FTC telemarketing rules issued

The Federal Trade Commission has issued a comprehensive set of proposed rules that will significantly impact all telemarketers.

The proposed rules are aimed at curbing telemarketing fraud and abuse by prohibiting certain types of conduct, imposing various oral and written disclosures, prohibiting certain types of misrepresentations and prohibiting credit card laundering and other forms of assistance to deceptive telemarketers.

Coverage

The proposed rules adopt an extremely broad definition of telemarketing. For example, the proposed rules cover the sale of goods or services by telephone as well as by computer modem or any other telephonetic medium. As a result, on-line interactive services as well as traditional telephone sales are covered.

As anticipated, all outbound calls are covered. The proposed rules also cover inbound calls from consumers responding to any direct mail or other targeted solicitations, with the exception of catalogs. In addition, all inbound calls in the following categories are covered: business ventures, investment opportunities, prize promotions and credit-related programs.

There is an exemption for inbound calls generated to place an order from a catalog, but only if the person taking the order does not engage in any further solicitation on the phone. Since it is commonly part of any telemarketing script for the operator to inquire as to whether the customer would like to order anything else, there is a severe limitation on the exemption.

Disclosure Requirements

The proposed rules also impose mandatory oral and/or written disclosures. The nature and type of disclosures required depend in part on the type of program being conducted. For example, the sale business ventures, investment opportunities and sweepstakes are subject to extremely rigorous disclosure requirements.

At the beginning of the call, the caller's first and last name and the fact that it is a sales call would have to be disclosed. If the solicitation is for a charitable donation, the telemarketer's status as a paid professional fundraiser and the purpose of the call must be disclosed.

In addition, before any request for payment is made, all material information about the offer, including total costs and any material restrictions, the quantity of goods or services offered and the seller's refund, exchange or cancellation policies must be disclosed.

Telemarketing programs, including any offer of a prize, are hardest hit. In addition to the general disclosures, the fact that no purchase is necessary, the retail value of the prizes and the odds must be disclosed.

In addition, before requesting or accepting any payment the marketer must mail a written document to the consumer containing detailed disclosure about the prize offer and must obtain a signed acknowledgment of receipt of this written disclosure from the consumer before seeking or accepting payment. The written disclosures must be on one page in no less than 10-point type and must be sent in an envelope containing no other enclosures. This written requirement, which also applies to investment opportunities, will effectively prevent telemarketers from using sweepstakes in connection with their offer.

Prohibited Misrepresentation

The proposed rules contain a prohibition on misrepresenting any information required to be disclosed by the rule and any material aspects about the solicitation or the offered goods or services.

Prohibited Conduct

The proposed rules also prohibit certain types of business practices and conduct, which would severely alter many common business practices. For example, the rules prohibit obtaining any money or debiting a customer's account without express authorization, directing a courier to pick up payment from a customer, resoliciting customers before the initial transaction is complete and fulfilled, calling consumers more than once every three months to sell the same thing, failing to distribute all prizes offered in a prize promotion within 18 months of the offer, and calling consumers who have indicated they do not want to be called.

The proposed rules also restrict the time of day during which calls can be made to between 8:00 a.m. and 9:00 p.m.

Assisting Telemarketing Fraud

In keeping with its stated commitment of expanding the net of liability to include those who provide support services to a telemarketer, anyone who provides substantial assistance to telemarketers may be potentially liable if the program is ultimately found to be unlawful.

Examples of what constitutes "substantial assistance" include receiving consideration for delivering a testimonial or endorsement, providing customer lists or other fulfillment materials.

The proposed rule also contains provisions relating to credit card laundering, programs for investment opportunities and business ventures, and programs relating to credit and credit repair and loan services.

Written public comments to the rules were received by March 31, 1995, and the FTC also conducted a public workshop on the topic in April. A future article will update you on the outcome.

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

Copyright Technology Marketing Corporation May 1995
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