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A business guide to
the Federal Trade Commission (FTC) Telemarketing Sales Rule to implement
the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994
In 1994, Congress
passed the Telemarketing and Consumer Fraud and Abuse Prevention Act to
combat telephone fraud. It serves to provide law enforcement agencies
with powerful new tools and gives consumers new protections and guidance
on how to differentiate between fraudulent and legitimate telemarketing.
Under the Act, the Federal Trade Commission (FTC) adopted the Telemarketing
Sales Rule, which went into effect December 31, 1995 and requires telemarketers
to formalize their existing policies and, where necessary, create new
ones to bring their operations into compliance.
Businesses not
covered by the Rule
The following four types of businesses, even though they may use interstate
telephone calls to sell goods or services, are not subject to the FTC's
jurisdiction and, therefore, are not covered by the Rule:
- Banks, Federal
Credit Unions and Federal Savings and Loans
- Common carriers,
such as long distance telephone companies and airlines
- Non-Profit Organizations
- Insurance companies-to
the extent that this business is regulated by state law
However, individuals
or companies that contract with one of these four types of entities are
covered and must comply with the Rule. For example, if you provide services
to, or on behalf of, a bank or airline, or if you are profiting from services
provided to a nonprofit organization, you are covered by the Rule. This
does not apply to individuals and companies selling investments, who are
subject to the jurisdiction of the Securities and Exchange Commission
or the Commodity Futures Trading Commission.
Calls not covered
by the Rule
Some types of calls are not covered by the Rule, regardless of whether
the business or individual receiving the call is covered:
- Consumer calls
in response to a catalog advertisement, as long as the catalog is issued
at least once a year and contains a written description/illustration
of the goods or services offered for sale and the business address of
the seller. If, during the call, the telemarketer offers goods or services
not included in the catalog or not prompted by the consumer, the sales
transaction is covered by the Rule. Catalog merchandise sales are covered
by the FTC's Mail and Telephone Order Merchandise Rule.
- 900 number pay-per-call
telephone calls, which must comply with the FTC's 900-Number Rule.
- Calls related to
the sale of franchises or business opportunities that are covered by
the FTC's Franchise Rule.
- Unsolicited calls
from consumers, such as hotel, airline and car rental reservations,
take-out food orders, technical support, or calls to retailers that
have not been prompted by an advertisement or solicitation.
- Follow-up calls
after a face-to-face sales presentation. For sales made at the consumer's
home or away from the seller's place of business, the FTC's Cooling
Off Rule applies.
- Business-to-business
calls that do not involve retail sales of non durable office or cleaning
supplies, such as paper, toner and cleaning solvents.
- Consumers' calls
made in response to general media advertising, such as television commercials,
infomercials, home shopping programs, magazine and newspaper ads, and
yellow pages or similar directory listings.
- Calls responding
to direct mail advertising, if the solicitation material clearly, conspicuously
and truthfully discloses cost and quantity, material restrictions, limitations
or conditions, and any "no refund" policy. Calls responding
to direct mail advertising related to credit repair, recovery services,
advance-fee loans, investment opportunities or prize promotions are
not exempt.
Proper Identification
All outbound telemarketing calls must promptly disclose, in a clear and
conspicuous manner, the identity of the seller, that the purpose of the
call is to sell goods/services, the nature of the goods/services being
offered, and in the case of a prize promotion, that no purchase or payment
is necessary to participate or win.
Calls initiated strictly
to welcome new customers or to ascertain customer satisfaction do not
require these four oral disclosures. Calls made by for-profit companies
on behalf of non-profit entities need only disclose the name of the nonprofit
organization on whose behalf they are calling, the nature of the offered
goods/services and the request for a donation.
Calling Hour Restrictions
The Rule expressly forbids calls to private residences before 8:00 a.m.
or after 9:00 p.m. (local time at the consumer's location). Any exceptions
to this must be with the expressed consent of the called party.
Required Information
to Consumers
The Rule requires telemarketers - whether making outbound calls to consumers
or receiving inbound calls from consumers - to provide the following information
so that the consumer can make an informed purchase decision from that
particular seller before paying for the goods/services that are the subject
of the sales offer:
- Cost and quantity - The Rule requires disclosure of the total cost to purchase, receive
or use the offered goods/services and the total quantity of goods/services
the consumer must pay for and receive. An exception to the Rule is if
the telemarketer is offering a "negative option plan," such
as record or book clubs that require the consumer to purchase a specific
number of items over a specified time period, or a "continuity
plan," where the consumer can purchase some or all of a collection
over the course of the plan. Since neither the seller nor the consumer
knows the quantity of products that will ultimately be purchased or
the total cost, only the costs and quantity of goods/services that are
part of the initial offer must be disclosed, along with the total quantity
of additional goods/services the consumer must purchase over the duration
of the plan and the range of costs to purchase each individual additional
good/service.
- Material restrictions,
limitations or conditions to purchase, receive or use the offered goods/
services - This includes such things as method of payment, deposit or advance
reservation requirements, any restrictions, limitations, conditions
or additional expenses that may be incurred to redeem the offer.
- "No refund"
policy - Refund, cancellation, exchange or repurchase policies must be disclosed
only if they are part of the sales presentation. On the other hand,
if "all sales are final," the consumer must be informed of
this fact before paying for the offered goods/services.
- Prize promotions - A prize is anything offered and given to a person by chance. For purposes
of the Rule, chance exists if a person is guaranteed to receive an item
and, at the time of the offer, the specific item the person will receive
is not identified. (You can tell them they will receive one of several
prizes, but not which prize.) The telemarketer must, however, promptly
disclose, in a clear and conspicuous manner, the odds of winning the
prize(s) and/or the factors used in calculating the odds - that no purchase
is necessary to participate in the promotion or win a prize, the no-purchase/no-payment
entry information, and any costs or conditions to receive or redeem
any prize.
Authorization for
Payment
The Rule requires a consumer's "express verifiable authorization"
for use of bank account information to obtain payment through "phone
checks" or "demand drafts." This can be done by advance
written authorization (a fax or voided signed check will do) by a tape
recording of the consumer giving authorization, or by a written confirmation
of the transaction sent to the consumer before the draft is submitted
for payment.
The taped authorization
and written confirmation must include the date and amount of the draft(s),
the name on the account from which the funds will be paid, the number
of draft payments authorized, if more than one, a telephone number answered
during normal business hours that the consumer can call with questions,
and the date of the consumer's authorization.
Many states require
advance consent of the recorded party; the taped confirmation must show
that the consumer understands and acknowledges each term of the transaction
and authorizes it. Written confirmations must include a refund policy
in the event that the consumer disputes the authorization.
Prohibitions Under
the Rule
Claims which are false or misleading are strictly prohibited. All offers
must be stated clearly and honestly so that the parties know exactly what
they have committed to, how much it will cost, and what they will be getting
in return.
Misrepresenting any
material aspect of the product, service, prize promotion or investment
opportunity - or of the refund, repurchase or cancellation policy - is
also prohibited. The Rule prohibits the telemarketer from misrepresenting
their affiliation with, or endorsement by, any charitable, governmental,
police, civic or similar third-party organization.
The Rule prohibits
knowingly assisting and/or facilitating telemarketing practices that violate
the Rule - or deliberately remaining ignorant of Rule violations. For
example, third parties that provide names of consumers with poor credit
records to credit repair services will not be protected from liability.
(Credit repair services cannot request or receive payment until the time
frame within which the promised service has expired and evidence of the
promised improvement in the consumer's credit record has been achieved.)
Credit card "laundering"
- obtaining access to the credit card system through another's merchant
account without the authorization of the financial institution - not only
violates the Rule, it is a criminal offense under federal law as well
as under the law of some states.
Finally, the Rule
prohibits the use of threats, intimidation or profane or obscene language
to pressure a consumer into accepting a sales offer. Repeated calls to
an individual who has declined to accept an offer are considered acts
of intimidation and is an abusive practice.
"Do not call"
Policies
Sellers may not call, or cause a telemarketer to call, a consumer who
has requested to receive no more calls from, or on behalf of, the particular
goods/services being offered. The Rule further requires sellers to maintain
"Do not call" lists of those consumers who do not wish to be
contacted by phone, to develop a written policy implementing this "Do
not call" list-keeping requirement, and to train its telemarketing
personnel in these procedures.
Enforcement and
Penalties
Calling a consumer who has requested not to be called is a Rule violation
and could result in civil penalties of up to $10,000 per violation, nationwide
injunctions prohibiting certain conduct or redress to injured consumers.
If a written "Do not call" policy is in place and the call was
the result of error, there may be no Rule violation, but the complaint
could be subject to an enforcement investigation into the effectiveness
of the "Do not call" policy, how it is implemented and if all
personnel are properly trained in its procedures.
Ultimately, the seller
is responsible for keeping a current "Do not call" list, whether
it is through a telemarketing service it hires or through its own efforts.
However, if the investigation reveals that the telemarketer ignored the
seller's written "Do not call" procedures, then the telemarketer
would be liable for the Rule violation. The Rule further states that,
without an agreement to do otherwise, the seller must maintain advertising
and promotional materials, information about prize recipients, sales records,
employee records and all verifiable authorizations for demand drafts for
a period of two years from the date that the record is produced.
The FTC, the states
and private citizens may bring civil lawsuits in federal district courts
to enforce the Rule. Actions by the states may be brought by the attorney
general or any officer authorized to bring actions on behalf of its residents.
Private persons may bring action if they have suffered $50,000 or more
in actual damages. In both cases, written notice must be provided to the
FTC prior to filing a complaint or immediately upon instituting the action.
This guide has been
prepared as an educational tool. For legal matters, consult your own counsel.
Copies of the FTC Telemarketing Sales Rule and a more detailed business
compliance guide are available from the FTC at the following address:
Federal Trade Commission
Public Reference Branch
6th Street and Pennsylvania Avenue, N.W.
Washington, DC 20580
202-326-2222
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