankers Association
MasterCard--MasterCard International
MBNA--MBNA America Bank, N.A.
McClure--McClure, Scott
McConnell--McConnell, The Honorable Mitch (U.S. Senate)
Metris--Metris Companies, Inc.
Michigan Nonprofit--Michigan Nonprofit Association
MidFirst--MidFirst Bank
MBAA--Mortgage Bankers Association of America
Myrick--Myrick, The Honorable Sue (U.S. House of Representatives)
NACHA--NACHA-The Electronic Payments Association
Nadel--Nadel, Mark S. (law review article: ``Rings of Privacy: 
Unsolicited Telephone Calls and the Right to Privacy,'' 4 Yale 
Journal on Regulation 99 (Fall 1986)
NAAG--National Association of Attorneys General
NACAA--National Association of Consumer Agency Administrators
NAIFA--National Association of Insurance & Financial Advisors
NAR--National Association of Realtors
NARUC--National Association of Regulatory Utility Commissioners
ARVC--National Association of RV Parks & Campgrounds
NASCO--National Association of State Charity Officials
NASUCA--National Association of State Utility Consumer Advocates
E-Commerce Coalition--National Business Coalition on E-Commerce & 
Privacy
NCTA--National Cable & Telecommunications Association
National Children's Cancer--National Children's Cancer Society, Inc.
NCLC--Joint comment: National Consumer Law Center, National 
Association of Consumer Advocates, Consumer Federation of America, 
Consumers Union, and US Public Interest Research Group
NCLF--National Children's Leukemia Foundation
NCL--National Consumers League
NEMA--National Energy Marketers Association
NFPPA--National Family Privacy Protection Association
NFIB--National Federation of Independent Business
NFC--National Franchise Council
NFDA--National Funeral Directors Association
NNA--National Newspaper Association of America
NPMA--National Pest Management Association
NPR--National Public Radio
NRF--National Retail Federation
NTC--National Troopers Coalition
Nelson-- Nelson, The Honorable E. Benjamin (U.S. Senate)
NetCoalition--NetCoalition

[[Page 4677]]

Nethercutt--Nethercutt, The Honorable George R., Jr. (U.S. House of 
Representatives)
NeuStar--NeuStar, Inc.
New Orleans--New Orleans, City Council of (CNO)-Utility, Cable & 
Telecommunications Committee
NJ Police--New Jersey Police Officers Foundation, Inc.
NYSCPB-- New York State Consumer Protection Board
NAA--Newspaper Association of America
Nextel--Nextel Communications, Inc.
Ney, Sandlin, Jones, Shows and Cantor--Joint letter from: The 
Honorable Bob Ney, Max Sandlin, Walter Jones, Ronnie Shows, and Eric 
Cantor (U.S. House of Representatives)
Noble--Noble Systems
NATN--North American Telephone Network LLC
NC Zoo--North Carolina Zoological Society
Not-For-Profit Coalition--Not-For-Profit and Charitable Coalition
NSDI--NSDI Teleperformance
OSU--Ohio State University
OTC--Ohio Troopers Coalition
Pacesetter--Pacesetter Corporation
PVA--Paralyzed Veterans of America
Paramount--Paramount Lists, Inc.
Pascrell--Pascrell, The Honorable Bill, Jr. (U.S. House of 
Representatives)
Patrick--Patrick, George W.
Paul--Paul, The Honorable Ron (U.S. House of Representatives)
Pelland--Pelland, Paul
PLP--Personal Legal Plans, Inc.
Michigan Police--Police Officers Association of Michigan
possibleNOW--possibleNOW.com, Inc.
PRC--Privacy Rights Clearinghouse
Private Citizen--Private Citizen, Inc.
Proctor--Proctor, Alan
PBP--Progressive Business Publications
PCIC--Progressive Casualty Insurance Company
Angel Food--Project Angel Food
PMA--Promotion Marketing Association
Purple Heart--Purple Heart Service Foundation, Military Order of
Ramstad--Ramstad, The Honorable Jim (U.S. House of Representatives)
Redish--Redish, Martin H., Esq.
Reed Elsevier--Reed Elsevier Inc.
Reese--Reese Brothers, Inc.
SBC--SBC Communications Inc.
Schrock--Schrock, The Honorable Edward L. (U.S. House of 
Representatives)
Sensenbrenner--Sensenbrenner, The Honorable F. James, Jr. (U.S. 
House of Representatives)
SHARE--SHARE
SIIA--Software & Information Industry Association
Southerland--Southerland, Inc.
Southern Poverty--Southern Poverty Law Center
Special Olympics--Special Olympics, Inc.
SO-AZ--Special Olympics Arizona
SO-CA--Special Olympics Southern California
SO-CO--Special Olympics Colorado
SO-CN--Special Olympics Connecticut
SO-IA--Special Olympics Iowa
SO-KY--Special Olympics Kentucky
SO-MD--Special Olympics Maryland
SO-MO--Special Olympics Missouri
SO-MT--Special Olympics Montana
SO-NH--Special Olympics New Hampshire
SO-NJ--Special Olympics New Jersey
SO-NM--Special Olympics New Mexico
SO-NY--Special Olympics New York
SO-VT--Special Olympics Vermont
SO-VA--Special Olympics Virginia
SO-WA--Special Olympics Washington
SO-WI--Special Olympics Wisconsin
SO-WY--Special Olympics Wyoming
Spiegel--Spiegel, Marilyn
Stage Door--Stage Door Music Productions, Inc.
Statewide Appeal--Statewide Appeal Inc.
Success Marketing--Success Marketing, Inc.
Synergy Global--Synergy Global Networks, The
Synergy Solutions--Synergy Solutions, Inc.
Sytel--Sytel Limited
Tate--Tate & Associates
Technion--Technion Communications Corp
TDI--Telecommunications for the Deaf, Inc.
TeleDirect--TeleDirect International, Inc.
Telefund--Telefund, Inc.
Teleperformance--Teleperformance USA
TRC--Tele-Response Center
TeleStar--TeleStar Marketing, L.P.
TRA--Tennessee Regulatory Authority
Terry--Terry, The Honorable Lee (U.S. House of Representatives)
Texas Environment--Texas Campaign for the Environment
Texas PUC--Texas Office of Public Utility Counsel
Thayer--Thayer, Richard E., Esq.
Time--Time, Inc.
Tribune--Tribune Publishing Company
UNICOR--UNICOR: (Federal Prison Industries, Inc, DOJ, Federal Bureau 
of Prisons)
DOJ--U.S. Department of Justice
Uniway--Uniway of Coastal Georgia
Verizon--Verizon Companies
Virginia--Virginia Attorney General
VISA--VISA U.S.A., Inc.
Watts--Watts, The Honorable J.C., Jr. (U.S. House of 
Representatives)
Weber--Weber, Ron & Associates, Inc.
Wells Fargo--Wells Fargo & Company
White--White, David T.
WTA--Wisconsin Troopers'Association Inc.
Worsham--Worsham, Michael C., Esq.
YPIMA--Yellow Pages Integrated Media Association (YPIMA)

Supplemental Comments

AARP-Supp.--AARP
AOP-Supp.--Aircraft Owners and Pilots Association (Marsha Mason-
Thies)
Allstate-Supp.-- Allstate Life Insurance Company
Community Bankers-Supp.-- America's Community Bankers
AICR-Supp.-- The American Institute for Cancer Research (Kathryn L. 
Ward)
Red Cross-Supp.--American Red Cross
ARDA-Supp.-- The American Resort Development Association (Yartin 
DePoy and Stratis Pridgeon)
ATA-Supp.-- American Teleservices Association
Associations-Supp.--Associations Letter
Avinta-Supp.-- Avinta (Abe Chen)
Bond-Supp.-- Bond, The Honorable Christopher S. (U.S. Senate)
Celebrity Prime Foods-Supp.-- Celebrity Prime Foods
Chesapeake-Supp.--The Chesapeake Bay Foundation (Amelia Koch and 
Melissa Livingston)
Christian Appalachian-Supp.-- The Christian Appalachian Project
Comic Relief-Supp.--Comic Relief, Inc. (Dennis Albaigh)
Covington & Burling-Supp.-- Covington and Burling
DialAmerica-Supp.--DialAmerica Marketing, Inc.
DMA Letter-Supp.--Direct Marketing Association-Transmittal Letter
DMA Study-Supp.--Direct Marketing Association-Study
ERA and PMA-Supp.--Electronic Retailing Association and Promotion 
Marketing Association
EPI-Supp.-- Enterprise Prison Institute
Domenici-Supp.--Domenici, The Honorable Pete V. (U.S. Senate)
FDS-Supp.-- Federation Department Stores
Hoar-Supp.-- Hoar, Wesley C.
Illinois-Supp.-- Illinois Attorney General's Office
ICTA-Supp.-- Industry Council for Tangible Assets
Luntz-Supp.-- Luntz Research Companies (Chrys Lemon)
MPA-Supp.-- Magazine Publishers of America
Maryland-Supp.--Maryland Attorney General's Office (Carol Beyers)
McIntyre-Supp.--McIntyre Law Firm, PLLC (Chrys Lemon)
McKenna-Supp.--McKenna, Douglas M.
Memberworks-Supp.--Memberworks National Survey Topline (Chrys Lemon)
Minnesota-Supp.--Minnesota Attorney General's Office
Missouri-Supp.--Missouri Attorney General's Office
NACDS-Supp.--National Association of Chain Drug Stores
Ney, Sandlin, Jones, Shows and Cantor-Supp.--Joint letter from: The 
Honorable Bob Ney, Max Sandlin, Walter Jones, Ronnie Shows, and Eric 
Cantor (U.S. House of Representatives)
NAR-Supp.-- National Association of Realtors
NWF-Supp.-- National Wildlife Federation
NAA June 28-Supp.--Newspaper Association of America (John F. Sturm)
NAA July 31-Supp.--Newspaper Association of America
Not-For-Profit Coalition-Supp.--Not-For-Profit and Charitable 
Coalition
PMA-Supp.--Promotion Marketing Association
Putnam-Supp.-- Putnam, The Honorable Adam H. (U.S. House of 
Representatives)
Riley-Supp.--Riley, The Honorable Bob (U.S. House of 
Representatives)
SBC-Supp.-- SBC Communications Inc.
Time-Supp.-- Time, Inc.
Vermont-Supp.--Vermont Attorney General's Office
WWF-Supp.-- World Wildlife Fund (Deborah Hechinger)
Worsham-Supp.--Worsham, Michael C.

User Fee Comments

AARP-User Fee--AARP

[[Page 4678]]

ABA-User Fee--American Bankers Association
Red Cross-User Fee--American Red Cross
ARDA-User Fee--American Resort Development Association
ATA-User Fee--American Teleservices Association
Community Bankers-User Fee-- America's Community Bankers
Ameriquest-User Fee--Ameriquest Mortgage Company
Celebrity Prime Foods-User Fee-- Celebrity Prime Foods
CBA-User Fee--Consumer Bankers Association
DialAmerica-User Fee-- DialAmerica Marketing, Inc.
DMA Letter-User Fee-- Direct Marketing Association
DMA Comments-User Fee-- Direct Marketing Association
Discover-User Fee--Discover Bank
ERA/PMA-User Fee--Electronic Retailing Association and Promotion 
Marketing Association (joint comment)
Household-User Fee--Household Bank (SB), N.A. and Household Bank 
(Nevada), N.A. (joint comment)
Hudson Bay-User Fee-- Hudson Bay Company of Illinois, Inc.
ICTA-User Fee--Industry Council for Tangible Assets
InfoCision-User Fee--InfoCision Management Corporation
ITC-User Fee-- Interactive Teleservices Corporation
MPA-User Fee--Magazine Publishers of America
MasterCard-User Fee--MasterCard International, Inc.
NACDS-User Fee--National Association of Chain Drug Stores
NAR-User Fee--National Association of Realtors
NASUCA-User Fee--National Association of State Utility Consumer 
Advocates
NEMA-User Fee--National Energy Marketers Association
Not-For-Profit Coalition-User Fee--Not-For-Profit and Charitable 
Coalition
SBC-User Fee--SBC Communications, Inc.
Tennessee-User Fee--Tennessee Regulatory Authority
SBA-User Fee--United States Small Business Administration, Office of 
Advocacy
Visa-User Fee-- Visa U.S.A., Inc.
Wells Fargo-User Fee-- Wells Fargo & Company
Concurring Statement of Commissioner Orson Swindle in Telemarketing 
Sales Rule, File No. R411001
    I wholeheartedly support the amendments to the Telemarketing Sales 
Rule (``TSR''), because I believe that they will help protect consumers 
from deceptive and abusive telemarketing practices. In particular, 
these amendments will give consumers the ability to avoid the sheer 
volume of unwanted telemarketing calls that many consider to be a 
nuisance. I write separately to explain my views on two issues -- how 
the Commission determines whether an act or practice is ``abusive'' for 
purposes of the TSR, and the national do-not-call registry.

Abusive Telemarketing Acts or Practices

    The Telemarketing and Consumer Fraud and Abuse Prevention Act 
(``Telemarketing Act'') directs the Commission to promulgate rules that 
prohibit ``deceptive telemarketing acts or practices and other abusive 
telemarketing acts or practices.'' 15 U.S.C. 6102 (a)(1). To determine 
what constitutes an abusive telemarketing practice, the Commission for 
the most part has used the examples of abusive practices that Congress 
provided in the Telemarketing Act and principles drawn from these 
examples. I agree that this is an appropriate analysis, and in light of 
the rulemaking record as a whole, I fully support the TSR amendments 
that fall within these parameters. These amendments include, among 
other things, the provisions involving the national do-not-call 
registry, transmission of caller identification information, and 
abandoned calls and predictive dialers.
    When the Commission seeks to identify practices as abusive that are 
less distinctly within the parameters of the Act's examples and their 
emphasis on privacy protection, the Commission employs its traditional 
unfairness analysis.\1\ I understand the Commission's intention to 
narrow the potentially expansive scope of the term ``abusive'' by using 
its unfairness analysis. However, given the broad ordinary meaning of 
the term ``abusive,'' I believe that the standard for determining what 
constitutes an abusive telemarketing practice likely is broader than 
the stringent definition of the term ``unfair.'' Therefore, I would 
have preferred it had the Commission looked to the plain meaning of the 
term ``abusive'' and then formulated a separate standard to identify 
abusive telemarketing practices for purposes of the Telemarketing Act 
and the TSR.
---------------------------------------------------------------------------

    \1\ Given that nothing in the language of the Telemarketing Act 
or its legislative history indicates that Congress intended the 
Commission to use its unfairness standard to determine which 
practices are abusive, I previously raised concerns about this 
analysis and requested comment on this issue. Concurring Statement 
of Commissioner Orson Swindle in Telemarketing Sales Rule Review, 
File No. R411001, available at (www.ftc.gov/os/2002/01/swindletsrstatment.htm). Although some comments agreed with this 
concern, they did not offer an alternative analysis of abusive 
practices beyond suggesting that the Commission's authority is 
limited to the examples of abusive practices included in the 
Telemarketing Act and its legislative history. See Statement of 
Basis and Purpose at 100, n. 428. However, because the Act does not 
limit the Commission's authority to identify abusive practices to 
the examples in the Act, the Commission may prohibit other practices 
that it identifies as abusive.
---------------------------------------------------------------------------

    Nevertheless, I agree with the Commission's conclusion that a 
telemarketing practice that meets the strict unfairness standard will 
constitute an abusive practice for purposes of the Act and the TSR. In 
light of the rulemaking record, I therefore support the TSR amendments 
that are analyzed under this standard. This includes the requirement 
that telemarketers obtain consumers' or donors' express informed 
consent before causing their information to be submitted for payment. 
The rulemaking record evidences the harm that results from unauthorized 
billing, the need for the consent requirement, and the need to mandate 
specific steps that telemarketers must take to obtain consumers' 
consent in transactions involving preacquired account information.
    In addition, the record supports the prohibition on the disclosure 
or receipt, for consideration, of unencrypted account numbers for use 
in telemarketing (except to process a payment for goods or services or 
a charitable contribution pursuant to a transaction). I do not believe 
that the mere disclosure of personal financial information, without 
more, causes or is likely to cause substantial consumer injury. In this 
situation, however, the rulemaking record provides a basis for 
concluding that trafficking in unencrypted account numbers is likely to 
cause substantial consumer injury in the form of unauthorized billing. 
Industry comments state that there is no legitimate reason to purchase 
unencrypted lists of credit card numbers. Therefore, there is a strong 
likelihood that telemarketers who do engage in this practice will 
misuse the information in a manner that results in unauthorized charges 
to consumers' accounts. The Commission's law enforcement experience 
corroborates this conclusion.\2\ As a result, I conclude that this 
practice is abusive for purposes of the Telemarketing Act.
---------------------------------------------------------------------------

    \2\ See Statement of Basis and Purpose at 97-98. In addition, 
given the evidence that the use of encrypted account information in 
telemarketing can result in unauthorized charges, there is an even 
greater likelihood that injury will occur when a telemarketer has 
obtained, for consideration, consumers' actual credit card numbers.
---------------------------------------------------------------------------

The National Do-Not-Call Registry

    The Telemarketing Act and the TSR recognize consumers' ``right to 
be let alone.'' See, e.g., Olmstead v. U.S., 277 U.S. 438, 478 (1928) 
(Brandeis, J., dissenting) (stating that the ``right to be let alone'' 
is the ``most comprehensive of rights and the right most valued by

[[Page 4679]]

civilized men''). In the context of telemarketing, there is an inherent 
tension between this right and the First Amendment's right to free 
speech. With this in mind, and in light of the rulemaking record as a 
whole, the Commission has determined to establish a national do-not-
call registry. This will enable consumers to stop certain telemarketing 
calls -- calls to induce the purchase of goods and services from 
companies within the FTC's jurisdiction (except where the consumer has 
an ``established business relationship'' with the seller).
    Although the USA PATRIOT Act of 2001 gave the Commission authority 
to regulate for-profit companies that make telephone calls seeking 
charitable donations on behalf of charities, the Commission has 
determined to exempt these entities from the national do-not-call 
registry requirements. Instead, the Commission requires these 
telemarketers to comply with the ``entity-specific'' do-not-call 
provision, which prohibits them from calling consumers who have said 
they do not want to be called by or on behalf of a particular entity. 
This more narrowly tailored approach seeks to protect consumers from 
unwanted telemarketing calls seeking charitable donations, while 
minimizing the impact of the TSR on charities' First Amendment rights. 
I do not object to taking this approach at the outset; but if there is 
evidence that suggests that this approach is not effective in 
protecting consumers from unsolicited telemarketing calls, the 
Commission should revisit this decision and require for-profit 
telemarketers seeking charitable donations to comply with the national 
do-not-call registry.
    While I believe that the amended TSR and the national do-not-call 
registry will go a long way to help consumers prevent unwanted 
intrusions into their homes, a number of entities are not subject to 
the TSR's requirements. Under the Telemarketing Act and the TSR, the 
Commission does not have jurisdiction in whole or in part over the 
calls of entities such as banks, telephone companies, airlines, 
insurance companies, credit unions, charities, political campaigns, and 
political fund-raisers. From the perspective of consumers, the right to 
be let alone is invaded just as much by unwanted calls from exempt 
entities (e.g., banks, telephone companies, or political fund-raisers) 
as it is by such calls from covered entities.\3\ Therefore, I believe 
that the entire spectrum of entities that make telemarketing calls to 
consumers should be subject to do-not-call requirements.
---------------------------------------------------------------------------

    \3\ The Federal Communications Commission, however, has 
requested comment on whether to establish a national do-not-call 
registry that would address telemarketing calls by at least some of 
the entities that are exempt from the FTC's jurisdiction. Notice of 
Proposed Rulemaking, Rules and Regulations Implementing the 
Telephone Consumer Protection Act of 1991, 67 FR 62667 (Oct. 8, 
2002).
---------------------------------------------------------------------------

[FR Doc. 03-1811 Filed 1-28-03; 8:45 am]
BILLING CODE 6750-01-S