[Federal Register Volume 69, Number 190 (Friday, October 1, 2004)]
[Proposed Rules]
[Pages 58861-58872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22039]


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FEDERAL TRADE COMMISSION

16 CFR Parts 642 and 698

RIN 3084-AA94


Prescreen Opt-Out Disclosure

AGENCY: Federal Trade Commission (FTC or Commission).

ACTION: Notice of proposed rulemaking; request for public comment.

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SUMMARY: The recently enacted Fair and Accurate Credit Transactions Act 
of 2003 (FACT Act or the Act) directs the FTC, in consultation with the 
federal banking agencies and the National Credit Union Administration, 
to adopt a rule to improve the required notice to consumers regarding 
their right to opt out of prescreened solicitations for credit or 
insurance. In this action, the FTC is proposing, and seeking comment 
on, a proposed Rule that would implement this requirement of the FACT 
Act. In addition, the FTC is proposing model forms that creditors and 
insurers may use to comply with the Rule.

DATES: Comments must be submitted on or before October 28, 2004.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``FACTA Prescreen Rule, Project No. R411010'' 
to facilitate the organization of comments. A comment filed in paper 
form should include this reference both in the text and on the 
envelope, and should be mailed to the following address: Federal Trade 
Commission, FACTA Prescreen Rule, Post Office Box 1030, Merrifield, VA 
22116-1030. Please note that courier and overnight deliveries cannot be 
accepted at this address. Courier and overnight deliveries should be 
delivered to the following address: Federal Trade Commission/Office of 
the Secretary, Room H-159 (Annex R), 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments containing confidential material must be 
filed in paper form, as explained in the Supplementary Information 
section.
    Comments filed in electronic form should be submitted by clicking 
on the following weblink: https://secure.commentworks.com/ftcprescreen/ 
and following the instructions on the web-based form. To ensure that 
the Commission considers an electronic comment, you must file it on the 
web-based form at the https://secure.commentworks.com/ftcprescreen/ 
weblink. You may also visit http://www.regulations.gov to read this 
proposed Rule, and may file an electronic comment through that Web 
site. The Commission will consider all comments that regulations.gov 
forwards to it.
    Comments on any proposed filing, recordkeeping, or disclosure 
requirements that are subject to paperwork burden review under the 
Paperwork Reduction Act should be submitted to the FTC as indicated 
above, and should additionally be submitted to: Office of Information 
and Regulatory Affairs, Office of Management and Budget, Attention: 
Desk Officer for the Federal Trade Commission. Comments should be 
submitted via facsimile to (202) 395-6974 because U.S. postal mail at 
the Office of Management and Budget is subject to lengthy delays due to 
heightened security precautions.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments received by the 
Commission, whether filed in paper or in electronic form, will be 
considered by the Commission, and will be available to the public on 
the FTC Web site, to the extent practicable, at www.ftc.gov. As a 
matter of discretion, the FTC makes every effort to remove home contact 
information for individuals from public comments it receives before 
placing those comments on the FTC Web site. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at http://www.ftc.gov/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Jeanne-Marie Burke or Kellie A. 
Cosgrove, Attorneys, Division of Financial Practices, Federal Trade 
Commission, 600 Pennsylvania Avenue,

[[Page 58862]]

NW., Washington, DC 20580, (202) 326-3224.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Section-by-Section Analysis of Proposed Rule
    A. Purpose and Scope
    B. Definitions
    C. Prescreen Opt-Out Notices
    D. Effective Date
    E. Model Prescreen Opt-Out Notices
III. Summary of Consumer Study
    A. Overview
    B. Key Findings
    1. Opt-out Messages
    2. Ancillary Messages
IV. Invitation To Comment
V. Communications by Outside Parties to Commissioners and Their 
Advisors
VI. Paperwork Reduction Act
VII. Regulatory Flexibility Act
    A. Description of the Reasons That Action by the Agency Is Being 
Considered
    B. Statement of the Objectives of, and Legal Basis for, the 
Proposed Rule
    C. Small Entities To Which the Proposed Rule Will Apply
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives to the Proposed Rule
VIII. Questions for Comment on the Proposed Rule

I. Introduction

    Section 615(d) of the Fair Credit Reporting Act (FCRA) requires 
that any person who uses a consumer report in order to make an 
unsolicited firm offer of credit or insurance to the consumer, shall 
provide with each written solicitation a clear and conspicuous 
statement that:

    (A) Information contained in the consumer's consumer report was 
used in connection with the transaction; (B) the consumer received 
the offer of credit or insurance because the consumer satisfied the 
criteria for credit worthiness or insurability under which the 
consumer was selected for the offer; (C) if applicable, the credit 
or insurance may not be extended if, after the consumer responds to 
the offer, the consumer does not meet the criteria used to select 
the consumer for the offer or any applicable criteria bearing on 
credit worthiness or insurability or does not furnish any required 
collateral; (D) the consumer has a right to prohibit information 
contained in the consumer's file with any consumer reporting agency 
from being used in connection with any credit or insurance 
transaction that is not initiated by the consumer; and (E) the 
consumer may exercise the right referred to in subparagraph (D) by 
notifying a notification system established under section 604(e) [of 
the FCRA].

Section 615(d)(1) of the FCRA [15 U.S.C. 1681m(d)(1)].

    The Fair and Accurate Credit Transactions Act of 2003, Pub. L. 108-
159, 117 Stat. 1952 (FACT Act or the Act) was signed into law on 
December 4, 2003. Section 213(a) of the FACT Act amends FCRA Section 
615(d) to require that the statement mandated by Section 615(d) ``be 
presented in such format and in such type size and manner as to be 
simple and easy to understand, as established by the Commission, by 
rule, in consultation with the Federal banking agencies and the 
National Credit Union Administration.''
    Therefore, having consulted with the federal banking agencies and 
the National Credit Union Association, the FTC proposes the following 
rule.

II. Section-by-Section Analysis of Proposed Rule

    This proposed Rule carries out the Commission's mandate to improve 
prescreen notices so that they are simple and easy to understand. There 
are two components to making a notice simple and easy to understand: 
(1) Language and syntax that effectively convey the intended message to 
readers; and (2) presentation and format that call attention to the 
notice and enhance its readability. The proposed Rule establishes 
certain baseline requirements for these two components to ensure that 
the notices meet the statutory mandate. Within that broad framework, 
however, the proposed Rule provides flexibility to those making 
prescreened offers in designing their specific disclosures. The 
determination of whether a notice meets the ``simple and easy to 
understand'' standard is based on the totality of the disclosure and 
the manner in which it is presented, not on any single factor. The 
proposed Rule also provides a model disclosure to aid companies' 
compliance.
    The proposed Rule: (1) Sets forth the purpose and scope of the 
Rule; (2) defines ``simple and easy to understand''; (3) requires a 
layered notice consisting of an initial, prominent statement that 
provides basic opt-out information, and a separate longer explanation 
that offers further details; (4) sets an effective date for the Rule; 
and (5) proposes model notices that may be used for compliance with the 
Rule and the FCRA.

A. Purpose and Scope

    Proposed paragraph 642.1 sets forth the purpose and scope of the 
proposed Rule. Section 615(d) of the FCRA and this proposed Rule apply 
to any person who uses a consumer report on any consumer in connection 
with any credit or insurance transaction that is not initiated by the 
consumer, pursuant to Section 604(c) of the FCRA [15 U.S.C. 1681b(c)].

B. Definitions

    Proposed paragraph 642.2 contains a definition for ``simple and 
easy to understand,'' the term used by Section 213(a) of the FACT Act.
    Subparagraph (a) defines ``simple and easy to understand'' to mean 
plain language designed to be understandable to ordinary consumers. 
Factors to be considered in determining whether a statement is simple 
and easy to understand are provided. These factors generally are 
consistent with those cited in other recent rulemaking proceedings 
requiring understandable consumer notices.\1\ Within these factors 
companies retain flexibility in determining how best to meet this 
standard.
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    \1\ See 16 CFR 313.3(b)(2) (financial privacy rule; examples of 
how a notice can be made to be ``reasonably understandable''); see 
also 69 FR 33324, 33327 (June 15, 2004) (notice of proposed 
affiliate marketing rule; examples of ``reasonably 
understandable'').
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C. Prescreen Opt-Out Notices

    Paragraph 642.3 of the proposed Rule sets forth certain baseline 
formatting and language requirements for the disclosures required by 
Section 615(d) of the FCRA. This paragraph requires a ``layered'' 
notice--that is, both a short and long notice. Research in the area of 
consumer notices shows that disclosures tend to be more effective if 
they are written in a clear and concise manner that is easily 
understandable by the average consumer, and convey a limited amount of 
information.\2\ One way to accomplish this, especially in instances 
when the information to be disclosed is voluminous or complex, is 
through a layered approach--imparting the most important information in 
a prominent location, with reference to a second location that provides 
additional details.\3\
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    \2\ G. Ray Funkhouser, An Empirical Study of Consumers' 
Sensitivity to the Wording of Affirmative Disclosure Messages, 3 J. 
Pub. Pol. & Mktg. 26 (1984). Comment 2 on Interagency 
Proposal to Consider Alternative Forms of Privacy Notices Under the 
Gramm-Leach-Bliley Act, Hunton & Williams (The Center for 
Information Policy Leadership) (available at http://www.ftc.gov/os/comments/glbaltprivacynotices/03-31992-0002.pdf).
    \3\ See Id.; Comment 24 on Interagency Proposal to 
Consider Alternative Forms of Privacy Notices Under the Gramm-Leach-
Bliley Act, Peter Swire (available at http://www.ftc.gov/os/comments/glbaltprivacynotices/03-31992-0024.pdf).
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    The Commission understands that, in prescreened solicitations, 
space is at a premium. The Commission also recognizes that prescreened 
notices, under various laws, must disclose a

[[Page 58863]]

significant amount of information.\4\ The Commission believes that a 
layered notice will convey effectively the required information, while 
at the same time not unnecessarily increasing costs to those making 
prescreened offers.
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    \4\ In addition to Section 615(d) of the FCRA, other federal 
laws may require disclosures in prescreened solicitations. For 
example, the Truth in Lending Act (TILA) and its implementing 
Regulation Z require, in certain credit offers relating to the cost 
of credit, a number of disclosures. Various state laws may also 
require disclosures.
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    In creating Section 213 of the FACT Act, Congress intended to 
``enhance[] disclosure of the means available to opt out of prescreened 
lists.'' \5\ Although there are several items of information that must 
be conveyed by the FCRA Section 615(d) notice, the purpose of Section 
213(a) of the FACT Act amendments was to highlight for consumers their 
right to opt out of receiving prescreened solicitations and the 
available means of exercising that right.\6\
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    \5\ Section 213 of the FACT Act. Section 213 is titled, 
``Enhanced Disclosure of the Means Available to Opt Out of 
Prescreened Lists.'' Although the title of a statutory section 
cannot limit that section, it may assist in explaining what was 
intended by that section.
    \6\ See, e.g., 149 Cong. Rec. S13851-52 (daily ed. Nov. 4, 2003) 
(statement of Sen. Sarbanes) (noting that the amendments to the FCRA 
``will require a summary of consumers' rights to opt-out of 
prescreened offers.''); 149 Cong. Rec. S13855 (daily ed. Nov. 4, 
2003) (statement of Sen. Johnson) (noting that the amendments to the 
FCRA ``take[] important new steps to empower consumers to reduce 
unwanted credit solicitations.''); 149 Cong. Rec. S15806-07 (daily 
ed. Nov. 24, 2003) (statement of Sen. Sarbanes) (noting that the 
amendments to the FCRA will ``help ensure that consumers are aware 
of how to opt out of the prescreening process * * *. The FTC * * * 
will be required to write rules on the size and prominence of the 
disclosure of the opt-out telephone number that is included with 
offers of credit to consumers.'')
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    Therefore, the proposed Rule requires the short notice to inform 
consumers about the right to opt out of receiving prescreened 
solicitations and to specify a toll-free number for consumers to call 
to opt out. The long notice provides consumers with all of the 
additional information required by Section 615(d) of the FCRA. The 
Commission considers the layered notice prescribed by the proposed Rule 
to be an appropriate means of effecting the statutory purpose, but 
invites comment on whether there are more effective methods of 
communicating consumers' opt-out rights.
    Under the proposed Rule, the short notice must be: (1) Prominent, 
clear, and conspicuous; (2) in a type size that is larger than the type 
size of the principal text on the same page, but in no event smaller 
than 12-point type; (3) on the front side of the first page of the 
principal promotional document in the solicitation, or, if provided 
electronically, on the first screen; (4) located on the page and in a 
format so that the statement is distinct from other text; and (5) in a 
typeface that is distinct from other typeface used on the same page.
    With respect to the requirement that the notice appear on the front 
side of the first page of the principal promotional document, the 
question of what constitutes the ``principal promotional document'' is 
fact specific. In general, prescreened mailers contain several 
documents, including a cover letter describing the offer, an 
application form, and in some instances additional promotional 
materials. In these situations, the Commission generally would consider 
the cover letter to be the principal promotional document. The 
Commission also generally would consider a marketer to be in compliance 
with the proposed Rule if it includes the notice on the front of the 
document that is designed for consumers to see first when they open the 
envelope.
    The proposed Rule does not mandate any specific language for the 
short notice; rather, it imposes a more general performance standard 
that the notice must be a ``simple and easy to understand'' statement 
that conveys consumers' opt-out right and how they can exercise their 
opt-out right. The proposed Rule also prohibits the addition of 
extraneous information in the short notice. The Commission considers 
the short notice to be the primary vehicle for conveying consumers' 
opt-out right, and the effectiveness of this communication could be 
diminished by adding additional language or concepts, however useful 
that information might be.\7\
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    \7\ See, e.g., Funkhouser, An Empirical Study of Consumers' 
Sensitivity to the Wording of Affirmative Disclosure Messages, 3 J. 
Pub. Pol. & Mktg. at 31, 33 (finding that ``information must be 
presented simply and straightforwardly,'' and ``affirmative 
disclosures should say exactly what they are intended to mean.'') 
(Emphasis in the original).
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    The long notice must contain all information required by Section 
615(d) of the FCRA and must also be presented in a manner that is 
simple and easy to understand. The proposed Rule does not prohibit 
marketers from including additional information in the long notice, 
provided that the additional information does not interfere with, 
detract from, contradict, or otherwise undermine the purpose of the 
opt-out notices.\8\ The Commission invites comment on whether marketers 
should be prohibited from including additional information in the long 
notice and, if not, what restrictions would be appropriate.
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    \8\ As discussed in Section III below, the Commission conducted 
a consumer study to gain information about consumer understanding of 
prescreen opt-out notices. In that study, examples of additional 
information that the Commission believes would likely comply with 
the proposed Rule were included in the notices tested and are 
discussed in Section III.
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    The long notice must be clear and conspicuous and begin with a 
heading identifying it as the ``OPT-OUT NOTICE.'' The long notice must 
also be: (1) In a type size that is no smaller than the type size of 
the principal text on the same page, but in no event smaller than 8-
point type; (2) in a typeface that is distinct from other typeface used 
on the same page; and (3) set apart from other text on the page.
    The proposed Rule requires that the long notice appear in the 
solicitation and that the consumer be directed to the location of the 
long notice, but does not require that the long notice necessarily be 
in the same document as the short notice. This provision provides added 
flexibility to marketers in making the disclosures required by the 
proposed Rule. In the Commission's view, it is unnecessary to require 
both notices to appear in the same document as long as the marketer 
notifies the consumer about where to find the long notice. The 
Commission invites comment on whether the long notice should be 
required to appear in the same document as the short notice.

D. Effective Date

    Paragraph 642.4 of the proposed Rule provides that the Rule would 
become effective 60 days after it is final. The Commission considers 
this amount of time adequate and appropriate to implement the limited 
requirements of the Rule. The Commission invites comment and specific 
information on whether a different time period to comply with the 
proposed Rule is necessary and appropriate.

E. Model Prescreen Opt-Out Notices

    In addition to the requirements for the prescreen opt-out notices 
prescribed by Paragraph 642.3 of the proposed Rule, the Commission 
proposes model notices, to be published at 16 CFR Part 698, Appendix A. 
These notices include model language and also are intended to 
illustrate the proper placement and display of the language. The 
proposed illustrations are modeled on actual solicitations, but, except 
for the operative model language, substitute dummy text for the 
remainder of the solicitation to demonstrate more clearly proper 
format, manner, and type size of prescreen opt-out notices.

[[Page 58864]]

    As described above, the FCRA requires that prescreen opt-out 
notices contain several items of information about the nature and 
limitations of the offer, as well as about consumers' right to opt out 
of such offers. The model language contained in the proposed Rule is 
designed to convey this information in a manner that is understandable 
to ordinary consumers. Because prescreened solicitations can be offered 
for credit or insurance, the model language also allows for 
alternatives that may be used, depending on the product offered. The 
Commission considers the model notices compliant with the statutory 
requirements, as well as with the requirements of the proposed Rule.
    The Commission requests comment on whether the language of the 
model notices provides consumers with sufficient information regarding 
how they were selected for the offer, the reasons that they might not 
receive the offer, the consumers' right to opt out of prescreened 
solicitations, and how they can exercise that right.

III. Summary of Consumer Study

    To gain a better understanding of consumer comprehension of 
prescreen opt-out notices in solicitations, the Commission commissioned 
a consumer study. This section briefly summarizes the key findings of 
the study to assist comment on this proposal. The report on the study 
is posted at www.ftc.gov (``Study Report''). Also posted is a report 
from the contractor who conducted the consumer survey (``Synovate 
Report'').

A. Overview

    The study was conducted to compare the noticeability and 
comprehension of three different versions of an opt-out notice embedded 
in prescreened offers of credit. Respondents were recruited in shopping 
malls across the country, and were asked to look at one of three pre-
screened credit card offers.
     Version #1 (current). This version included virtually 
verbatim the language from Section 615(d) of the FCRA, and is 
representative in content and placement (back page of the offer) of 
what is currently used in many prescreened credit card offers.
     Version #2 (improved). This version used simpler language, 
similar to that of the model notices in the proposed Rule. As with 
version 1, the notice was on the back of the offer, but its 
prominence was enhanced through contrasting print color and format.
     Version #3 (layered). This version had the same text and 
formatting as version 2, as well as an added, boxed ``short 
notice'' at the bottom of the front page with (1) a statement about the 
opt-out right and how to exercise it, and (2) a referral to the back 
for additional details.
    Each participant in the study was shown one of the versions of the 
offer. Interviewers first asked the participant to read the offer and 
then removed it from view (``initial exposure'') before asking a series 
of questions about the noticeability and understandability of the opt-
out notice. Then, each participant was shown the offer a second time 
and was directed to the opt-out notice (``forced exposure''), followed 
by another series of questions. The complete questionnaire and 
tabulations of responses are provided in the Synovate Report.
    The main purpose of the study was to compare the effectiveness of 
the different versions of the notice in communicating the messages that 
consumers can opt out of prescreened offers, and how they can do so 
(i.e., by calling a toll-free number or mailing an opt-out request to 
the consumer reporting agency). A second purpose was to gauge whether 
additional, ancillary information could be communicated effectively as 
part of the notice. Versions 2 and 3 (back page) 
contained three added items of information that may be relevant and 
useful to consumers making an opt-out decision. The added items related 
to the possible usefulness of prescreened offers in making product 
choices, the fact that opting out would not eliminate all mailed 
solicitations for credit or insurance, and the need to provide a social 
security number when calling the opt-out phone number.\9\
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    \9\ These items were selected as exemplars of the many types of 
information that may be relevant and useful to consumers.
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B. Key Findings

1. Opt-Out Messages
    The study found that the layered version communicated the two opt-
out messages more effectively than did the current version following 
both the initial and forced exposures, while the improved version was 
more effective than the current version following the forced exposure. 
The difference in effectiveness between the layered and improved 
versions, however, was less clear. With respect to the second message 
(how to exercise the opt-out right), the layered version was 
significantly more effective than the improved version following the 
initial exposure, but not statistically significantly more effective 
after the forced exposure.
    These findings support the approach required by the proposed Rule. 
The simpler language of the layered notice is substantially more 
understandable to consumers than the language commonly used today. 
Moreover, the layered approach appears to be more effective in 
communicating how consumers can opt out of future offers than either of 
the other approaches tested.
2. Ancillary Messages
    In general, the study had mixed results on the communication 
effectiveness of the three ancillary messages embedded in the improved 
and long notices. The study asked communication questions about two of 
the three ancillary messages (the possible benefits of prescreened 
offers and the fact that opting out would not eliminate all offers). 
After the initial exposure, neither the improved nor layered versions 
communicated either ancillary message effectively. After the forced 
exposure, however, as would be expected, communication levels of both 
messages were considerably higher. As described above, the proposed 
Rule would prohibit ancillary information in the short portion of the 
notice, but permit it in the long portion if it does not detract from 
the opt-out message.\10\
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    \10\ Whether additional information added to the long notice 
would detract from the opt-out message depends on individual 
circumstances, including the volume of the information added and 
whether that information in any way contradicted or interfered with 
the opt-out message. In general, the Commission would not consider 
the three items of information included in the notices tested in the 
survey to detract from the communication of the opt-out message.
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IV. Invitation To Comment

    All persons are hereby given notice of the opportunity to submit 
written data, views, facts, and arguments addressing the issues raised 
by this Notice. Written comments must be submitted on or before October 
28, 2004. Comments should refer to ``FACTA Prescreen Rule, Project No. 
R411010'' to facilitate the organization of comments. A comment filed 
in paper form should include this reference both in the text and on the 
envelope, and should be mailed to the following address: Federal Trade 
Commission, FACTA Prescreen Rule, Post Office Box 1030, Merrifield, VA 
22116-1030. Please note that courier and overnight deliveries cannot be 
accepted at this address. Courier and overnight deliveries should be 
delivered to the following address: Federal Trade Commission/Office of 
the Secretary, Room H-159 (Annex R), 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. If the comment contains any material for which

[[Page 58865]]

confidential treatment is requested, it must be filed in paper (rather 
than electronic) form, and the first page of the document must be 
clearly labeled ``Confidential.'' \11\
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    \11\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).
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    Comments filed in electronic form should be submitted by clicking 
on the following weblink: https://secure.commentworks.com/ftcprescreen/ 
and following the instructions on the web-based form. To ensure that 
the Commission considers an electronic comment, you must file it on the 
web-based form at the https://secure.commentworks.com/ftcprescreen/ 
weblink. You may also visit http://www.regulations.gov to read this 
proposed Rule, and may file an electronic comment through that Web 
site. The Commission will consider all comments that regulations.gov 
forwards to it.
    Comments on any proposed filing, recordkeeping, or disclosure 
requirements that are subject to paperwork burden review under the 
Paperwork Reduction Act should be submitted to the FTC as indicated 
above, and should additionally be submitted to: Office of Information 
and Regulatory Affairs, Office of Management and Budget, Attention: 
Desk Officer for the Federal Trade Commission. Comments should be 
submitted via facsimile to (202) 395-6974 because U.S. postal mail at 
the Office of Management and Budget is subject to lengthy delays due to 
heightened security precautions.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments received by the 
Commission, whether filed in paper or electronic form, will be 
considered by the Commission, and will be available to the public on 
the FTC Web site, to the extent practicable, at www.ftc.gov. As a 
matter of discretion, the FTC makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC Web site. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

V. Communications by Outside Parties to Commissioners and Their 
Advisors

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

VI. Paperwork Reduction Act

    The Commission has submitted this proposed Rule and a Supporting 
Statement for Information Collection Provisions to the Office of 
Management and Budget (``OMB'') for review under the Paperwork 
Reduction Act of 1995 (``PRA''), 44 U.S.C. 3501-3517. As required by 
the FACT Act, the proposed Rule sets forth the format and manner of the 
disclosure notifying consumers of their right to opt out of prescreened 
solicitations.
    The Commission staff estimates the paperwork burden of the Act and 
proposed Rule based on its knowledge of prescreened solicitations. The 
FTC expects that providing the notice to consumers would not 
significantly burden industry. The FCRA previously required that 
notices be given to consumers in prescreened solicitations; the FACT 
Act and this proposed Rule require that those notices be in a format, 
type size, and manner that is simple and easy to understand. The 
proposed Rule provides entities making prescreened solicitations with a 
general model form (provided in 16 CFR Part 698, Appendix A) that they 
may use to comply with the proposed Rule. The notices are standardized 
and machine-generated. Entities making prescreened solicitations would 
face a one-time burden to reprogram and update systems to revise the 
existing notice and to re-format solicitations.
    The FTC estimates that between 500 and 750 entities make 
prescreened solicitations. The estimated time to revise the notice and 
re-format solicitations is approximately 8 hours (one business day); 
therefore, the total annual burden is estimated to be between 4,000 and 
6,000 hours. The FTC estimates that the total cost for all affected 
firms will be between $110,000 and $167,000. This estimate is based on 
Bureau of Labor Statistics data (as of July, 2002), as follows: 2 hours 
of managerial/professional time \12\ at $31.55 per hour; plus 6 hours 
of skilled technical labor at $26.44 per hour; multiplied by 500 and 
750 entities, for a total of between $110,870 and $166,305.
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    \12\ The legal, professional, and training costs of implementing 
this Rule are likely to be inconsequential. Such costs were already 
incurred when the FCRA first required prescreen opt-out disclosures. 
The nature of this proposed Rule limits additional costs in these 
areas by providing models for compliance with the proposed Rule. 
Therefore, the primary cost incurred by this proposed Rule will be 
incurred by the reformatting of solicitations.
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    The Commission invites comments that will enable it to: (1) 
Evaluate whether the proposed collections of information are necessary 
for the proper performance of the functions of the Commission, 
including whether the information will have practical utility; (2) 
evaluate the accuracy of the Commission's estimate of the burden of the 
proposed collections of information, including the validity of the 
methodology and assumptions used; (3) enhance the quality, utility, and 
clarity of the information to be collected; and (4) minimize the burden 
of the collections of information on those who must comply, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological techniques or other forms of information 
technology.

VII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612, 
requires that the Commission provide an Initial Regulatory Flexibility 
Analysis (``IRFA'') with a proposed rule and a Final Regulatory 
Flexibility Analysis (``FRFA''), if any, with the final rule, unless 
the Commission certifies that the rule will not have a significant 
economic impact on a substantial number of small entities. 5 U.S.C. 
603-605.
    The Commission does not anticipate that the proposed Rule will have 
a significant economic impact on a substantial number of small 
entities. The FCRA previously mandated the opt-out disclosure. The Act 
requires the Commission to adopt a rule to make the required disclosure 
simple and easy to understand. The proposed Rule applies to any entity 
that makes prescreened offers of credit or insurance. The Commission 
has been unable to determine the number of small entities that purchase 
prescreened lists from consumer reporting agencies. However, the 
Commission believes that very few small entities make prescreened 
offers. Based on discussions with various trade associations, the 
Commission estimates that very few small businesses engage in 
prescreened solicitations because many small businesses find it more 
cost effective to engage in point-of-sale solicitations and/or 
solicitations of existing customers. Although there may

[[Page 58866]]

be some small entities among the entities making prescreened offers, 
the economic impact of the proposed Rule is not likely to be 
significant on a particular entity, nor is the proposed Rule likely to 
have a significant economic impact on a substantial number of small 
entities. The minimal impact on creditors and insurers would likely 
consist of revising disclosures that they already give in order to make 
the disclosures simple and easy to understand, and the proposed Rule 
would provide model notices to aid in this undertaking.
    Accordingly, this document serves as notice to the Small Business 
Administration of the agency's certification of no effect. To ensure 
the accuracy of this certification, however, the Commission requests 
comment on whether the proposed Rule will have a significant impact on 
a substantial number of small entities, including specific information 
on the number of entities that would be covered by the proposed Rule, 
the number of these companies that are ``small entities,'' and the 
average annual burden for each entity. Although the Commission 
certifies under RFA that the Rule proposed in this notice would not, if 
promulgated, have a significant impact on a substantial number of small 
entities, the Commission has determined, nonetheless, that it is 
appropriate to publish an IRFA in order to inquire into the impact of 
the proposed Rule on small entities. Therefore, the Commission has 
prepared the following analysis:

A. Description of the Reasons That Action by the Agency Is Being 
Considered

    The Act directs the FTC to adopt a rule to improve the required 
notice to consumers regarding their right to opt out of prescreened 
solicitations for credit or insurance. In this action, the FTC is 
proposing, and seeking comment on, a proposed Rule that would implement 
this requirement of the FACT Act.

B. Statement of the Objectives of, and Legal Basis for, the Proposed 
Rule

    The objective of the proposed Rule is to improve the required 
notice to consumers regarding their right to opt out of prescreened 
solicitations for credit or insurance by establishing a format, type 
size, and manner of the notice so that the notice will be simple and 
easy to understand. The proposed Rule is authorized by and based upon 
section 213(a) of the FACT Act, Pub. L. 108-159, 117 Stat. 1952.

C. Small Entities to Which the Proposed Rule Will Apply

    As described above, the proposed Rule applies to any entity, 
including small entities, that makes prescreened offers of credit or 
insurance. The Commission has been unable to ascertain a precise 
estimate of the number of small entities that are creditors or 
insurers. Entities covered by the Rule include any entity that extends 
credit or insurance, including insurance companies, retailers, 
department stores, and banking institutions, if they are engaging in 
prescreened offers of credit. For these kinds of entities, the Small 
Business Administration defines small business to include, in general 
insurance companies and retailers whose annual receipts do not exceed 
$6 million in total receipts, and department stores whose annual 
receipts do not exceed $23 million in total receipts. For banking 
institutions, the Small Business Administration defines small business 
to include entities whose total assets do not exceed $150 million.\13\
---------------------------------------------------------------------------

    \13\ These numbers represent size standards for most entities in 
the industries mentioned above. A list of the SBA's size standards 
for all industries can be found at http://www.sba.gov/size/indextableofsize.html.
---------------------------------------------------------------------------

    However, not all businesses that extend credit or insurance are 
required to comply with the Rule. Rather, only such entities that make 
prescreened solicitations will be subject to the Rule's requirements. 
Although the number of small businesses that offer credit or insurance 
is large, the Commission estimates that only a small number of those 
businesses engage in prescreened solicitations. Based on discussions 
with various trade associations, the FTC understands that many small 
businesses do not find prescreened solicitations to be cost-effective. 
The Commission invites comment and information on this issue.

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    Under the proposed Rule, any entity making a prescreened offer of 
credit or insurance will be required to provide recipients of the offer 
with a disclosure regarding their right to opt out of such offers. 
These disclosures are to be in a form that is simple and easy to 
understand. As noted in the Paperwork Reduction Act analysis above, the 
estimated time to revise the notice and re-format solicitations is 
approximately 8 hours (one business day), and the total cost for all 
entities to comply with this Rule is between $110,00 and $167,000. The 
FTC is seeking comment on these cost and burden estimates.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    The Commission has not identified any other federal statutes, 
rules, or policies that would duplicate, overlap, or conflict with the 
proposed Rule. The Commission invites comment and information on this 
issue.

F. Significant Alternatives to the Proposed Rule

    The Commission is not, at this time, aware of what particular 
alternative methods of compliance may comport with the statute and also 
reduce the impact of the proposed Rule on small entities that may be 
affected by the Rule. The statutory requirements are specific as to the 
information that must be conveyed in the disclosure. The Commission is 
given some flexibility in establishing the format, type size, and 
manner of the disclosure, so long as the disclosure is simple and easy 
to understand. The proposed Rule allows companies to retain flexibility 
in determining how best to meet the standards set forth by the proposed 
Rule. Therefore, the Commission seeks comment and information with 
regard to: (1) The existence of small business entities for which the 
proposed Rule would have a significant economic impact; (2) suggested 
alternative methods of compliance that, consistent with the statutory 
requirements, would reduce the economic impact of the Rule on such 
small entities; (3) whether the length or format of the disclosure 
should be adjusted to make it less burdensome while still satisfying 
the statutory requirements; (4) whether the effective date is 
appropriate; and (5) whether any particular small business has a need 
for a longer compliance period. If the comments filed in response to 
this notice identify small entities that are significantly affected by 
the Rule, as well as alternative methods of compliance that would 
reduce the economic impact of the Rule on such entities, the Commission 
will consider the feasibility of such alternatives and determine 
whether they should be incorporated into the final Rule.

VIII. Questions for Comment on the Proposed Rule

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

[[Page 58867]]

    1. Are the proposed requirements for format and manner of 
disclosure appropriate and adequate to fulfill the purpose of enabling 
consumers to understand their right to opt out of receiving prescreened 
offers?
    2. Does the layered notice requirement provide a simple and easy 
format for disclosing the required information? Are the type sizes 
proposed for the short notice and the long notice appropriate? Should 
they be larger? Should they be smaller?
    3. Is the requirement that the short notice be ``on the first page 
of the principal promotional document in the solicitation'' sufficient 
to ensure that the short notice is prominent and noticeable? Should 
``principal promotional document'' be a defined term? Should there be a 
safe harbor for placing the short notice on the first page of the 
document that is designed to be seen first by the consumer? What other 
factors should be considered in determining whether a document is the 
``principal promotional document'?
    4. Is there additional information that should be required in the 
short notice to enhance its simplicity and understandability? If 
additional information is needed, identify the information and state 
why it is needed.
    5. Should the Rule allow additional information in the short 
notice? If so, what, if any, restrictions or conditions should apply to 
the inclusion of additional information?
    6. Is there additional information that should be required in the 
long notice to enhance its simplicity and understandability? If 
additional information is needed, identify the information and state 
why it is needed.
    7. Should the Rule prohibit information beyond that required by the 
statute from being included in the long notice?
    8. Should the Rule require the long notice to appear in the same 
document as the short notice?
    9. Is the effective date adequate and appropriate? If not, please 
specify what an appropriate effective date would be and provide 
specific information regarding why an effective date other than the 
date in this proposed Rule is necessary and appropriate. For example, 
is the effective date adequate for marketers to exhaust their existing 
inventories of solicitation forms, re-design the opt-out notice in 
order to incorporate the layered approach, and print solicitations with 
the new layered notices? Is there any small business that has a 
particular need for a longer period for compliance?
    10. Are the model notices simple and easy to understand? Are there 
terms used in the model notice that are not likely to be understood by 
ordinary consumers? If so, what are those terms, and what other terms 
would be understandable? For example, is the term ``criteria'' 
understandable to ordinary consumers? Are ordinary consumers more 
likely to understand a term such as ``credit standards'' or 
``requirements'?
    11. Do the model notices adequately provide consumers with the 
information necessary to exercise their right to opt out? If additional 
information is needed, identify such information and state why it is 
needed.
    12. Do the model notices offer helpful guidance for complying with 
the Rule?
    13. The model long notice includes the name of the consumer 
reporting agency to whom the consumer can write to exercise the opt-out 
right. Is this helpful to consumers? Should the notice include the 
names of all nationwide consumer reporting agencies?
    14. To what extent do credit and insurance providers make 
prescreened solicitations electronically? Describe the circumstances 
under which a prescreened solicitation would be made electronically. 
Are electronic prescreened offers likely to become more prevalent? Does 
the proposed rule adequately address prescreened offers that are made 
electronically?
    15. What is the number and nature of entities that are covered by 
the Rule? Are any of these entities small businesses? (See http://www.sba.gov/size/indextableofsize.html for guidance on what constitutes 
a ``small business.'') If so, what is the number and nature of any such 
small business entities? How many of these small entities make 
prescreened offers of credit or insurance?
    16. Please provide comment on any or all of the provisions in the 
proposed Rule with regard to (a) the impact of the provision(s) 
(including any benefits and costs), if any, and (b) what alternatives, 
if any, the Commission should consider, as well as the costs and 
benefits of those alternatives, paying specific attention to the effect 
of the proposed Rule on small entities in light of the above analysis. 
Costs to ``implement and comply'' with the proposed Rule should include 
expenditures of time and money for any employee training, attorney, 
computer programmer, or other professional time, as well as notice 
reformatting, mailing, or other implementation costs.
    17. Please describe ways in which the proposed Rule could be 
modified, consistent with the FACT Act's mandated requirements, to 
reduce any costs or burdens for small entities.
    18. Please describe whether and how technological developments 
could reduce the costs to small entities of complying with the proposed 
Rule.
    19. Please provide any information quantifying the economic costs 
and benefits of the proposed Rule for regulated entities, including 
small entities.
    20. Please identify any relevant federal, state, or local rules 
that may duplicate, overlap, or conflict with the proposed Rule.

List of Subjects

16 CFR Part 642

    Fair Credit Reporting Act, Consumer reports, Consumer reporting 
agencies, Credit, Trade practices.

16 CFR Part 698

    Fair Credit Reporting Act, Consumer reports, Consumer reporting 
agencies, Credit, Trade practices.

    Accordingly, for the reasons set forth in the preamble, the FTC 
proposes to amend chapter I, title 16, Code of Federal Regulations, as 
follows:
    1. Add new part 642 to read as follows:

PART 642--PRESCREEN OPT-OUT NOTICES

Sec.
642.1 Purpose and scope.
642.2 Definitions.
642.3 Prescreen opt-out notices.
642.4 Effective date.

    Authority: Public Law 108-159, sec. 213(a); 15 U.S.C. 1681m(d).


Sec.  642.1  Purpose and scope.

    (a) Purpose. This part implements section 213(a) of the Fair and 
Accurate Credit Transactions Act of 2003, which requires the Federal 
Trade Commission to establish the format, type size, and manner of the 
notices to consumers, required by section 615(d) of the Fair Credit 
Reporting Act (``FCRA''), regarding the right to prohibit (``opt out'' 
of) the use of information in a consumer report to send them 
solicitations of credit or insurance.
    (b) Scope. This part applies to any person who uses a consumer 
report on any consumer in connection with any credit or insurance 
transaction that is not initiated by the consumer, and that is provided 
to that person under section 604(c)(1)(B) of the FCRA (15 U.S.C. 
1681b(c)(1)(B)).


Sec.  642.2  Definitions.

    As used in this part, unless the context requires otherwise:
    (a) Simple and easy to understand means plain language designed to 
be

[[Page 58868]]

understood by ordinary consumers. For purposes of this part, factors to 
be considered in determining whether a statement is simple and easy to 
understand include:
    (1) Use of clear and concise sentences, paragraphs, and sections;
    (2) Use of short explanatory sentences;
    (3) Use of definite, concrete, everyday words;
    (4) Use of active voice;
    (5) Avoidance of multiple negatives;
    (6) Avoidance of legal and technical business terminology;
    (7) Avoidance of explanations that are imprecise and reasonably 
subject to different interpretations; and
    (8) Use of language that is not misleading.
    (b) [Reserved]


Sec.  642.3  Prescreen opt-out notices.

    Any person who uses a consumer report on any consumer in connection 
with any credit or insurance transaction that is not initiated by the 
consumer, and that is provided to the person under section 604(c)(1)(B) 
of the FCRA (15 U.S.C. 1681b(c)(1)(B)), shall, with each written 
solicitation made to the consumer about the transaction, provide the 
consumer with the following notifications, both of which shall be in 
the same language as the offer of credit or insurance:
    (a) Short notice.
    (1) Content. The short notice shall be a simple and easy to 
understand statement that the consumer has the right to opt out of 
receiving prescreened solicitations, and the toll-free number the 
consumer can call to exercise that right. The short notice also shall 
direct the consumer to the existence and location of the long notice, 
and shall state the heading for the long notice required by paragraph 
(b)(2)(iv) of this section. The short notice shall not contain any 
other information.
    (2) Form. The short notice shall be:
    (i) Prominent, clear, and conspicuous;
    (ii) In a type size that is larger than the type size of the 
principal text on the same page, but in no event smaller than 12-point 
type;
    (iii) On the front side of the first page of the principal 
promotional document in the solicitation, or, if provided 
electronically, on the first screen;
    (iv) Located on the page and in a format so that the statement is 
distinct from other text, such as inside a border; and
    (v) In a typeface that is distinct from other typeface used on the 
same page, such as bolding, italicizing, underlining, and/or in a color 
that contrasts with the color of the principal text on the page, if the 
solicitation is in more than one color.
    (b) Long notice.
    (1) Content. The long notice shall be a simple and easy to 
understand statement that includes the information required by section 
615(d) of the Fair Credit Reporting Act (15 U.S.C. 1681m(d)). The long 
notice shall not include any other information that interferes with, 
detracts from, contradicts, or otherwise undermines the purpose of the 
opt-out notices.
    (2) Form. The long notice shall:
    (i) Be clear and conspicuous;
    (ii) Appear in the solicitation;
    (iii) Be in a type size that is no smaller than the type size of 
the principal text on the same page, but in no event smaller than 8-
point type;
    (iv) Begin with a heading in capital letters and underlined, and 
identifying the long notice as the ``OPT-OUT NOTICE'';
    (v) Be in a typeface that is distinct from other typeface used on 
the same page, such as bolding, italicizing, underlining, and/or in a 
color that contrasts with the color of the principal text on the page, 
if the solicitation is in more than one color; and
    (vi) Be set apart from other text on the page, such as by including 
a blank line above and below the statement, and by indenting both the 
left and right margins from other text on the page.


Sec.  642.4  Effective date.

    This part shall become effective sixty (60) days after this part 
becomes final.

PART 698--SUMMARIES, NOTICES, AND FORMS

    2. Revise the authority citation in part 698 to read as follows:

    Authority: 15 U.S.C. 1681e, 1681g, 1681j, 1681m(d), 1681s; Pub. 
L. 108-159, sections 151, 153, 211(c) and (d), 213, and 311, 117 
Stat. 1952.
    3. Amend Sec.  698.1 by revising paragraph (b) to read as follows:


Sec.  698.1  Authority and purpose.

* * * * *
    (b) Purpose. The purpose of this part is to comply with sections 
607(d), 609(c), 609(d), 612(a), and 615(d) of the Fair Credit Reporting 
Act, as amended by the Fair and Accurate Credit Transactions Act of 
2003, and Section 211 of the Fair and Accurate Credit Transactions Act 
of 2003.
    4. Add Appendix A to Part 698 as follows:

Appendix A to Part 698--Model Prescreen Opt-Out Notices

    In order to comply with section 615(d) of the FCRA (15 U.S.C. 
1681m(d)) and part 642 of this chapter, the following model notices 
may be used. These notices include model language and also are 
intended to illustrate the proper placement and display of the 
language. The proposed illustrations are modeled on actual 
solicitations, but, except for the operative model language, 
substitute dummy text for the remainder of the solicitation to 
demonstrate more clearly proper format, manner, and type size of 
prescreen opt-out notices.

BILLING CODE 6750-01-P

[[Page 58869]]

English Language Model Notice: Short Notice
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[[Page 58870]]



English Language Model Notice: Long Notice
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[[Page 58871]]



Spanish Language Model Notice: Short Notice
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[[Page 58872]]



Spanish Language Model Notice: Long Notice
[GRAPHIC] [TIFF OMITTED] TP01OC04.079


    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 04-22039 Filed 9-30-04; 8:45 am]
BILLING CODE 6750-01-C