Practical tips on complying with the new telemarketing sales rule

As the effective date of the Federal Trade Commission's (FTC's) new Telemarketing Sales Rule draws near, companies need to begin thinking about modifying their programs so they will comply with the new rule.

In the past, this column has provided an overview of the legislative history and highlights of the final rule. This article attempts to provide some practical guidelines to complying with the rule by addressing some of the major questions that have already come up, regarding various interpretations of some of the more general and, in some instances, ambiguous provisions of the rule.

It should be noted that the FTC plans to issue a set of guides for compliance with the new Telemarketing Sales Rule. These guides will hopefully address some of the key questions and open issues identified by businesses as they begin to convert the rule's provisions into actual practice.

Timing of Mandatory Disclosures

The rule sets forth two categories of mandatory disclosures. The first set of disclosures, applicable to both inbound and outbound, includes the total costs of the goods or services and any material restrictions, limitations or conditions to purchase the goods or services, all material terms and conditions of the seller's refund policy if the sale is final or if the refund policy is advertised, and the fact that no purchase is necessary for prize promotions.

The rule requires that these disclosures be made "before the customer pays for an goods or services offered." The first question, therefore, is when the consumer will be deemed to have "paid." In the case of credit card or check draft transactions, the FTC has indicated that the customer will be deemed to have paid when the credit card or bank account information is provided by the customer. This is similar to the FTC's policy under the Mail and Telephone Order Rule. In addition, if a courier is to be used to pick up the payment, the disclosure must be made before the arrangements for the courier are made.

The second category of disclosures are the oral disclosures which are required to be made on all outbound calls. These disclosures include the identity of the seller, the sales purpose of the call, the nature of goods or services and, for prize promotions, the indication that no purchase is necessary. The rule requires that those disclosures be made "promptly."

In determining what is meant by "promptly," it is instructive to note that the FTC initially wanted these disclosures to be made immediately at the beginning of the call. Industry members strongly objected to so rigid a requirement, noting that some time was required at the beginning of the call to establish a rapport with the customer. In relaxing the rule from an "immediate" to a "prompt" disclosure requirement, the FTC's intention was simply to permit that rapport to take place. Accordingly, marketers should still make every effort to ensure that these disclosures are made as close to the beginning of the call as possible. The only intervening dialogue should be the minimal dialogue necessary to establish such rapport. In no event should any sales solicitation be made before the mandatory disclosures. Also, as a rule of thumb, it is advisable that these disclosures be made within the first thirty seconds of the call. The further away from the initiation of the call these disclosures are made, the greater the risk a marketer may run of being held to be in violation of the rule. Indeed, in speeches before industry members, commission staff members have speculated that this may be the single greatest area of enforcement activity because of the somewhat vague nature of this rule requirement.

Content Of The Disclosure

Industry members have already raised some questions about the content of certain of the disclosures. For example, one of the mandatory disclosures is that the total cost and quantity of the goods or services being offered must be disclosed, which posed problems for marketers of continuity programs in which the quantity of goods and the cost vary depending on the particular program being purchased. Again the FTC, in commentary to the rule, has indicated that in such a situation, it would be permissible to indicate the initial quantity and cost of goods ordered, and any minimum quantity and cost of goods which the consumer would thereafter be obligated to pay. Another question relates to installation payments. Suppose, for example, a subscription is being purchased which is payable in several monthly installments. In such a situation, it would seem sufficient to indicate the number and amount of each of the monthly payments.

Another disclosure item which raises practical difficulties is the requirement to disclose all material terms and conditions and restrictions. Obviously, with certain types of sales contracts, the disclosure required here may be exhaustive. Again, the FTC has indicated that the types of restrictions or conditions which must be disclosed are those which are likely to materially affect a consumer's purchase decision, or a restriction or condition which a consumer would not normally expect to attach to the transaction. For example, suppose the telemarketer is offering a trip. It would be necessary to disclose that certain blackout periods apply. On the other hand, if the trip does not include a major component such as airfare or hotel, this would need to be disclosed. In addition, any time the consumer will be required to expend a considerable amount of money beyond the advertised cost of goods or services in order to utilize the goods or services, this will need to be disclosed.

Aiding And Abetting? Who Is Providing Substantial Assistance

While the final FTC rule contains less onerous aiding-and-abetting language than that originally proposed, this provision still must be of major concern to companies providing vital support services to telemarketers. The rule provides that any company providing substantial assistance to a telemarketer may be held liable for the marketer's violation of the rule if the supplier knew or consciously avoided knowing that the rule was being violated One of the obvious questions that arises here is what constitutes substantial assistance. In the original rule, the FTC provided a number of examples of activities that would be deemed to fall within the rule, such as writing scripts or advertising copy, rendering testimonials and endorsements and providing list services to a marketer. While these examples have been eliminated in the final rule, they are nonetheless instructive as to the FTC's mindset on this issue It should be noted that the whole area of list services appears to be occupying greater interest and scrutiny not only by the FTC, but among state attorneys as well. Anyone involved in the list brokerage business would be well advised to conduct at least some due diligence vis-a-vis its clients.

Another example of how the rule might operate and the due diligence which might be required concerns the relationship of the service agency to the marketer. The rule requires, for example, that if the seller does not permit any cancellations or refunds, this fact must be disclosed. A service agency preparing the scripts for its client would be well advised to inquire of its client as to what its refund or exchange policy is. If the client indicates that no refunds or exchanges are permitted, the service agency would know that this disclosure has to be made in the script.

There are certain to be many questions that arise as marketers strive to put these rules into working practice. The FTC has indicated both a desire and a willingness to respond to industry questions and concerns with the rule. Any companies which find themselves in a quandary as to how to comply with the rule should not hesitate to seek such guidance either from their counsel or from the FTC directly.

Linda Goldstein is o partner in the New York office of Hall, Dickler, Kent, Friedman & Wood, a law firm specializing in advertising and marketing law, with particular expertise in direct marketing and telemarketing.

Copyright Technology Marketing Corporation Nov 1995
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