AGENCY: Federal Trade Commission.
ACTION: Revised notice of proposed rulemaking.
SUMMARY: In this document, the Federal Trade Commission ("FTC"
or "Commission") issues a revised notice of proposed rulemaking
to implement the Telemarketing and Consumer Fraud and Abuse
Prevention Act ("Telemarketing Act" or "the Act"). Section 3 of
that Act directs the FTC to prescribe rules, within 365 days of
enactment of the Act, prohibiting deceptive telemarketing acts or
practices and other abusive telemarketing acts or practices.
DATES: Written comments must be submitted on or before June
30, 1995. Due to the time constraints of this rulemaking
proceeding, the Commission does not contemplate any extensions of
this comment period or any additional periods for written comment
or rebuttal comment.
ADDRESSES: Six paper copies of each written comment should be
submitted to the Office of the Secretary, Room 159, Federal Trade
Commission, Washington, D.C. 20580. To encourage prompt and
efficient review and dissemination of the comments to the public,
all comments also should be submitted, if possible, in electronic
form, on either a 5-1/4 or a 3-1/2 inch computer disk, with a
label on the disk stating the name of the commenter and the name
and version of the word processing program used to create the
document. (Programs based on DOS are preferred. Files from
other operating systems should be submitted in ASCII text format
to be accepted.) Individuals filing comments need not submit
multiple copies or comments in electronic form. Submissions
should be captioned: "Proposed Telemarketing Sales Rule," FTC
File No. R411001.
FOR FURTHER INFORMATION CONTACT: Judith M. Nixon, (202) 326-
3173, or David M. Torok, (202) 326-3140, Division of Marketing
Practices, Bureau of Consumer Protection, Federal Trade
Commission, Washington, D.C. 20580.
Section A. Background
On August 16, 1994, the President signed into law the
Telemarketing Act,1 which directs the Commission to prescribe
rules, within 365 days of enactment of the Act, prohibiting
deceptive and abusive telemarketing acts or practices. The
Commission published a notice of proposed rulemaking ("NPR") in
the Federal Register on February 14, 1995.2
In response to the NPR, the Commission received over 300
comments from industry, law enforcement and consumer
representatives, as well as from individual consumers and
businesses.3 In general, consumers commented that the initially
proposed Rule did not go far enough to stop unwanted
telemarketing calls. Law enforcement officials uniformly praised
the Commission's proposal for its thorough and useful treatment
of the various means employed by fraudulent telemarketers to get
consumers' money through deception or abuse. Finally, most
industry representatives generally maintained that the initially
proposed Rule unnecessarily burdened legitimate businesses,
adding needless costs through overbroad proposals that failed to
aim specifically at deceptive and abusive telemarketing
Between April 18 and 20, 1995, staff of the Commission
conducted a public workshop conference in Chicago, Illinois.
Twenty associations or individual businesses, each with an
affected interest and ability to represent others with similar
interests, were selected to engage in a roundtable discussion.4
Howard Bellman served as the conference facilitator.
Participants discussed various aspects of the initially proposed
Rule, addressed each other's comments and questions, and
responded to questions from Commission staff members. The
conference was open to the public, and more than 150 observers
attended. Oral comments from members of the public were invited
each day, and 37 individuals spoke during the course of the
1 15 U.S.C. 6101-08.
2 60 FR 8313-33.
3 A list of the commenters, and the acronyms which will
be used to identify each commenter in this notice, is appended to
Section A of this notice.
4 The selected participants were: AARP, ATA, ATFA, APAC,
ANA, DMA, DSA - Nev., DSA, EMA, ISA, ICTA, MPA, Monex, NAAG,
NACAA, NAPA, NCL, NRF, PMAA, and USPS.
three-day conference. The entire proceeding was transcribed, and
the transcript was placed on the public record.5
On May 3, 1995, Commission staff briefed all the
Commissioners, in an open meeting, about the rulemaking process,
the issues raised in the written comments and the public
workshop, and stated possible approaches to address the issues
commenters raised. The briefing was transcribed and the
transcript was placed on the public record. The entire public
record to date, including the comments, the conference
transcript, and the Commission open briefing transcript is
available on CD-ROM and has been placed on the Internet.6
Based on the Act's legislative history, the written comments
received, and the information learned at the workshop conference,
the Commission has decided to modify its regulatory approach in
this revised proposed Rule. The Commission believes this
modification is necessary to effectuate appropriately Congress'
directive that the FTC in its rulemaking "develop criteria of
behavior" and "issue a . . . rule [that is] flexible enough to
encompass the changing nature of [deceptive] activity, while at
the same time providing telemarketers with guidance as to the
general nature of the prohibited conduct."7 The Commission's
revised approach addresses many commenters' concerns that the
initially proposed Rule cast too broad a net and imposed
unnecessary burdens on the legitimate telemarketing industry
without adequately focussing on deceptive and abusive
telemarketing practices. Additionally, the revised proposed Rule
addresses law enforcement concerns that the Rule needs to provide
enough enforcement flexibility to reach deceptive and abusive
telemarketing acts or practices currently unknown. The
Commission believes additional public comment on a revised
proposal will assist in producing a final Rule that most
effectively prohibits deceptive and abusive telemarketing
practices, while not unduly burdening legitimate businesses.
Section B of this notice discusses, on a section-by-section
basis, the Commission's revised proposed Rule.
5 References to the conference transcript are cited as
"Tr." followed by the appropriate page designation. References
to comments are cited as "[acronym of commenter] at [page
6 The FTC gopher server address is CONSUMER.FTC.GOV 2416.
For World Wide Web access, the URL is
7 H. R. Rep. No. 20, 103rd Cong., 1st Sess. 8; S. Rep.
No. 80, 103rd Cong., 1st Sess. 9 (hereinafter referred to as
"House Report" and "Senate Report," respectively).
LIST OF COMMENTERS AND ACRONYMS
ADS ADS Teleservices
ADVANTA Advanta Corp.
ALIC Allstate Life Insurance Co.
AMCI Allstate Motor Club., Inc.
A-MARK A-Mark Precious Metals, Inc.
AAF American Advertising Federation
AAAA American Association of Advertising Agencies,
AARP American Association of Retired Persons
ABA American Bankers Association
ACRA American Car Rental Association
ACA American Cemetery Association
ADC American Distributing Company
AMEX American Express Company
AFSA American Financial Services Association
AIG American Impact Group
APN American Publishers Network, Inc.
ARDA American Resort Development Association
ASAE American Society of Association Executives
ASTA American Society of Travel Agents
ATA American Telemarketing Association
ATFA American Telephone Fundraisers Association
AWMI American West Marketing, Inc. -- Barry Engels
AWMI American West Marketing, Inc. -- Sandra Sawyer
AMERINET AmeriNet, Inc.
ANDREWS Andrews Satellite & Home Theater
ANN ARBOR Ann Arbor News
APAC APAC TeleServices
ABI Archbold Buckeye, Inc.
AMOC Arizona Mail Order Company, Inc.
ARA Arizona Retailers Association
A&H Arter & Hadden
ACB Associated Credit Bureaus, Inc.
AAP Association of American Publishers
AITS Association of Independent Television Stations,
ANA Association of National Advertisers
ATLANTA Atlanta Journal & Atlanta Constitution
AT&T AT&T Corp.
AUTOSCRIBE AutoScribe Corporation
BAGGS Baggs, Andrew
BAGWELL Bagwell, Linda L.
BOB Bank of Boston
BAY CITY Bay City Times
BELLEVILLE Belleville News-Democrat
BMCA Beneficial Management Corporation of America
BNC Birmingham News Company
BRADLEY Bradley, MJP
BRANTLEY Brantley, Lamar
BREWSTER Brewster, The Honorable Bill K.
BFC Brown Forman Corporation
BPIA Business Products Industry Association
SAMPLER Business Sampler Advertising, Inc.
BSA Business Software Alliance
CAPITAL Capital Press
CAPUTO Caputo, Harriet Q.
CCA Career College Association
CME Center for Media Education
CHASE Chase Manhattan Bank (USA)
CHEMICAL Chemical Bank
CHERNIKOFF Chernikoff, J.D.
CDI Circulation Development, Inc
COALITION "Coalition" -- various companies
CPA Colorado Press Association
CHC Columbia House Company
COMCAST Comcast Corporation/Jones Intercable
CA Commercial Appeal
CBA Consumer Bankers Association
CFA Consumer Federation of America
CONWAY Conway National Bank
CORNELL Cornell Group
CMOR Council for Marketing and Opinion Research
COX Cox Newspapers, Inc.
CRILLY Crilly, Thomas W.
CUCI CUC International
DCR Daily Court Review
DAILY NEWS Daily News
DMBE Department of Marketing and Business
Environment, Florida International University
DMI DialAmerica Marketing, Inc.
DMT&H Dickinson, Mackaman, Tyler & Hagan, P.C.
DW&Z Dierman, Wortley & Zola, Inc.
DSA-NEV. Direct Sales Association of Nevada
DSI Direct Sales International (2 copies of letter,
1 of comment)
DMA Direct Marketing Association
DMSI Direct Marketing Services, Inc.
DSA Direct Selling Association
DIVERSIFIED Diversified Marketing Service, Inc.
DONREY Donrey Media Group
DOUBLEDAY Doubleday Book & Music
DOW JONES Dow Jones & Co., Inc.
OREGONIAN East Oregonian
BAUER Eddie Bauer, Inc.
EDMUND Edmund Scientific Company
EMA Electronic Messaging Association
EMMONS Emmons, Ethel B.
EQUIFAX Equifax Credit Information Services, Inc.
EHRLICH Ehrlich, The Honorable Robert L., Jr.
ERIE Erie Construction Mid-West, Inc.
ERNST Ernst, Michael
F&W F&W Publications
FedEx Federal Express
FRB Federal Reserve Banks
FRB-SF Federal Reserve Bank of San Francisco
FINGERHUT The Fingerhut Companies
FLINT Flint Journal
FORNEY Forney Messenger Inc.
FRANKLIN Franklin Mint
GABRIEL Gabriel, Mrs. Harry J. Jr.
GANNET Gannett Co., Inc.
GE GE Appliances
GA OCA Georgia Office of Consumer Affairs
GRA Georgia Retail Association
GIBSON Gibson, Stewart & Jean
GGP Gift Gallery Promotions
GCM Good Cents Marketing
GREENE Greene, Russ
GRIDER Grider, Felicia
GROLIER Grolier TeleMarketing, Inc.
GHA Group Health Association of America
HHDM Harte-Hanks Direct Marketing
HHMS Harte-Hanks Marketing Services
HAWES Hawes Center, Inc.
HEAD Head, W.L.
HEARST Hearst Magazines
HNM&T Hearst New Media & Technology
HELMS Helms, The Honorable Jesse
HERRERA Herrera, Barbara
HERTZ Hertz Corporation
HSN Home Shopping Network
HOUSEHOLD Household Bank
HFC Household Finance Corp.
HII Household International, Inc.
H&H Howe & Hutton, Ltd. -- March 14 comment
" Howe & Hutton, Ltd. -- March 30 comment
HUDSON Hudson City Savings Bank HUNTINGTON Huntington National Bank
HUNTSVILLE Huntsville Times/Huntsville News
IDAG Idaho Attorney General
IMSP IMS Promotions
IRC Indiana Retail Council, Inc.
ICTA Industry Council for Tangible Assets
IMC InfoCision Management Corporation
INFOMALL Infomall TV Network
IMSI Infomercial Monitoring Service, Inc.
INSP Inspirational Network
ISA Interactive Services Association
IBM International Business Machines Corporation
IFI International Fabricare Institute
IFA International Franchise Association
IMS International Magazine Service of Northern
IRL International Readers League of Indianapolis
IH Investment Hotlines
IA DOJ Iowa Department of Justice
ITI ITI Marketing Services, Inc.
PENNEY J.C. Penney Company, Inc.
JACKSON Jackson Citizen Patriot
RIVERS Joan Rivers Products, Inc.
JOHNSTON Johnston, Gloria
KALAMAZOO Kalamazoo Gazette
KAPLAN Kaplan, Jules
KIKENDALL Kikendall, Thomas J.
KLEID Kleid Company
KNIGHT Knight Ridder
KNOXVILLE Knoxville News Sentinel Co. - Mashburn
" Knoxville News Sentinel Co. - Stevens
LANDMARK Landmark Community Newspapers, Inc.
LARK Lark In The Morning
LAURENZA Laurenza, Joseph
LCS LCS Direct Marketing Service
LEIBACHER Leibacher, Philip J. (2 copies)
LENOX Lenox, Inc.
LA TIMES The Los Angeles Times
LOWE'S Lowe's Studio
MPA Magazine Publishers of America
MSSC Magazine Subscription Sales Coalition
MRG Marketing Response Group & Laser Co., Inc.
MARTIN Martin Direct
MASTERCARD Mastercard Int'l, Inc. & Visa USA, Inc.
MBNA MBNA America Bank, N.A.
MCI MCI Telecommunications Corporation
MCKNIGHT McKnight Management Company
MELLON Mellon Bank Corporation
MELTON Melton, Carol A.
MM Merchant Masters
MS Merchant Sampler
MGCB Merchants Gift Check Book
MGC Merchants Golden Checks
MP Merchants Promotions
MRA Michigan Retailers Association
MILLS Mills, Susan
MS PRESS The Mississippi Press
MOPA Missouri Press Association
MORA Missouri Retailers Association
MOBILE Mobile Media
MPR Mobile Press Register
WARD Montgomery Ward
MMC Moore Medical Corporation
MORSE Morse, Larry E.
MBAA Mortgage Bankers Association of America
MPG MPG Newspapers
MTD MTD Services
MURRAY Murray Ledger & Times
MUSKEGON Muskegon Chronicle
MUTUAL Mutual of Omaha Companies
NAAG National Association of Attorneys General
NACAA National Association of Consumer Agency
NAR National Association of Realtors
NAPA National Automated Payment Association
NAMA National Automatic Merchandising Association
NBR National Bank of the Redwoods
NCTA National Cable Television Association, Inc.
NCL National Consumers League
NCMC National Credit Management Corporation
NFIB National Federation of Independent Business
NFN National Federation of Nonprofits
NFA National Futures Association
NNA National Newspaper Association
NPS National Promotional Services
NRF National Retail Federation
NSF National Science Foundation
NIE Nationwide Insurance Enterprise
NPC Neighborhood Periodical Club
NETWORK Network Direct
NHI New Hampton, Inc.
NYSCPB New York State Consumer Protection Board
NYTC New York Times Company
NEWS News Publishing Company
NAA Newspaper Association of America
NIMA NIMA International
NARDA North American Retail Dealers Association
NASAA North American Securities Administrators
OHIO Ohio Health Care Products, Inc.
OLAN Olan Mills, Inc.
GLOBE Old Globe
OPC Oregonian Publishing Company
ORKIN Orkin Lawn Care
" Orkin Maid
" Orkin Pest Control -- March 23 comment
" Orkin Pest Control -- March 30 comment
" Orkin Plantscaping
PACESETTER Pacesetter Corporation
PTG Pacific Telesis Group
PATRIOT Patriot News
PEPPERTREE Peppertree Resorts, Ltd.
PLP Personal Legal Plans
PETERSON,P Peterson, Phyllis G.
PETERSON,R Peterson, Rosie Marie
PPI Phone Programs Inc.
PLAIN Plain Dealer
Plantscaping (see Orkin)
PCI Private Citizen, Inc. (initial letter & comment)
Private Citizen (addendum)
PCH Programmers Clearing House
PMAA Promotional Marketing Association of America &
PRUDENTIAL Prudential Home Mortgage
PCH Publishers Clearing House
PDW Publishers Discount Warehouse - Barclay Fisher
" Publishers Discount Warehouse - Gina Lewis
" Publishers Discount Warehouse - J.B. Owen
" Publishers Discount Warehouse - David Rains
" Publishers Discount Warehouse - Jimmy Riggle
P&C Pullman & Comley
QUICKCARD QuickCard Systems
QVC QVC, Inc.
RDA Reader's Digest Association, Inc.
SEARCHLIGHT Record Searchlight - Kjellin
" Record Searchlight - Dawson
REGAL COMM Regal Communications Corporation
REGAL GROUP Regal Group
REICHWEIN Reichwein, Kay
RPOA Resort Property Owners Association
RPI Resource Publications, Inc.
RICE Rice, Rodger D. and Barbara L.
RICH Rich, David G.
RITCHIE Ritchie Swimwear
RMH RMH Telemarketing
RODRIGUEZ Rodriguez, Ann
ROLLINS Rollins Inc. (2 copies)
RPS Rollins Protective Services
WEBER Ron Weber and Associates
ROTENBERG Rotenberg, Marion
SSI SafeCard Services, Inc.
SAGINAW Saginaw News
SFNA San Francisco Newspaper Agency
SEARS Sears Merchandise Group
SIASSR Securities Industry Association
SCIC Service Contract Industry Council (SCIC)
SHI Shop at Home
SHULMAN Shulman, Betty
SIGNATURE The Signature Group
S&S Simpson & Simpson, P.C.
SMITH Smith, R.
SDRA South Dakota Retailers Association
SBTC Southwestern Bell Telephone Company
SPIEGEL Spiegel, Inc.
SPRINT Sprint Corporation
SIA Staten Island Advance
SMSI Strategic Marketing Specialists, Inc.
STUART Stuart News
S&W Sullivan & Worcester
SUN Sun Newspapers
SSE Superstar Satellite Entertainment
SUTTON Sutton Marketing
SYRACUSE Syracuse Newspapers
TMGI Telatron Marketing Group, Inc.
TELENATIONAL Telenational Marketing
TCPS Telephone Check Payment Systems
TPA Tennessee Press Association, Inc.
TEZANOS Tezanos, Maritza
TCI Thomas Cook, Inc.
TIEDT Tiedt, Thomas N.
TIMEWARNER Time Warner
TP Times Picayune
TITUS Titus, The Honorable Dina (2 letters)
TMG TMG (Television Marketing Group)
TMW TMW Marketing
TMO Total Marketing Outbound, Inc.
TUPPERWARE Tupperware Worldwide (2 copies)
TVMARKET TV Marketplace, Inc.
UCI United Color, Inc.
UPS United Parcel Service, Inc.
USTA United States Telephone Association
UMI Universal Media Inc.
USD University of San Diego, Center for Public
USCE U.S. Coin Exchange
U.S. Coin Exchange (addendum)
USPS U.S. Postal Service
USWI US West, Inc.
VIACOM Viacom International
VINCENT Vincent, Chorey, Taylor & Feil
VIRGINIA Virginia State Corporation Commission
WACHOVIA Wachovia Corporation
WASHINGTON The Washington Post
WAUGH Waugh, John C.
WTO West Telemarketing Outbound
WU Western Union
WESTVACO Westvaco, Corp.
WILLIAMS Williams Television Time
WTC Wilmington Trust Company
WILSON Wilson Daily Times
WINCHESTER Winchester Sun
WINDSOR Windsor Vineyards
WINONA Winona Post
WFNNB World Financial Network National Bank
YOUNGBERG Youngberg, Arthur D.
Section B. Discussion of the Revised Proposed Rule
Section 310.1 Scope of the regulations
Section 310.1 of the revised proposed Rule makes clear that
this Rule does not apply to any activity excluded from the
Commission's jurisdiction.8 Thus, pursuant to the following
jurisdictional limitations set forth in Section 5(a)(2) of the
Federal Trade Commission Act ["FTC Act"],9 this Rule does not
8 The Telemarketing Act states that "no activity which is
outside the jurisdiction of the [FTC] Act shall be affected by
this Act." 15 U.S.C. 6105(a).
9 15 U.S.C. 45(a)(2).
banks, savings and loan institutions described in
section 18(f)(3), Federal credit unions described
in section 18(f)(4), common carriers subject to the
Acts to regulate commerce, air carriers and foreign air
carriers subject to the Federal Aviation Act of 1958,
and persons, partnerships, or corporations insofar as
they are subject to the Packers and Stockyards Act,
1921, as amended, except as provided in Section 406(b)
of said Act.
In addition, this Rule does not apply to any entity that is
not "organized to carry on business for its own profit or that of
its members."12 Finally, this Rule does not apply to any entity
engaged in the business of insurance to the extent that such
business is regulated by State law.13
Section 310.2 Definitions
The revised proposed Rule amends, adds, or deletes certain
definitions. The following definitions were deleted: "business
venture," "goods or services," "premium," and "verifiable retail
sales price." The Commission amended the definitions of: "credit
card," "credit card sales draft," "credit card system,"
"investment opportunity," "merchant," "merchant agreement,"
"prize," "prize promotion," "seller," "telemarketer,"
"telemarketing, and "telephone solicitation." A definition for
the term "credit" was added. Each of these changes, as well as a
discussion of the definition of the term "material," are
1. Business venture. Section 310.2(a) of the initially
proposed Rule defined the term "business venture" as any
"business arrangement, however denominated, including . . . 'a
franchise' as . . . defined in the Commission's Franchise Rule
10 Section 18(f)(3) of the FTC Act, 15 U.S.C. 57(f)(3),
describes "savings associations as defined in section 3 of the
Federal Deposit Insurance Act," 12 U.S.C. 1811 et seq.
11 Section 18(f)(4) of the FTC Act, 15 U.S.C. 57(f)(4),
describes "Federal credit unions under sections 120 and 206 of
the Federal Credit Union Act (12 U.S.C. 1766 and 1786)."
12 See 15 U.S.C. 44.
13 See Section 2 of the McCarran-Ferguson Act, 15 U.S.C.
. . ."14 which consists of the payment of any consideration for:
"(1) the right or means to offer, sell, or distribute goods or
services (whether or not identified by a trademark, trade name,
advertising, or other commercial symbol); and (2) the promise of
more than nominal assistance . . . in connection with or
incidental to the establishment, maintenance, or operation of a
new business or the entry by an existing business into a new line
or type of business."15 This definition came into play in
Section 310.3(a)(3) of the initially proposed Rule, which
prohibited sellers or telemarketers from misrepresenting
important information in connection with the offer, offer for
sale or sale of any business venture. In addition, the initially
proposed rule, at Section 310.4(a)(8), prohibited certain abusive
practices concerning the use of shills in the sale of business
The Commission's Franchise Rule contains requirements and
prohibitions that apply to franchises and business opportunities.
Subsequent to the publication of the NPR in this proceeding, the
Commission issued a request for comments on the Franchise Rule as
part of its periodic regulatory review of Commission trade
regulation rules and guides.16 The Commission believes it is
more appropriate to consider within the framework of that review
process whether any new regulatory action is needed to address
the sale of business ventures. Following this approach, the
Commission ensures that any new regulatory requirement or
prohibition applicable to franchises or business ventures will be
codified in one regulation -- the Franchise Rule -- not spread
out over two separate Rules. Accordingly, the definition of
"business venture," as well as the Sections of the initially
proposed Rule prohibiting misrepresentations and abusive
practices described above, have been deleted from the revised
2. Credit-related definitions. The initially proposed
Rule defined various credit-related terms that are used primarily
in Section 310.3(c) relating to credit card laundering. These
terms include "acquirer," "cardholder," "credit card," "credit
card sales draft," "credit card system," "merchant," and
"merchant agreement." Very few commenters expressed concern
about the foregoing proposed definitions, but some did suggest
minor technical changes to reflect more accurately the credit
14 The term "franchise" is defined in the FTC's "Franchise
Rule," 16 CFR 436.2(a).
15 60 FR 8328.
16 60 FR 17656 (April 7, 1995).
card industry's terminology and practices.17 Based on those
comments, the Commission proposes the following changes.
The Commission proposes adding under Section 310.2(e) a
definition of the term "credit" to mean "the right granted by a
creditor to a debtor to defer payment of debt or to incur debt
and defer its payment." This definition has been added to
clarify the scope of Section 310.3(c) relating to credit card
laundering. It was apparent from several comments that
clarification was necessary. Some commenters wanted to include
all electronic payment systems under credit card laundering.18
Based on the plain language of the statute and its legislative
history,19 however, Congress clearly meant to prohibit credit
card laundering predicated upon the definition of "credit" used
throughout the consumer credit statutes, and did not contemplate
coverage of all electronic payment systems. Therefore the
proposed definition of "credit" tracks the statutory definition
of "credit" under the Truth in Lending Act ["TILA"],20
conforming the scope of Section 310.3(c) to that intended by
Based on comments similar to those that prompted the
addition of the definition of the term "credit," the Commission
has modified the term "credit card" in Section 310.2(f) to make
it consistent with the term as defined in the TILA, thereby
explicitly limiting Section 310.3(c) to credit card laundering.
The revised definition of "credit card" states: "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." The revised definition is identical to the
statutory definition of "credit card" contained in the TILA.21
The Commission has revised Section 310.2(g) defining the
term "credit card sales draft" to drop any reference to specific
forms of records. The revised definition states: "Credit card
sales draft means any record or evidence of a credit card
transaction." This revision is designed to be flexible enough to
anticipate future technological changes in how credit card
transactions are handled. The modification is not intended to
17 See generally MasterCard; NAAG; USPS; NCL.
18 See, e.g., MasterCard at 5.
19 See generally House Report at 2; Senate Report at 2,
20 15 U.S.C. 1603(e).
21 15 U.S.C. 1603(k).
contract the range of recordkeeping formats that would be
acceptable under the Rule.
The Commission also has modified the definition of the term
"credit card system" in Section 310.2(h) to address concerns Visa
and MasterCard raised that the initially proposed definition
could be construed to cover any system put in place, including a
system put in place by a deceptive telemarketer.22 Visa and
MasterCard suggested language that would preclude such an outcome
by clarifying the intention to include only a credit card system
to process credit card transactions involving credit cards issued
or licensed by the credit card system operator. The Commission
agrees with the observations and suggested language advanced by
Visa and MasterCard. The revised proposed definition states:
"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."
In Sections 310.2(l) and (m),23 the Commission has revised
the definitions of "merchant" and "merchant agreement." In the
initially proposed Rule, these definitions used the phrase "honor
or accept, transmit or process credit cards in payment for goods
or services." Visa's and MasterCard's comments pointed out that,
according to prevailing industry usages, a merchant "honors or
accepts" a credit card for payment, but does not "transmit or
process" credit cards. By the same token, a merchant "transmits
or processes" credit card payments, but does not "honor or
accept" credit card payments.24 Therefore, the language of
these definitions has been redrafted to reflect more precisely
3. Goods or services. Many commenters expressed confusion
over the scope of the definition of the term "goods or
services."25 The Commission initially included a definition of
"goods or services"26 intending to clarify that all tangible and
intangible goods and services are covered under the initially
proposed Rule, including leases, licenses, memberships, and
certain charitable solicitations. Based on the confusion that
this attempt at "clarification" engendered, the Commission has
deleted the definition of "goods or services" from the revised
22 See MasterCard at 6.
23 Initially proposed Rule Sections 310.2(m) and (n),
24 See MasterCard at 6.
25 See, e.g., IFI at 1-2; ATFA at 8-12.
26 Initially proposed Rule Section 310.2(j).
proposed Rule. That deletion does not reflect any intention to
contract the scope of coverage of the Rule; nor does it mean that
any of the foregoing goods or services and similar intangible
goods or services are not covered under the Rule.
4. Investment opportunity. The initially proposed Rule
defined the term "investment opportunity"27 to include
"anything, tangible or intangible, excluding a business venture,
that is offered, offered for sale, sold, or traded (1) to be
held, wholly or in part, for purposes of profit or income; or (2)
based wholly or in part on representations, either express or
implied, about past, present or future income, profit, or
appreciation."28 A number of commenters suggested that this
definition should be based solely on the objective test set forth
in the second part of the definition; namely, the representations
made by the seller.29 In this way, sellers will be given clear
notice that their products are covered by the Rule. These
commenters believed that the first part of the definition, based
on the customer's subjective intent in making a purchase, should
be eliminated. The Commission agrees with this suggestion, and
the revised proposed definition is now based solely on the
express or implied representations about income, profit or
The initially proposed definition also expressly stated that
the term "investment opportunity" includes, but is not limited
to, "any business arrangement where persons acquire, or
purportedly acquire, government-issued licenses or interests in
one or more businesses derived from the possession of such
licenses." Upon further consideration, the Commission believes
this clause is unnecessary because government-issued licenses or
interests derived from such licenses are indisputably within the
27 Initially proposed Rule Section 310.2(k).
28 As noted in the NPR, Sections 3(d) and (e) of the
Telemarketing Act, 15 U.S.C. 6102(d) and (e), exclude from Rule
coverage any of the following persons: a broker, dealer,
transfer agent, municipal securities dealer, municipal securities
broker, government securities broker, government securities
dealer [as those terms are defined in Section 3(a) of the
Securities and Exchange Act of 1934, 15 U.S.C. 78c(a)], an
investment adviser [as that term is defined in Section 202(a)(11)
of the Investment Advisers Act of 1940, 15 U.S.C. 80b-2(a)(11)],
an investment company [as that term is defined in Section 3(a) of
the Investment Company Act of 1940, 15 U.S.C. 80a-3(a)], any
individual associated with those persons, or any persons
described in Section 6(f)(1) of the Commodity Exchange Act,
7 U.S.C. 8, 9, 15, 13b, 9a.
29 E.g., ICTA at 28-30; Monex at 6; A-Mark at 2-4.
jurisdiction of the Commission. The Commission therefore has
deleted the foregoing extraneous clause from the revised proposed
Rule, but has added clarification that the definition of the
term, "investment opportunity" does not include "sales of
franchises subject to the Commission's [Franchise Rule](cite
5. Material. Some commenters expressed uncertainty as to
what specifically is meant by the term "material," as used in
Section 310.2(k).30 The Commission intends this term and its
definition to comport with the Commission's Deception Statement
and established Commission precedent. Cliffdale Associates, 103
FTC 110 (1984); Thompson Medical Co., 104 FTC 648 (1984), aff'd,
791 F.2d 189 (D.C. Cir. 1986), cert. denied, 107 S.Ct. 1289
(1987); and the Commission's Deception Statement attached as an
appendix to Cliffdale Associates. The Commission believes that
further explanation of the term in the Rule is unnecessary given
the comprehensible guidance in the cited case law and policy
6. Premium. The Commission, in its revised proposed Rule,
has deleted the initially proposed Rule provisions relating to
premiums. The Commission believes that those deletions obviate
the need to define this term. The deletion of the definition of
the term "premium" and its associated provisions are not intended
to be construed to eliminate from the Rule's coverage the
misrepresentation of a premium's value in a telemarketing
7. Prize and prize promotion. Some modifications have
been made to the initially proposed definition of the term
"prize."31 NAAG suggested in its comment that the reference to
"no obligation to purchase" should be deleted from the
definition.32 NAAG pointed out that many fraudulent
telemarketers seek to create the impression that consumers must
purchase something in order to receive a prize, even though the
promotion technically does not include such a requirement. In
such cases, it may be difficult for law enforcement authorities
to prove that there was "no obligation to purchase," making
inapplicable the definition of "prize" and the protections the
30 See generally TMW; Monex. In the initially proposed
Rule, the definition of "material" was numbered Section 310.2(l).
31 The initially proposed Rule defined "prize" as
"anything offered, or purportedly offered, to a person at no cost
and with no obligation to purchase goods or services and given,
or purportedly given, by chance." Initially proposed Rule
32 NAAG at 9. See also IA DOJ at 20.
revised proposed Rule would provide for consumers with respect to
prize promotions. The Commission believes this is a valid
concern and, because the limiting language about an obligation to
purchase is not necessary to accomplish the definition's purpose,
has deleted the language from the definition.
Another concern addressed in the revised proposed Rule
involves the element of chance in the definition of "prize."
USPS noted that a typical deceptive prize scheme will involve a
solicitation listing four or five items, with the consumer being
told, without specificity, that he or she is guaranteed to
receive one of them.33 Because a consumer is "guaranteed" to
receive one of the stated items, it could be construed that there
is no element of "chance" involved in the offer and the item
therefore is not a "prize." The Commission believes this concern
should be addressed and has therefore clarified the term "chance"
included in the revised proposed definition of "prize." The
revised definition of the term "prize" states that "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."
The initially proposed Rule defined "prize promotion"34 to
include traditional sweepstakes or other games of chance, as well
as any oral or written representation that a person has won, has
been selected to receive, or may be eligible to receive a prize
or purported prize. The currently proposed definition has been
revised slightly, (Section 310.2(q) of the revised proposed
Rule), to make clear that the representations about winning may
be either express or implied. This addresses a concern, raised
by NAAG,35 that fraudulent telemarketers often artfully craft
their sales pitches to avoid express representations while
delivering an implied message that a consumer has won a prize.
8. Seller and telemarketer. Another definition that
elicited comments was the term "seller."36 Many commenters
expressed the view that the definition needed clarification as to
what constitutes a "seller" under the Rule, particularly with
respect to its application to diversified companies or divisions
within one parent organization. For example, as it explained
during the workshop conference, ANA represents many members that
33 USPS at 3.
34 Initially proposed Rule Section 310.2(r).
35 NAAG at 10.
36 Initially proposed Rule Section 310.2(s).
have divisions of large diversified companies, such as Orkin.37
ANA explained that in addition to pest and termite control that
people are familiar with, Orkin also offers a number of other
services unrelated to pests and termites.38
After careful consideration, the Commission believes that
the definition of the term "seller" is clear. The Commission
intends that this definition encompass distinct corporate
divisions as separate "sellers." The determination as to whether
distinct divisions of a single corporate organization will be
treated as separate sellers will depend on such factors as: (1)
whether there exists substantial diversity between the
operational structure of the division and other divisions or the
corporate organization and (2) whether the nature or type of
goods or services offered by the division are substantially
different from those offered by other divisions or the corporate
The term "telemarketer," included in revised Section
310.2(t),39 also elicited numerous requests for clarification.
The Commission believes that the definition is clear. The
Commission intends that the definition of the term "telemarketer"
apply to persons making a telephone call to, or receiving a
telephone call from, a customer40 in connection with or about
the purchase of goods or services. It does not include persons
making or receiving customer service calls or similar tangential
telephone contacts unless a sales offer is made and accepted
during such calls. To provide industry with further guidance as
to the intended scope of the term "telemarketer," the Commission
has substituted the phrase "telephone calls to" in place of
Commenters also raised concerns about whether sellers and
telemarketers should be held jointly liable under the Rule for
the actions of the other. The Commission finds nothing in the
statute or legislative history to support the view that it is the
intent of Congress to impose joint and several liability between
a seller and a telemarketer. Nor does the Commission intend such
a result. However, the revised proposed Rule's provisions state
that a seller or a telemarketer can be held liable for violating
various parts of the Rule if either engages in the prohibited
37 Tr. at 666.
39 Initially proposed Rule Section 310.2(u).
40 Revised Section 310.2(i) defines "customer" as "any
person who is or may be required to pay for goods or services
offered through telemarketing."
acts or practices. Additionally, liability can be imposed on a
seller or telemarketer for assisting and facilitating a Rule
violation if either meets the standard set forth in Section
310.3(b). Therefore, although the Rule does not impose joint and
several liability, a seller or telemarketer can be held liable if
either engages directly, or substantially assists or facilitates
the other, in any violation of this Rule.
9. Telemarketing. The definition of "telemarketing," in
Section 310.2(u),41 engendered more comments by far than any
other definition. Based on the comments submitted by law
enforcement and industry representatives, the Commission proposes
a revised definition of "telemarketing." The revised definition
Telemarketing means a plan, program, or campaign which is
conducted to induce the purchase of goods or services 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
The revised definition of "telemarketing" follows more
closely the statutory definition set forth by Congress in the
Telemarketing Act.42 The Commission has carefully considered
suggestions that the initially proposed definition exceeded the
Commission's statutory authority and has determined that closer
adherence to the statutory language is the more appropriate
approach.43 This change also limits the definition of
41 Initially proposed Rule Section 310.2(v).
42 15 U.S.C. 6106(4).
43 The Commission, however, does not adopt the view that
the definition of "telemarketing" in the initially proposed Rule
went beyond the Telemarketing Act. In enacting the Telemarketing
"telemarketing" to telephone calls and excludes from coverage
other "telephonic mediums." After considering many comments that
objected to the Rule's coverage of on-line services, the
Commission acknowledges that it does not have the necessary
information available to it to support coverage of on-line
services under the Rule.44
The revised definition of "telemarketing" also eliminates
specific language relating to coverage of inbound calls. Many
commenters expressed concern that inclusion of such calls went
beyond the Commission's statutory authority.45 As will be
discussed further in the discussion of Section 310.6, given the
abundant, unambiguous legislative history on this point,46 and
the omission from the statute of any indication that inbound
calls are not within its ambit, the Commission rejects this view.
Other commenters47 stated that including inbound calls in the
proposed definition caused confusion about the applicability of
the proposed general advertising exemption contained in Section
310.6 of the initially proposed Rule. Because the definition of
"telemarketing" encompasses coverage of inbound calls under the
Rule, it is no longer necessary to include such calls explicitly
within the revised definition of "telemarketing." Furthermore,
the inbound call exemption has been clarified in Section 310.6 to
eliminate the confusion expressed in the comments. The revised
proposed Rule's coverage, however, extends to inbound calls.
Act, Congress clearly intended to cover purchases of tangible as
well as intangible goods or services, including leases and
licenses. House Report at 11; Senate Report at 8. In any
"purchase" there is an exchange of consideration, in other words
a "payment." Because deceptive telemarketers could construe the
term "purchase" to apply only to the acquisition of a "tangible"
good or service, the Commission substituted the term "payment"
for "purchase." The Commission intended to clarify that sales of
intangible goods or services were included in the term
"telemarketing," as they still are under the revised proposed
44 Such media remain subject to the Commission's
jurisdiction under the FTC Act, 15 U.S.C. 41 et seq. See, e.g.,
FTC v. Corzine, dba Chase Consulting, No. CIV-S-94-1146-DFL JFM
(E.D. Cal. Dec. 1994).
45 See, e.g., DSA at 6; NRF at 20-21.
46 House Report at 2; Senate Report at 7-8.
47 E.g., DMA at 17-18; MPA at 8-9.
Many industry comments addressed the term "further
solicitation" used in the part of the "telemarketing" definition
that exempts from coverage solicitation of sales through the
mailing of a catalog.48 Numerous industry commenters suggested
that reputable catalog companies have substantially similar
catalogs in the public domain that mirror each other but may also
be targeted to a particular season, activity, or product. For
example, a mail order clothing seller may have summer and spring
catalogs that include many of the same products, but they are
different catalogs nevertheless. Commenters suggested that
offering a caller goods or products contained in a catalog
substantially similar to the catalog that generated the call
should not trigger Rule coverage for a catalog seller.49
Counterbalancing this point is the Commission's concern that
exemptions from coverage be narrowly drawn to discourage
exploitation of a perceived loophole by unscrupulous
telemarketers. The revised proposed Rule therefore is modified
to accommodate legitimate industry's practice of regularly
mailing seasonal and similar catalogs, at the same time limiting
the exemption to those catalogs that are "substantially similar"
to the catalog that generated the customer's call.
Several commenters also expressed uncertainty as to whether
"telemarketing" included calls to schedule appointments for
subsequent face-to-face sales presentations and calls to inform
persons about upcoming store sales or promotions.50 The
Commission believes that the definition clearly reflects the
intention to cover those telephone calls that result in the sale
of goods or services over the telephone without any opportunity
by the customer to examine the goods or services. Obviously, a
face-to-face sales presentation provides such an opportunity and
the notification of upcoming sales or promotions inviting a
customer to come into a store or other in-person setting does not
culminate in a telephone sale.
10. Telephone solicitation. The initially proposed Rule
included a definition of the term "telephone solicitation." As
noted in the NPR, the definition was "intended to include only
outbound sales calls, i.e., telephone calls that are initiated by
a telemarketer to a customer to induce payment for goods or
services."51 Based on the comments received about other
Sections of the initially proposed Rule that used the term
"telephone solicitation," the intended coverage of only outbound
48 See, e.g., APAC at 9; NRF at 23-25; MPA at 10.
49 E.g., NRF at 24.
50 See, e.g., WFNNB at 1.
51 60 FR at 8315.22
sales calls was not clear.52 In order to clarify this point,
the revised proposed Rule now defines the term "outbound
telephone call" in Section 310.2(n) to mean "a telephone call
initiated by a telemarketer to induce the purchase of goods or
services," and uses it in every instance where the initially
proposed Rule used the term "telephone solicitation."
11. Verifiable retail sales price. The initially proposed
Rule defined the term "verifiable retail sales price."53 The
Commission has deleted all references to "verifiable retail sales
price" in the revised proposed Rule. The Commission does not
believe including a definition of "verifiable retail sales price"
is necessary in this revised proposed Rule. Where appropriate,
the Commission has used the term "value" in the Rule. The
Commission intends that any represented value have a reasonable
basis in fact.
Section 310.3 Deceptive Telemarketing Acts or Practices
1. Prohibited Deceptive Telemarketing Acts or Practices.
Revised Section 310.3(a) continues to require affirmative
disclosures and prohibits misrepresenting material information.
As in the initial version of the proposed Rule, Section
310.3(a)(1) requires affirmative disclosures of general
categories of material information. Many industry commenters,
however, expressed concern about the uncertain scope of the
affirmative disclosure obligation embodied in Section
310.3(a)(1).54 The Commission has carefully considered these
concerns and revised the proposed Rule accordingly.
Specifically, the initially proposed rule required disclosure of
"the total costs, terms, and material restrictions, limitations,
or conditions of receiving any goods or services." Revised
Section 310.3(a)(1) now requires disclosure of "the total costs
. . . [and] all material restrictions, limitations, or conditions
to purchase, receive or use any goods or services that are the
subject of the sales offer." This revision is intended to narrow
and clarify the scope of the disclosure obligation. The
initially proposed rule also specified that the disclosures
required by Section 310.3(a)(1) be made "before payment is
requested . . . and in the same manner and form as the payment
request." In response to strong industry urging for greater
52 See, e.g., MPA at 19; NRF at 35.
53 Initially proposed Rule Section 310.2(x).
54 See NIMA at 11; ACAR at 12; TR. at 292 (Monex), 296-97
(PMAA), 303-05 (ICTA).
flexibility in the manner and timing of essential disclosures,55
the revised proposed rule specifies only that the disclosures be
made "before a customer pays" and that they be made "in a clear
and conspicuous manner." These disclosure may be made either
orally or in writing. The determining factor for when a customer
pays, regardless of whether by cash, check, credit card, demand
draft, or otherwise, is when a customer sends funds by any means
or provides credit card or bank account information to the seller
or telemarketer to purchase goods or services. Additionally,
Section 310.3(a)(1) no longer requires an affirmative disclosure
of a seller's refund, cancellation, exchange, or repurchase
policies, unless the seller or telemarketer chooses to make
representations relating to such policies a part of the sales
offer. If a seller or telemarketer chooses to make such policies
a part of the sales offer, then the seller or telemarketer must
disclose all the material aspects of the terms and conditions of
such policies, orally or in writing, before a customer pays for
the goods or services offered. Finally, a seller or telemarketer
must disclose that no purchase is necessary to win if a prize
promotion is offered in conjunction with a sales offer of goods
Section 310.3(a)(2) continues to prohibit misrepresentations
of several categories of material information. The information
deemed material under Section 310.3(a)(2), is based on
established case law and the Commission's deception policy
statement. The Commission, however, has determined to drop the
lengthy enumeration of specific prohibited misrepresentations
contained in Sections 310.3(a)(2)(viii)-(xxiv) of the initially
proposed Rule. These specific prohibited misrepresentations,
each of which was based on allegations in complaints filed in
recent years by the Commission under Section 13(b) of the FTC
Act,56 are no longer necessary because they are subsumed in the
general prohibitions against misrepresentations set forth in
Section 310.3(a)(2) of the revised proposed Rule. No inference
should be drawn that these deletions in any way alter the
Commission's view that the misrepresentations enumerated
initially in proposed Sections 310.3(a)(2)(viii)-(xxiv) would
violate the FTC Act as well as the revised proposed Rule. The
Commission believes that this more concise regulatory approach effectuates Congress' legislative intent and addresses the
concerns of many commenters, consumer groups,57 law
enforcement,58 and industry59 alike, who asserted that a general
55 See PMAA at 80; OPC at 2-3; ADS at 1; MORA at 1.
56 15 U.S.C. 53(b).
57 See, e.g., AARP at 10.
58 See, e.g., USPS at 4.
standard of deception was necessary either in addition to or
instead of the enumerated acts or practices.
Sections 310.3(a)(2)(i)-(ii) prohibit misrepresenting
information required to be disclosed under Section 310.3(a)(1).
The scope of Sections 310.3(a)(2)(i)-(ii) has been delineated
more precisely than their counterparts in the initially proposed
Rule Sections 310.3(a)(2)(i)-(iii). Revised Sections
310.3(a)(2)(i)-(ii) now include the limiting phrases "to
purchase, receive, or use" and "that are the subject of a sales
offer." The same clarifying phrases have been added to revised
Section 310.3(a)(2)(iii), which specifies that misrepresenting
"any material aspect of the performance, efficacy, nature, or
central characteristics of goods or services that are the subject
of the sales offer" violates this Rule. Commission case law and
policy are clear that such information is material to a person's
choice of or conduct regarding the purchase of goods or services.
Similarly, representations as to a seller's refund, cancellation,
exchange, or repurchase policies are material to a person's
purchase decision. Section 310.3(a)(2)(iv) (identical to Section
310.3(a)(2)(v) of the initially proposed Rule) therefore
prohibits misrepresenting the latter category of information.
Section 310.3(a)(2)(v) of the revised proposed Rule
prohibits misrepresenting "any material aspect of a prize
promotion, including but not limited to the odds of winning, the
nature or value of a prize, or that payment is required to
receive a prize." The Commission has enumerated specific
examples of material aspects of a prize promotion based on
misrepresentations that the Commission has alleged in complaints
filed under Section 13(b) of the FTC Act. The Commission
believes that treating prize promotions as a separate general
category is warranted given the great number of deceptive prize
promotions and the distinct characteristics associated with such
promotions.60 Moreover, the legislative history clearly shows
that Congress specifically intended that the Rule cover prizes or
awards.61 Because there are certain aspects of a prize
promotion that could be construed to be outside the scope of
provisions narrowly limited to "the subject of a sales offer,"
the Commission believes that it is necessary to include revised
Section 310.3(a)(2)(v). The prohibitions against prize promotion
misrepresentations under Section 310.3(a)(2)(v) are in addition
to the other prohibitions set forth in Section 310.3(a)(2).
59 See, e.g., APAC at 2; ATA at 5; DMA at 19; Monex at 8-
60 Almost 32% of the 141 telemarketing cases brought by
the Commission since 1991 related to deceptive prize promotions.
61 See Senate Report at 8.
Similarly, Section 310.3(a)(2)(vi) prohibits misrepresenting
material aspects of an investment opportunity. The legislative
history reflects Congress' recognition that deceptive investment
opportunities account for a considerable percentage of deceptive
telemarketing.62 Moreover, since 1991, deceptive investment
scams account for approximately 43% of the Commission's
telemarketing cases. The amount at risk for a consumer is
generally far greater in investment scams than in deceptive
schemes involving other types of consumer goods or services.
Thus, investment opportunities are an area of heightened concern
for consumers and the Commission. The revised proposed rule
includes Section 310.3(a)(2)(vi), prohibiting misrepresentation
of specified aspects of investment opportunities. This provision
is included to obviate any possible construction that might
exclude investment opportunities from the scope of Sections
310.3(a)(2)(i)-(iii). These general initial provisions are
designed to embrace a limitless range of goods or services but
are narrowly drawn to prohibit misrepresentations centered on
purchase, receipt or use, or upon "performance, efficacy, nature,
or central characteristics," which are unlike investment-specific
attributes such as risk, liquidity, earnings potential, or
profitability. The prohibitions on misrepresentations under
Section 310.3(a)(2)(vi) are in addition to, not in lieu of, other
provisions under Section 310.3(a)(2).
Finally, the Commission has included Section
310.3(a)(2)(vii) that prohibits misrepresenting "a seller's or
telemarketer's affiliation with, or endorsement by, any
government or third-party organization." The Commission believes
that this Section is necessary based on its own experience in law
enforcement actions against deceptive telemarketers as well as
the information state law enforcement agencies provided. Based
on the Commission's enforcement experience, deceptive
telemarketers bolster their credibility by misrepresenting that
they are endorsed by or affiliated with charitable, police,
civic, or similar organizations. A separate category is required
because these types of misrepresentations, again, could be
construed as outside the apparent scope of Sections
310.3(a)(2)(i)-(iii). However, Section 310.3(a)(2)(vii) is in
addition to, not in lieu of, other provisions under Section
The Commission has deleted Section 310.3(a)(3) relating to
business ventures. The Commission, as stated in Section 310.2,
believes it is more appropriate to consider business ventures in
the context of the Commission's recently-initiated Franchise Rule
review. This should not be construed to mean, however, that if a
business venture is sold through telemarketing and does not meet
the coverage requirements under the Franchise Rule as currently
62 See Senate Report at 8.
in effect, it is exempt under this Rule. Such a "business
venture" will still be deemed to be covered under this Rule as a
good or service and be subject to the Rule's disclosure
requirements and prohibitions.
Revised Section 310.3(a)(3) generally prohibits "making a
false or misleading statement to induce any person to pay for
goods or services." This general provision subsumes Sections
310.3(a)(4) and (5) of the initially proposed Rule. Former
Section 310.3(a)(4) required written authorization before taking
any funds from a consumer's checking, savings, or similar
account. Former Section 310.3(a)(5) required express
authorization before "obtaining any amount of money from a person
through any means." The revised Section, through more economical
means, reflects how deceptive sellers and telemarketers gain
access to consumers' money through false and misleading
statements regardless of the payment system used. While
addressing those deceptive practices, revised Section 310.3(a)(3)
also avoids unduly burdening legitimate industry's nondeceptive
use of various payment systems.63
2. Assisting and Facilitating
Section 310.3(b) received substantial attention from
commenters. Law enforcement and consumer groups generally were
favorable but some suggested including a more general prohibition
against assisting and facilitating.64 Industry comments raised
concerns that the knowledge standard in the initially proposed
Rule was too vague or harsh and that the liability for assisting
and facilitating should attach only where the assistance or
support is directly linked and material to the Rule violation.65
Some industry commenters suggested that the Rule include
exemptions for certain practices and that this Section not impose
any affirmative duties on third parties.66 All commenters
raised valid and important issues that the Commission has
To address concerns that the "knew or should have known"
standard initially proposed may have swept too broadly and
exposed those only casually associated with deceptive
telemarketing to liability as assistors or facilitators, the
Commission now proposes the "actual knowledge or conscious
avoidance" standard advanced by a number of participants in the
63 Several commenters and workshop participants provided
information tending to refute the proposition that demand drafts
are characteristic solely of deceptive telemarketers. See, e.g.,
NAPA; Autoscribe; Olan.
64 See generally NCL at 8; USPS at 7-8.
65 See, e.g., WFNNB at 2; MPA at 11-13; ATA at 6; DMA at
22-24; NRF at 29; Monex at 11-13.
66 See generally PMAA; ADS; LCS; DMA; ISA.
public workshop.67 This standard is similar to the knowledge
standard applicable in actions under Section 13(b) of the FTC Act
governing individual liability to pay restitution to consumers
for injury resulting from law violations of a corporation
controlled by the individual68 -- a type of vicarious liability
somewhat analogous to assistor and facilitator liability. The
Commission intends that this revision delineate the scope of
assistor and facilitator liability more clearly and more narrowly
than did the "know or should have known" standard.
The Commission also believes it appropriate to specify that
there be some connection between the substantial assistance
provided to a deceptive telemarketer and resulting violations of
core provisions of the revised proposed Rule. Revised proposed
Section 310.3(b) therefore requires that there be substantial
assistance related to the commission or furtherance of a core
rule violation. The provision now reads as follows:
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 310.3(a) or (c) or 310.4 of this Rule and
such substantial assistance is related to the commission or
furtherance of that act or practice.
Section 310.3(b)(2) of the initially proposed Rule set forth
five specific examples of conduct deemed to meet the "substantial
assistance" prong of the two-prong test for "assisting and
facilitating" set forth in Section 310.3(b)(1), which, when
coupled with knowledge required by the second prong, would
constitute a violation of this Rule. The prevailing view among
67 See e.g., Tr. at 372-73 (Monex); 382-85 (DMA).
68 Under these cases, the knowledge requirement is well-
established and can be fulfilled by showing either actual
knowledge, reckless indifference to the truth or falsity of the
representation, or an awareness of a high probability of fraud
coupled with an intentional avoidance of the truth. E.g., FTC v.
American Standard Credit Systems, Inc., CV 93-2623 LGB (JRx)
(C.D. Cal. Aug. 15, 1994); FTC v. Amy Travel Serv., 875 F.2d 564,
573-74 (7th Cir.), cert. denied, 493 U.S. 954 (1989); FTC v.
Kitco of Nevada, Inc., 612 F. Supp. 1282, 1292 (D. Minn 1985);
FTC v. International Diamond Corp., 1983-2 Trade Cas. (CCH)
65,725 at 69,707 (N.D. Cal. 1983). This knowledge standard has
not imposed any unduly onerous problems of proof on the
Commission in its Section 13(b) telemarketing fraud cases and has
not impeded the Commission's ability to obtain restitution from
industry commenters was that this list of examples would be
interpreted as condemning a range of commercial activities that,
in and of themselves, are not injurious to consumers or
unlawful.69 The resulting chilling effect could result in
unnecessary costs to industry, which, of course, would ultimately
be borne by consumers. This detrimental effect, combined with
the potential for the Section to be construed as limiting the
scope of assisting and facilitating to only the listed
activities, and thus hindering effective law enforcement efforts,
outweighed any benefits such intended guidance could likely
provide. The Commission has eliminated examples from the
prohibition, but still considers the acts or practices enumerated
in former Section 310.3(b)(2) to be illustrative of those that
provide substantial assistance to Rule violators when coupled
with knowledge and a relationship to a specified Rule violation.
Acts of substantial assistance that could meet the Section
310.3(b) liability standard include: providing lists of contacts
to a seller or telemarketer that identify persons over the age of
55, persons who have bad credit histories, or persons who have
been victimized previously by deceptive telemarketing or direct
sales; providing any certificate or coupon which may later be
exchanged for travel-related services; providing any script,
advertising, brochure, promotional material, or direct marketing
piece used in telemarketing; or providing an appraisal or
valuation of a good or service sold through telemarketing when
such an appraisal or valuation has no reasonable basis in fact or
cannot be substantiated at the time it is rendered.
3. Credit Card Laundering.
The Commission received very few comments that offered
changes or that were critical of Section 310.3(c), which pertains
to credit card laundering. Comments that did address this
Section suggested that agents, licensees, and independent
contractors and subcontractors be included under the definition
of "merchant."70 Visa and MasterCard stated that they believed
this Section to be "well designed to attack a critical link in
telemarketing fraud," but proposed adding language that would not
prohibit access to the credit card system if the credit card
system permits such access through means other than a written
The Commission believes that the distinction between
"launderers" and others who exploit the credit card system, and
"merchants" and others who make legitimate use of such systems,
69 See generally DMA; PMAA.
70 E.g., DMA at 24; NRF at 30.
71 See MasterCard at 10-11.
rests on whether the operator of the system has given permission
for such access. For example, some merchants have the permission
of their credit card system operator to permit lessees to deposit
their sales transactions through the merchant's account. On the
other hand, the hallmark of prohibited laundering is providing
access to a merchant account to an entity not authorized by the
system operator to have such access. Based on the foregoing, the
Commission does not believe it is wise to broaden the definition
of "merchant." An underlying purpose of this Section is to
delineate clearly, in accordance with legitimate industry
standards, those persons who are deemed to properly have access
to the credit card system. However, the comments of Visa and
MasterCard point out a way that the provision can be modified to
allow for situations where a credit card system expressly permits
access to the applicable system, other than through a written
merchant agreement. Because such a modification will give rise
to no foreseeable problems of proof to law enforcement efforts,
the Commission concludes that this modification is
appropriate.72 The Commission therefore has determined that the
modifications needed to Section 310.3(c) are to add language to
the preamble to state that "except where expressly permitted by
the applicable credit card system . . . " and to add similar
language to the end of Section 310.3(c)(3).
Section 310.4 Abusive Telemarketing Acts or Practices
1. Abusive Conduct Generally.
Section 310.4(a) of the initially proposed Rule set forth
eight different prohibited abusive telemarketing acts or
practices. The revised proposed Rule deletes four of those
provisions, and amends the other four prohibited practices. Each
of these practices will be discussed in turn.
72 NCL requested in its comments pertaining to credit card
laundering that the Commission consider protections relating to
the use of "credit card checks" and "credit card cash advances."
See NCL at 31. NCL expressed concern that credit card
protections contemplated in Section 310.3(c) and the Fair Credit
Billing Act ["FCBA"], 15 U.S.C. 1666, do not extend to those
alternative credit methods. There is no indication in the
legislative history or the Telemarketing Act that Congress
intended to include under credit card laundering the alternative
credit methods NCL describes. Moreover, the Commission does not
have the authority under the Act to expand or affect the scope of
the FCBA. The Commission believes, however, that transactions
effected through the use of the alternative credit methods NCL
described are adequately protected under the FCBA dispute
(a) Threats, intimidation, or the use of profane or obscene
language. The initially proposed Rule prohibited threats or
intimidation in Section 310.4(a)(1). The Commission believes
such acts are clearly abusive in telemarketing transactions, and
this prohibition remains in the revised proposed Rule.
Commenters noted that threats are a means of perpetrating a fraud
on vulnerable victims, and that many older people can be
particularly vulnerable to threats and intimidation.73 Other
commenters expressed the view that the terms "threats" and
"intimidation" are vague and need to be defined.74 The
Commission does not believe further definition of these terms is
necessary in the text of the Rule; as drafted, this Section
clearly contemplates that all threats be covered, including those
particularly stressed by NCL -- threats of bodily injury and
financial ruin and threats to ruin credit. It also prohibits
intimidation -- acts which put undue pressure on a consumer or
which call into question a person's intelligence, honesty,
reliability, or concern for family. Repeated calls to an
individual who has declined to accept an offer may also be an act
The Commission has also added under this Section a
prohibition against the use of profane or obscene language. The
legislative history of the Telemarketing Act indicates that the
Commission should consider prohibiting such abusive practices,
and should "draw upon its experience in enforcing standards
established under the Fair Debt Collection Practices Act
["FDCPA"], 15 U.S.C. 1692, in defining these terms."76 The
FDCPA includes a specific prohibition on the use of profane or
obscene language,77 and the Commission believes such a
prohibition is equally appropriate in this Rule.
(b) Courier pickups. The initially proposed Rule
prohibited any seller or telemarketer from providing for or
directing a courier to pick up payment from a customer.78 Law
enforcement and consumer representatives generally applauded this
73 IA DOJ at 13; AARP at 14.
74 ADC at 1; ARDA at 21.
75 NCL at 32-33. Accord, USPS at 11.
76 See, e.g., House Report at 8.
77 Section 806(2) of the FDCPA, 15 U.S.C. 1692d(2).
78 Initially proposed Rule Section 310.4(a)(2).
provision.79 IA DOJ noted: "A critical component of a
fraudulent telemarketing scheme is getting the victim's money
before the victim has the opportunity to reconsider, or before a
third party, such as a relative, banker, or law enforcement
authority becomes involved."80 In addition, NCL stated that
over 45% of all telemarketing complaints it receives involve
shipment by private courier, and almost all of these shipments
contain personal checks. According to NCL, a personal check sent
via a private courier is the single most popular method of
removing money from the pockets of victims.81
On the other hand, many industry representatives opposed
this provision.82 Commenters noted various ways this
prohibition would harm legitimate businesses, including:
prohibiting C.O.D. transactions;83 preventing newspaper carriers
from making door-to-door collections on their paper routes;84
eliminating the merchant coupon book industry;85 and precluding
cable operators and others from using couriers to pick up
payments from customers who are in arrears and who wish to avoid
disconnection of their service.86
After reviewing these comments, the Commission agrees that a
ban on the use of courier pickups of consumer payments is
unworkable. There is nothing inherently deceptive or abusive
about the use of couriers by legitimate business, and the
comments show that many legitimate businesses use them. While
fraudulent telemarketers often use couriers to obtain quickly the
spoils of their deceit, such telemarketers engage in other acts
or practices that clearly are deceptive or abusive, and that are
prohibited by this Rule. Thus, the prohibition of courier use is
unnecessary, and it has been deleted from the revised proposed
79 See, e.g., NAAG at 23-24; USPS at 11-12; CFA at 3; AARP
80 IA DOJ at 6.
81 NCL at 33-35.
82 See, e.g., Monex at 13-14; A-Mark at 10.
83 DMA at 25; PMAA at 84; DMSI at 5; MRG at 4; UPS at 2.
84 CDI at 1; CA at 3; Cox at 11; Gannet at 6; NAA at 15;
Washington at 17.
85 AWMI at 1; GGP at 2; GCM at 1; MGC at 1; MP at 1.
86 Comcast at 5, n.5.
(c) Credit repair services. Section 310.4(a)(3) of the
initially proposed Rule prohibited any seller or telemarketer
from requesting or receiving payment of any fee or consideration
for goods or services represented to improve a person's credit
history, credit record, or credit rating until the contract for
the services had expired and the promised results had been
achieved.87 A number of commenters strongly supported this
prohibition as a necessary limitation on the telemarketing of
deceptive credit repair services.88 The Commission agrees, and
is retaining this provision in the revised proposed Rule, with
the following two amendments suggested by commenters.
First, NCL suggested, and the Commission agrees, that the
prohibition on advance payments should extend to services that
promise to remove derogatory information from a consumer's credit
record, in addition to those services that simply promise to
improve a person's credit history, record or rating.89 Second,
the revised proposed Rule will not permit, as documentation that
the promised results have been achieved, records from the
original furnisher or provider of the derogatory information to
the consumer reporting agency. As noted by NYSCPB, the original
furnisher of such information cannot control the actions of the
consumer reporting agencies.90 Thus, for a variety of reasons,
a consumer's credit report may not be changed, even though the
original furnisher has documentation requesting such a change to
occur. The Commission, therefore, has revised the initially
proposed Rule to require the examination of a consumer's credit
report, to determine if the services have been provided, before
the seller or telemarketer may request or receive payment from
A number of commenters suggested amending this Section to
clarify that it does not apply to credit monitoring services.91
The Commission did not intend to limit the actions of such
legitimate services, and does not believe this Section would
prohibit such services.
Other commenters stated that this provision may
inadvertently prohibit the telemarketing of secured credit cards,
harming consumers who use such cards to develop a satisfactory
87 Revised proposed Rule Section 310.4(a)(2).
88 NAAG at 24; CFA at 3; USD at 4; NCL at 37; USPS at 12.
ABA "commends" the Commission for this provision. ABA at 9.
89 NCL at 38.
90 NYSCPB at 8.
91 ATA at 7; CUCI at 7; DMA at 25; Spiegel at 4.
credit record.92 In fact, these commenters suggested an
exemption to this provision for the telemarketing of secured
credit cards by depository institutions. The Commission does not
believe such an exemption is necessary, because banks, savings
and loans, and Federal credit unions are outside of the
jurisdiction of the FTC, and are therefore not covered by the
(d) Recovery room services. The next abusive practice
prohibited by the initially proposed Rule involved recovery room
scams.94 In these operations, a fraudulent telemarketer will
call a consumer who has lost money in a previous scam and make
false promises that the telemarketer can recover that money, in
exchange for a fee paid in advance. After the fee is paid, the
promised services are never provided. As law enforcement
commenters noted, the recovery scheme is especially abusive,
targeting particularly vulnerable victims, including the
A number of financial institutions requested clarification
that this Section does not apply to legitimate debt collection
activities.96 In addition, another commenter opined that this
Section, as proposed, could impair the ability of newspapers to
accept classified ads for lost and found items.97 The
Commission believes that changing the phrase "induce payment" to
"induce purchase" in the definition of "telemarketing" clarifies
that debt collection practices are not the types of telemarketing
practices at issue in this Rule. Furthermore, the Commission is
revising this Section to make it applicable only to recovery
services that promise the return of money or other items of value
paid for or promised to the consumer in a previous telemarketing
transaction. Thus, this Section will not apply to attempts to
recover money or items lost outside of telemarketing.
92 ABA at 8; Citicorp at 8-9; MasterCard at 11.
93 See 15 U.S.C. 45(a)(2); revised proposed Rule Section
94 Initially proposed Rule Section 310.4(a)(4); revised
proposed Rule Section 310.4(a)(3).
95 See, e.g., IA DOJ at 13-15; USPS at 13; NAAG at 24. In
fact, NACAA believes there should be an outright prohibition
against contacting any consumer to offer these services. NACAA
96 Chase at 4; Chemical at 6; MasterCard at 11.
97 Washington at 17.
The initially proposed Rule prohibited sellers or
telemarketers from requesting or receiving payment of any fee for
recovery services until three days after the recovered money or
other item is delivered to the consumer. AARP noted that the
three-day period may be insufficient to protect consumers, and
asked that the Rule allow the minimum time necessary for out-of-
state checks to clear.98 The Commission agrees, and has
lengthened the time period that must elapse before providers of
such services can request payment from consumers to seven
business days after delivery of the recovered money or other item
Finally, the initially proposed Rule provided an exemption
from this Section for licensed attorneys or licensed private
investigators pursuant to a written agreement with the consumer.
Some commenters believed that private investigators should not be
exempt, because such an exemption would only lead to fraudulent
recovery services signing up with unscrupulous private
investigators as a method of evading this prohibition.99 The
Commission agrees, and has removed the exemption for private
(e) Advance fee loans. Section 310.4(a)(5) of the
initially proposed Rule prohibited any seller or telemarketer
from requesting or receiving payment of any fee or consideration
in advance of obtaining a loan or any credit service when the
seller or telemarketer has guaranteed or represented a high
likelihood of success in obtaining or arranging a loan or credit
service for a person.100 DMA urged that the Commission clarify
that this Section does not apply to services, such as monitoring
or counseling, that are not represented to improve a person's
credit history.101 The Commission did not intend for such
services to be covered, and is changing the phrase "credit
service," used in the initially proposed Rule, to "extension of
98 AARP at 15-16. Fraudulent recovery rooms may use
checks, not backed by sufficient funds for them to be paid by the
out-of-town banks on which they are drawn, to show consumer
victims that the money has been "recovered."
99 NAAG at 24; DSA-Nev., Tab B at 8; NCL at 39-40. Both
DSA-Nev. and NCL also believed that licensed attorneys should not
be exempt from this Section of the Rule. The Commission does not
wish to hinder legitimate activities by licensed attorneys to
recover funds lost by consumers through fraudulent telemarketing,
and thus does not believe this prohibition should be applied to
100 Revised proposed Rule Section 310.4(a)(4).
101 DMA at 25.
credit." In this manner, the application of this prohibition
only to loans or other extensions of credit will be clearer.102
(f) Prize distribution. The next prohibited abusive
practice included in the initially proposed Rule concerned the
distribution of prizes during a prize promotion. Section
310.4(a)(6) of the initially proposed Rule required any seller or
telemarketer conducting such promotions to distribute all prizes
or purported prizes offered within 18 months of the initial offer
to any person. The Commission believes that this practice is
adequately covered by the prohibition against misrepresenting any
material aspect of a prize promotion in Section 310.3(a)(2)(v) of
the revised proposed Rule. Because the practices included in
this Section of the initially proposed Rule are addressed by
other prohibitions, it has been deleted from the revised proposed
(g) Reloading. Section 310.4(a)(7) of the initially
proposed Rule prohibited any seller or telemarketer from offering
or selling goods or services through a telephone solicitation to
a person who previously has paid the same seller for goods or
services, until all terms and conditions of the initial
transaction have been fulfilled, including but not limited to the
distribution of all prizes or premiums offered in conjunction
with the initial transaction.
This provision of the initially proposed Rule elicited
nearly unanimous negative comments from industry representatives.
The Commission learned from these comments that many legitimate
businesses call their customers before full satisfaction has been
made on a prior transaction. Indeed, cultivating established
customers in this way is regarded as one of the most effective
selling techniques by legitimate sellers. Commenters noted that
the Section as proposed would preclude a seller or telemarketer
from calling customers to renew subscriptions, warranties,
service contracts, and a host of other ongoing services prior to
their expiration.103 Commenters also noted that this
prohibition would be particularly burdensome for large,
102 Prudential noted that this Section could cover a bank's
offer to a consumer of pre-approved loans. The Commission
believes that revised Section 310.1 will address Prudential's
concerns by clarifying that banks are excluded from coverage of
the Rule because they are outside of the Commission's
jurisdiction under the FTC Act, 15 U.S.C. 45(a)(2).
103 ATA at 7-8; ANA at 14; DMA at 27-28; MPA at 14-15; Cox
at 9-10; DMSI at 6; Hearst at 2; MSSC at 20; NAA at 13-14; AMCI
at 2 (motor club memberships); CUCI at 8; ASAE at 15-16
(association memberships); GE at 4-6; IBM at 19-22 (computer
leases); NCTA at 11-12 (cable services); Viacom at 10-11.
diversified companies with multiple divisions, sales offices and
Given the fact there is nothing about this practice, in and
of itself, that is inherently injurious to consumers, and given
the widespread use of this practice by legitimate telemarketers,
the Commission has dropped from the revised proposed Rule any
attempt to restrict this practice. Reloading is a problem when
there is deception in the sales offer. Because such deception is
prohibited by the revised proposed Rule under Section 310.3(a), a
separate prohibition of "reloading" is unnecessary. Accordingly,
it has been deleted from the revised proposed Rule.
(h) The Use of Shills. Section 310.4(a)(8) of the
initially proposed Rule prohibited identifying a person as a
reference for a business venture unless: (1) such person actually
purchased the business venture; (2) such person operated that
business venture for at least six months, or the seller or
telemarketer disclosed the length of time the person operated
such business venture; and (3) such person did not receive
consideration for any statements made to prospective business
venture purchasers. As stated in the discussion of Section 310.2
of the definition of "business venture," the Commission believes
that consideration of such a prohibition is more appropriately
included as part of its regulatory review of the Franchise Rule.
2. Pattern of Calls.
Section 310.4(b)(1)(i) of the proposed Rule prohibited a
seller or telemarketer from making a sales call to a person's
residence more than once within any three month period. Many
commenters stated that this was an unreasonable and arbitrary
prohibition that was difficult to comply with, and that should be
eliminated.105 In addition, commenters noted that consumers
already have the protections of the Telephone Consumer Protection
Act ["TCPA"] rules, which require telemarketers to establish and
maintain a "do not call" list of consumers who do not wish to be
contacted by that seller.106 Given the fact that calls more
104 ANA at 15; DMA at 27; NRF at 31; AmEx at 1-2.
105 ATA at 8; APAC at 6; DMA at 28; DSA at 15; MPA at 16-
18; NRF at 33; PMAA at 75-77; CUCI at 8; Fingerhut at 25; ADS at
1; AmEx at 1-2; AT&T 20; NCL at 45-46; APAC at 6; AMCI at 1; IBM
at 23; ANA at 17.
106 See, e.g., ANA at 17; Franklin at 1; Olan at 13. The
FCC's rules, established pursuant to the TCPA, 47 U.S.C. 227, are
codified at 47 CFR 64.1200. The revised proposed Rule includes
similar "do not call" protections at Section 310.4(b)(1)(ii),
frequent than once per month are not, in and of themselves,
injurious to consumers, and given the consumer protections
afforded by the "do not call" requirements of the TCPA107 and
this Rule, the Commission agrees that this provision is
unnecessary and has therefore deleted it.
In its place, the Commission proposes in revised Rule
Section 310.4(b)(i) to prohibit any seller or telemarketer to
cause any telephone to ring, or engage any person in telephone
conversation, repeatedly or continuously with intent to annoy,
abuse, or harass any person at the called number. Such a
prohibition is included in the FDCPA,108 and the legislative
history of the Telemarketing Act states that the Commission
should consider the FDCPA in establishing prohibited abusive acts
Section 310.4(b)(1)(ii) of the initially proposed Rule set
forth the prohibition on calling a person's residence when that
person previously has stated that he or she does not wish to
receive such a call made by or on behalf of the seller whose
goods or services are being offered. The Commission continues to
believe that such a limitation, which is fully consistent with
and complementary to similar provisions under the TCPA,110 will
effectively implement the Telemarketing Act's directive to
include in this 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."111 This Section did not elicit
many comments; the only change made to this Section responds to
the comments suggesting that the prohibition should apply to a
particular person or telephone number, not to a residence (as the
initially proposed version of this provision stated), because a
residence may have more than one person who is a customer of a
particular seller.112 The revised proposed Rule states that the
107 47 U.S.C. 227.
108 15 U.S.C. 1692d(5).
109 See, e.g., House Report at 8. Moreover, commenters
suggested that such a provision would be appropriate. See, e.g.,
NAA at 20; Cox at 10 (abusive conduct involves multiple calls
over a short period of time, such as five calls in a day, or ten
calls in a week).
110 See 47 U.S.C. 227; 47 CFR 64.1200(e).
111 15 U.S.C. 6102(a)(3)(A).
112 See, e.g., NRF at 33; Pacesetter at 4.
prohibition applies to calls made to a person, rather than a
Section 310.4(b)(2) of the initially proposed Rule provided
a limited safe harbor against liability for violating the "do not
call" prohibitions included in Section 310.4(b)(1)(ii). This
Section stated that a seller or telemarketer will not be liable
for such violations once in any calendar year per person called
if: (1) it has established and implemented written procedures to
comply with the "do not call provisions;" (2) it has trained its
personnel in those procedures; (3) the seller, or the
telemarketer acting on behalf of the seller, has maintained and
recorded lists of persons who may not be contacted; and (4) any
subsequent call is the result of administrative error.
Two changes have been made to this Section. First, some
commenters suggested that the safe harbor should not be limited
to a certain number of violations per consumer or per year.113
These commenters maintained that if the other enumerated steps
are taken by a telemarketer in a reasonable manner, and a call is
made erroneously, a Rule violation should not be found. The
Commission agrees, and has deleted this limitation to the safe
harbor. Second, the safe harbor will apply if the subsequent
call is the result of any error, not just an administrative
error. This responds to concerns raised that unintentional or
accidental calls should also be covered by the safe harbor.114
3. Calling Time Restrictions.
The initially proposed Rule prohibited any telemarketer from
calling a person's residence, without the prior consent of the
person, at any time other than between 8:00 a.m. and 9:00 p.m.
local time at the called person's location. The Commission
included this provision in the initially proposed Rule in
response to the Telemarketing Act's directive that the Rule
should include "restrictions on the hours of the day and night
when unsolicited telephone calls can be made to consumers."115
113 See, e.g., IBM at 24; SBTC at 10-11.
114 NRF at 35; PMAA at 83; MSSC at 21. Other commenters
suggested that the term "administrative error" was too broad, and
that a clear definition should be provided. NACAA at 5; NAAG at
27; USD at 5. The Commission believes that any error should be
excused here, as long as the seller or telemarketer is complying
in good faith with the other requirements of the safe harbor.
115 15 U.S.C. 6102(a)(3)(B).
While some commenters suggested different time restrictions,116
the FCC has established these calling time hours in its
regulations implementing the TCPA,117 and the Commission has
been presented with no compelling reasons to change them.
Accordingly, no substantive changes to Section 310.4(c) are
4. Required Oral Disclosures
(a) All outbound telephone calls. The Telemarketing Act
requires the Commission to include in this Rule the following:
a requirement that any person engaged in telemarketing
for the sale of goods or services shall promptly and
clearly disclose to the person receiving the call that
the purpose of the call is to sell goods or services
and make other such disclosures as the Commission deems
The initially proposed Rule, at Section 310.4(d)(1)(i),
implemented this legislative directive by requiring all outbound
telephone calls (or telephone solicitations, as they previously
were called), to begin with the disclosure of the caller's true
first and last name, the seller's name, and a statement that the
purpose of the call is to sell goods or services. The divergence
between the statutory language and that of the initially proposed
Rule elicited significant comment.
Many industry representatives objected to these disclosures
being required "at the beginning," rather than "promptly and
116 DSA-Nev Tab B at 11 (7 a.m. to 10 p.m.); Monex at 15
(no restrictions for the precious metals market); NACAA at 5 and
GA OCA at 2 (5:00 p.m. to 9:00 p.m. to protect vulnerable older
consumers); NAAG at 27 (no calls before noon on Sunday).
117 See 47 CFR 64.1200(e)(1).
118 Certain commenters suggested that the safe harbor
provisions of Section 310.4(b)(2) should apply to the calling
time restrictions as well as the "do not call" requirements.
See, e.g., NRF at 35; ARDA at 31. The Commission believes that
the calling time restrictions do not present the administrative
compliance difficulties that the "do not call" restrictions
impose, and therefore does not believe a safe harbor is necessary
119 15 U.S.C. 6102(a)(3)(C).
clearly."120 According to these commenters, requiring
disclosures at the beginning disturbs the normal flow of a
telephone call,121 allows no time for a seller to establish, or
reestablish, a relationship with the consumer,122 infringes on
the seller's ability to design and implement effective
telemarketing sales presentations,123 and is in effect a "kill
message" that will result in most consumers hanging up when they
hear the required disclosures.124
After considering these comments, the Commission has
determined that requiring these disclosures "at the beginning"
may be too rigid a standard for achieving the statutory purpose
of providing important information to consumers while permitting
the use of the telephone in making sales.125 The revised
proposed Rule adheres to the statutory requirement that the
disclosures be prompt and clear. By adhering more closely to the
statutory language, the Commission intends to permit some
flexibility in the seller's telemarketing presentation. For
example, a prompt disclosure would not preclude the seller or
telemarketer from establishing some initial rapport with the
customer before stating the purpose of the call. However, in
"multiple purpose calls," where one purpose is to sell goods or
services, the sales purpose must be disclosed promptly.
120 ATA at 9; ANA at 21; NRF at 36; DMA at 30; Chemical at
7; CUCI at 9; Gannet at 4; Olan at 16.
121 See, e.g., NRF at 36.
122 See, e.g., ADS at 2.
123 Ann Arbor at 2 (with numerous other newspapers
submitting a substantially similar comment).
124 See, e.g., Citicorp at 8; Time Warner at 37-38. Not
all industry representatives agreed. One telemarketer stated
that requiring the disclosures at the beginning is very
reasonable. "Rather than impeding business, disclosure of the
information proposed by the Commission adds credibility to the
legitimacy of the caller and increases consumer confidence [and]
responsiveness to its telemarketing calls." TMGI at 2, 4.
125 The Senate Report stated that the "prompt" disclosure
requirement was added to the Telemarketing Act to address
concerns raised by the market research industry (those who
conduct surveys and public opinion polls without selling goods or
services) that telemarketing calls should not be made under the
guise of being calls solely for survey research or similar
purposes. See Senate Report at 4.
The requirement that all outbound telephone calls include
the disclosure of the caller's true first and last name also
elicited significant comment. 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
or harassment.126 Upon reconsideration, the Commission has
determined that disclosure of the seller's identity is
sufficient. Therefore, disclosure of the caller's identity need
not be included in this Rule.
In addition to the disclosure of the identity of the seller
and the fact that the purpose of the call is to sell goods or
services, Section 310.4(d) of the revised proposed Rule now
requires the prompt and clear disclosure of the nature of the
goods and services that are the subject of the call. The
Commission revised the language of Section 310.4(d) to more
accurately reflect language from Section 3(a)(3)(C) of the
Telemarketing Act setting forth those additional disclosures.
Section 310.4(d)(1)(ii) of the initially proposed Rule
required a number of disclosures in any telephone solicitation
that included a charitable solicitation.127 Upon careful review
of the comments, it is clear that separate treatment of such
charitable solicitations is unnecessary. As ATFA suggested at
the workshop, the sale of goods or services that includes a
representation that a portion of the money paid for such goods or
services will go to charity could be treated under the Rule as a
sale of goods or services, rather than a charitable
solicitation.128 As a result, such a sale would be covered
under the Rule without having to expressly cover charitable
solicitations or donations. Because the initially proposed Rule
attempted to encompass these specific types of sales, and given
that such sales will be covered under the Rule's definition of
"telemarketing," the Commission has decided to delete Section
310.4(d)(1)(ii) from the revised proposed rule.
Additionally, many comments indicated that former Section
310.4(d)(1)(ii) engendered a great deal of confusion on the part
of nonprofit entities as to their coverage under the Rule. In
126 See, e.g., ANA at 21; Cox at 7-8; APAC at 6; ADS at 2.
127 The definition of "goods or services" in Section
310.2(j) of the initially proposed Rule included a statement that
the term included "any charitable service promoted in conjunction
with an offer of a prize, chance to win a prize, or the
opportunity to purchase any other goods or services."
128 See Tr. at 188-93 (ATFA).
including former Section 310.4(d)(1)(ii), the Commission did not
intend to regulate nonprofit entities.129 The Commission is
mindful of the limitations on its jurisdiction in this area.
Specifically, Section 4 of the FTC Act gives the Commission
jurisdiction over corporations that are operated for their own
profit or that of their members and over the business aspects of
the activities of organizations serving both nonprofit and for-
profit purposes.130 Federal courts have construed this to bar
the Commission from suing any bona fide nonprofit organization
under the FTC Act, thereby removing most charitable organizations
from the scope of the FTC's authority.131 Section 6(a) of the
Telemarketing Act states that "no activity which is outside the
jurisdiction of [the FTC Act] shall be affected by this Act."132
Accordingly, as explicitly stated in Section 310.1 of the revised
proposed rule, the jurisdictional limitations of Section 4 of the
FTC Act, including those regarding nonprofit organizations, will
apply to the Telemarketing Sales Rule.
(b) Verification calls. The initially proposed Rule stated
that if a caller verifies a telemarketing sale, that caller must
repeat certain disclosures.133 Many commenters argued
forcefully that this Section was unnecessary and unduly
burdensome, requiring duplicative disclosures that would add to
129 See generally ATFA; NFN.
130 See American Medical Ass'n v. FTC, 94 F.T.C. 701, 982-
93, aff'd, 638 F.2d 443, 448 (2d Cir. 1980), aff'd mem. by
equally divided court, 455 U.S. 676 (1982).
131 This jurisdictional limitation, however, does not
prevent the Commission from suing a for-profit company that
engages in deceptive practices to solicit charitable
contributions from consumers. To this end, the Commission has
recently sued several allegedly deceptive "telefunders" --
companies that solicit charitable contributions by telephone --
which allegedly misrepresented the use to which donations would
be directed and allegedly misrepresented the value of certain
prizes. See FTC v. The Baylis Co., No. 94-0017-S-LMB (D. Idaho
1994); FTC v. NCH, Inc., No. CV-S-94-00138-LDG (LRL) (D. Nev.
1994); FTC v. International Charity Consultants, No. CV-S-94-
00195-DWH (LRL) (D. Nev. 1994); FTC v. Heritage Publishing, No.
LR-C-94-416 (E.D. Ark. 1994). In addition, the Commission may
sue a sham charity that is actually a for-profit enterprise. FTC
v. Voices for Freedom, No. 91-1542-A (E.D. Va. July 13, 1992)
(consent decree entered).
132 15 U.S.C. 6105(a).
133 Section 310.4(d)(2) of the initially proposed Rule.
the cost of the call and annoy potential customers.134 In
addition, commenters stated that this disclosure would discourage
firms from making verification calls, due to increased costs.135
After considering these comments, the Commission has determined
that requiring duplicative verification disclosures is
unnecessary and would unfairly burden legitimate telemarketers.
It has therefore deleted this Section from the revised proposed
(c) Outbound telephone calls that include a prize
promotion. The initially proposed Rule required the following
three additional oral disclosures for any telemarketing that
includes a prize promotion: (1) the fact that no purchase or
payment is necessary to win; (2) the verifiable retail sales
price of each prize offered, or a statement that the retail sales
price of the prize offered is less than $20.00; and (3) the odds
of winning each prize offered.136
The comments elicited by these requirements stressed the
unnecessary costs that would result from duplicative disclosure
requirements.137 The Commission wishes to avoid imposing
unnecessary requirements for oral disclosures that increase both
the length and the cost of calls without a very clear consumer
benefit.138 Because the benefit to be derived from repeated
disclosures of the same information is questionable, the
Commission has narrowed the amount of information that must be
disclosed orally. Oral disclosures now encompass only
information that promises a clear-cut consumer benefit and that
is not outweighed by the costs it imposes on legitimate industry.
The revised proposed Rule requires a telemarketer making an
outbound telephone call which includes a prize promotion to
disclose clearly, in addition to the other disclosures required
under revised proposed Rule Section 310.4(d), the fact that no
purchase is necessary to win.
The Commission believes that this disclosure is so critical
to consumer protection in a prize promotion that it should be
stated during an outbound telephone call. In addition, the
Commission, in response to concerns raised by NAAG, has specified
in the revised proposed Rule that this disclosure must be made
134 ATA at 9; MPA at 20-21; ARDA at 33; NAA at 19; Spiegel
at 5; ALIC at 3; MSSC at 22.
135 AT&T at 22-23; MCI at 12; PCH at 4; SBTC at 13.
136 Initially proposed Rule Section 310.4(d)(3).
137 See generally PMAA, DMA; IMSP.
138 See, e.g., MPA at 21-22.
before the prize is described to the person called.139 Such a
disclosure will clearly inform consumers that a true, legitimate
"prize" awarded in a game of chance does not require any
purchase.140 This disclosure will help dispel the false
information provided during fraudulent prize promotions that a
consumer must purchase some item in order to win the "fabulous"
prize offered. In order to make this "no purchase necessary"
disclosure meaningful, the revised proposed Rule also requires
the telemarketer to disclose the no-purchase entry method for the
prize promotion, if requested by the person called.
(d) Outbound telephone calls that include a premium. The
initially proposed Rule required any telemarketing that includes
an offer of a premium to make the additional disclosure of the
verifiable retail sales price of such premium or comparable item,
or a statement that the retail sales price of the premium is less
than $20.00.141 A number of commenters stated that this Section
should be eliminated. They claimed that many premiums offered by
legitimate telemarketers generally are not available for retail
sale, and attempting to determine a retail sales price may be
difficult and costly. They also predicted that this added cost
may result in the elimination of premiums being offered, to the
detriment of consumers.142
The Commission is persuaded by these arguments; in and of
itself, non-disclosure of the value of an offered premium is not
likely to be injurious to consumers, and imposition of the
potential costs associated with such a disclosure requirement is
not justified. The prohibition against misrepresentations in
Section 310.3 is sufficient to protect consumers against false
and misleading claims about the value of a premium.
5. Other Required Disclosures
The initially proposed Rule prohibited any seller or
telemarketer conducting a prize promotion from requesting or
accepting any payment from a person without first providing that
person with a written disclosure, in duplicate, and receiving
139 NAAG at 28-29.
140 See e.g., 18 U.S.C. 1301. Additionally, PMAA, stated
during the workshop that such a requirement would not be overly
burdensome and would accurately distinguish deceptive prize
promotions from legitimate prize promotions. Tr. at 608-10
141 Initially proposed Rule Section 310.4(d)(4).
142 See, e.g., MPA at 22-23; NAA at 19-20; MasterCard at
13-14; MBNA at 1.
from that person a written acknowledgement that the person has
read the disclosure.143 Numerous commenters stated that such a
written acknowledgement requirement would effectively ban prize
promotions in telemarketing sales by increasing costs and
negating the efficiency of those sales.144 The Commission is
persuaded that such an outcome would limit consumers' choices and
would be inconsistent with Commission policy. Prize promotions
in telemarketing, in and of themselves, are not deceptive, do not
cause injury to consumers, and may, in fact, provide consumer
benefits. The Commission has determined that these requirements
would likely produce nominal consumer benefits that would be
outweighed by the potential detrimental effects, and has
therefore dropped them from the revised proposed Rule.
The initially proposed Rule also imposed written disclosure
requirements on investment opportunities very similar to those
for prize promotions. Specifically, any seller or telemarketer
selling an investment opportunity was prohibited from requesting
or accepting any payment from a person without first providing
that person with a written disclosure, in duplicate, and
receiving from that person a written acknowledgement that the
person had read the disclosure.145 Industry representatives
again stated that a signed acknowledgement from consumers is
unjustifiably burdensome in advance of all investment
transactions.146 They also stated that the delay caused by this
requirement is unfair to both the customer and the seller in
certain volatile markets.147
After reviewing the comments in this area, and upon further
reflection, the Commission, for reasons similar to those that
prompted deletion of the written prize promotion disclosures, has
deleted requirements for additional written disclosures for
telemarketing investment opportunities. While the Commission is
mindful that both prize promotions and investment opportunities
143 Initially proposed Rule Section 310.4(e)(1).
144 See, e.g., DMA at 33; MPA at 23-24; NRF at 38; PMAA at
49-51; CUCI at 10; IBM at 26; ITI at 8-10; Spiegel at 5-6; ADS at
3; SDRA at 1. In fact, one commenter noted that 73 percent of
prize winners do not return an affidavit permitting the
distribution of prizes to them. DW&Z at 2.
145 Initially proposed Rule Section 310.4(e)(2).
146 See, e.g., A-Mark at 2, 11-12; AFSA at 7-8.
147 See, e.g., Monex at 16-17.
are a major area of telemarketing fraud,148 the costs imposed on
legitimate industry by these mandatory disclosures is not
justified. In addition, the prohibitions on misrepresentations,
as well as the disclosures required before a customer pays for
goods or services, included in Section 310.3 are sufficient to
prohibit the deceptive conduct found in the telemarketing of
prize promotions and investment opportunities.
6. Distribution of Lists.
The initially proposed Rule prohibited any person who is
subject to any federal court order resolving a case in which the
complaint alleged a violation of certain provisions of the Rule,
and in which the court did not dismiss or strike all such
allegations from the case, from selling, renting, publishing, or
distributing any list of customer contacts from that person.149
Industry commenters stated that the original proposal was too
great a penalty for Rule violations, would preclude settlements
of law enforcement actions, and should be eliminated.150 On the
other hand, law enforcement and consumer representatives
commented that the proposed provision does not go far enough, and
should extend to all rule violations and to FTC enforcement
After considering the comments, the Commission believes that
such a prohibition is better left to the discretion of law
enforcement agencies to seek, and the courts to order, in
individual law enforcement actions. This Section therefore has
been deleted from the revised proposed Rule.
Section 310.5 Recordkeeping Requirements
The initially proposed Rule required any seller or
telemarketer to keep certain records relating to telemarketing
activities for a period of 24 months from the date the record is
148 Approximately 60 percent of all telemarketing
complaints received by NCL involve prize offers, while investment
opportunities account for the greatest dollar volume of losses
reported. NCL at 49-51.
149 Initially proposed Rule Section 310.4(f).
150 APAC at 7; DMA at 34; MSSC at 24-25; Spiegel at 6;
Monex at 19; NRF at 38-39.
151 AARP at 22; NACAA at 5 (apply it to state orders as
well); GA OCA at 2.
Many industry commenters stated that the 24-month retention
period was burdensome and suggested that the period be
shortened.152 Others suggested that the recordkeeping provision
be dropped altogether because Congress did not mandate that
records be kept,153 and because fraudulent telemarketers will
most likely ignore the requirements. Those commenters suggested
that recordkeeping requirements would only burden legitimate
business.154 On the other hand, law enforcement and consumer
representatives commented that the recordkeeping provisions would
be extremely helpful in preserving evidence of compliance, in
identifying customers who may have been injured, and in
identifying persons who might have been involved in any deceptive
or abusive telemarketing practices.155 In fact, several
commenters suggested that the record retention period be
lengthened to 36 months, which would parallel the IRS retention
After careful consideration of the comments, the Commission
has decided to keep a recordkeeping requirement in the revised
proposed Rule. Without the required records, it would be
difficult to ensure that sellers and telemarketers are complying
with the requirements of the revised proposed Rule, or identify
persons who are involved in the practices, or identify customers
who may have been injured.
The Commission also has decided to leave the record
retention period at 24 months in the revised proposed Rule. A
record retention period shorter than a two-year period would be
inadequate for the Commission and the States to complete
investigations of noncompliance. Consumers who complain to an
agency about alleged deceptive or abusive telemarketing practices
often do not do so immediately. Therefore, there may already be
a substantial "lag time" between the time the alleged violations
occur and the time the Commission learns of the alleged
violations. A two-year record retention period allows the
Commission and State law enforcement agencies to gather
information needed to pursue enforcement actions and to identify
152 See, e.g., DMA at 35; ANA at 24; IBM at 27; Olan at 14;
NRF at 40; MSSC at 25; Ann Arbor at 2.
153 Section 3(a)(3) of the Telemarketing Act authorizes the
Commission to include recordkeeping requirements in the Rule. 15
154 See, e.g., RPI at 1; BSA at 14.
155 See, e.g., NCL at 54; USPS at 24; AARP at 23; NAAG at
36; CFA at 6.
156 See, e.g., NAAG at 36-37; CFA at 6.
those persons who have most recently suffered injury from the
alleged deceptive or abusive telemarketing practices.
The Commission is mindful, however, of the burden on
business in maintaining these records. Therefore, the revised
proposed Rule incorporates many of the suggestions from industry
on how to minimize the recordkeeping burden.
First, the revised proposed Rule specifies that the records
may be kept "in any form." This language addresses the
suggestions from many commenters that the burden could be reduced
if the sellers and telemarketers could keep the required records
in electronic storage.157
Second, the revised proposed Rule specifies that sellers and
telemarketers need to retain only substantially different
advertising, brochures, telemarketing scripts, and promotional
materials. Several commenters proposed this change in order to
reduce the paper burden of maintaining large quantities of
virtually identical documents.158
Third, the revised proposed Rule incorporates the
suggestions of many commenters by requiring sellers and
telemarketers to maintain a record only of the last known address
of prize recipients, customers, and of current and former
Fourth, the revised proposed Rule sets a de minimis amount
of $25 for record retention on prizes, as was suggested by at
least one commenter.160 Sellers and telemarketers will not have
to maintain records on prize recipients and prizes awarded for
prizes that have a value less than $25.00.
Fifth, the revised proposed Rule adds the requirement that
sellers and telemarketers maintain a record of any fictitious
name used by any current or former employee directly involved in
telemarketing sales. This requirement would prevent deceptive
telemarketers from hiding behind a fictitious identity and would
aid law enforcement agencies in identifying possible defendants.
157 See, e.g., ANA at 24; NRF at 40; Olan at 14; NCL at 54;
IBM at 27-28; USPS at 24.
158 See, e.g., DMA at 35; Tr. at 761, 767, and 769.
159 See, e.g., ATA at 9-10; NRF at 40; Olan at 14; SCIC at
6; IBM at 27.
160 See ARDA at 36-37.
Some commenters requested clarification of certain
recordkeeping requirements in order to reduce the burden on
business. For example, several parties read the recordkeeping
requirements to require them to maintain records of all customer
contacts, regardless of whether the customer actually made a
purchase.161 They recommended that businesses only be required
to maintain records relating to customers who actually made a
purchase of goods or services. The Commission did not add
clarifying language addressing this concern because it believes
that the plain language in Section 310.5(a)(3) of the revised
proposed Rule is sufficiently clear that only records relating to
actual sales need be maintained. That Section specifically
requires information to be maintained regarding the sales
transaction: the identity of the goods or services purchased, the
fulfillment, and the amount paid by the customer.
Other commenters asked that, in connection with the
requirement to maintain employee records, the revised proposed
Rule more clearly define who is "directly involved in telephone
sales" in order to minimize the burden of maintaining records on
employees who might be only tangentially involved in
telemarketing activities.162 In addition, some commenters asked
that the Commission clarify that records on former employees be
kept only on those persons who are employees on or after the
effective date of the final Rule.163
The revised proposed Rule does not add clarifying language
addressing these concerns. The Commission believes that the Rule
is sufficiently clear about the types of telemarketing activities
that would be subject to the Rule's provisions as to minimize the
number and type of employees on whom records must be maintained.
In addition, the Commission intends that any Rule requirements,
including recordkeeping requirements, will commence with the
effective date of the final Rule. Therefore, any records
relating to employees and former employees would be required only
for those persons who are or become employees or former employees
on or after the effective date of the Rule.
The revised proposed Rule incorporates suggestions from some
commenters to clarify that the seller and telemarketer need not
duplicate those records that are already maintained in the
ordinary course of business.164 Additionally, Section 310.5(c)
of the revised Rule permits a seller and telemarketer to allocate
161 See, e.g., Wachovia at 3; ARDA at 37; IBM at 27.
162 See, e.g., DMA at 35-36; ARDA at 37.
163 See, e.g., NB at 5; Citicorp at 9; ARDA at 37.
164 See, e.g., Comcast at 6.
between themselves, by written agreement, responsibility for
complying with the recordkeeping requirements. The revised
proposed Rule further clarifies a seller's and a telemarketer's
recordkeeping responsibilities. Under revised Section 310.5(d),
absent a written agreement described in Section 310.5(c), a
seller is responsible for complying with Sections 310.5(a)(1)-(3)
and a telemarketer is responsible for complying with Section
310.5(a)(4). Revised Section 310.5(d) allows sellers and
telemarketers to keep the required records in any manner, format,
or place as they keep such records in the ordinary course of
Several commenters expressed concern that sellers and
telemarketers may not have access to all of the information
required to be maintained, and requested that the Rule set out
which parties should have responsibility for maintaining certain
types of records.165 After considering these comments, the
Commission has determined that the language in Section 310.5(b)
is already sufficiently clear to convey that the parties may
enter into a written agreement allocating responsibility for
maintaining records. Thus, there is nothing in Section 310.5(b)
that would prohibit the parties from maintaining only those
records to which they would normally have access, as long as each
of the required types of information is maintained by at least
one of the parties. Indeed, several commenters supported this
Section, noting that it strikes a reasonable balance between
maintaining necessary documentation and avoiding overly
burdensome requirements, as well as noting that it is consistent
with the contractual nature of the relationship between sellers
Finally, the Commission has deleted former Section
310.5(a)(5) that required that "any written notices, disclosures,
and acknowledgements required to be provided or received under
this Rule" be kept. The Commission deleted this Section because
the revised proposed Rule no longer requires specific written
disclosures and acknowledgements.
Section 310.6 Exemptions
Section 310.6 of the initially proposed Rule exempts certain
acts or practices from the Rule's provisions. This Section
prompted considerable comment.
Law enforcement and consumer groups cautioned against any
exemptions because of the additional burden of proof exemptions
place on law enforcement and because of the potential danger that
165 See, e.g., MPA at 25; DSA at 21; OPC at 4.
166 See, e.g., NRF at 41; ARDA at 37-38.
deceptive telemarketers will seize upon any perceived loophole to
avoid coverage under the Rule.167 At the workshop conference,
DSA-Nev. explained Nevada's negative experience with legislative
exemptions. DSA-Nev. stated that Nevada's telemarketing
legislation exempted charitable solicitations. Shortly after its
enactment, Nevada saw fraudulent telemarketers rushing to switch
their operations to fraudulent "telefunding" in order to take
advantage of that exemption.168
The business community, however, suggested that the
Commission formulate exemptions that specifically differentiate
between deceptive and legitimate telemarketing because of the
broad coverage of the initially proposed Rule.169 Industry
suggested that the Commission take one or both of the following
courses: (1) narrow the definition of "telemarketing" to include
only outbound telephone calls;170 or (2) if the Commission
decides to continue including inbound telephone calls, set forth
additional exemptions that would allow the legitimate
telemarketing industry to operate without the restraints of
After careful consideration, the Commission has decided that
narrowly-tailored exemptions are necessary to avoid unduly
burdening legitimate businesses and sales transactions that
Congress specifically intended not to cover under the Rule.
Section 310.6 enumerates these exemptions. The Commission
determined the advisability of each exemption after considering
the following factors: (1) whether the conduct or business in
question already is regulated extensively by Federal or State
law; (2) whether Congress intended that a certain type of
telemarketing activity be exempt under the Rule; (3) whether,
based on the Commission's enforcement experience, the conduct or
business lends itself easily to deception or abuse; and (4)
whether requiring businesses to comply with the Rule would be
unduly burdensome when weighed against the likelihood that
deceptive sellers or telemarketers would use an exemption to
circumvent the Rule's coverage.
167 See, e.g., NCL at 54-55; NAAG at 37. See also Tr. at
254-256, 704, and 725.
168 Tr. at 82-84.
169 See, e.g., NRF at 9; Time Warner at 4-7; DMA at 10-12.
See also Tr. at 79-81, 702-703, and 710-711.
170 See, e.g., MPA at 8-10; MSSC at 9-10; Olan at 19-20;
ANA at 10; ACRA at 6-7.
171 See, e.g., NRF at 20-21; ICTA at 31-35; Time Warner at
The revised proposed Rule incorporates the suggestions of
numerous commenters and exempts transactions that are subject to
extensive requirements under other Commission rules.172 Section
310.6(a) exempts pay-per-call services subject to the FTC's 900
Number Rule.173 Additionally, the Commission has clarified the
definition of "investment opportunity" in Section 310.2(j) of the
revised proposed Rule to expressly state that the term does not
include sales of franchises subject to the FTC's Franchise
Many commenters suggested exemptions based on other FTC
rules, statutes, and regulations, for example, the Negative
Option Rule, 16 CFR Part 425, FDCPA, 15 U.S.C. 1692, and the
TILA, 15 U.S.C. 1601 et seq.).175 The Commission believes that
changing the phrase "induce payment" to "induce purchase" in the
definition of "telemarketing" clarifies that debt collection
practices are not covered by this Rule. With regard to credit
statutes such as the TILA and the Consumer Leasing Act ["CLA"],
15 U.S.C. 1667, the Commission believes that the revised proposed
Rule's disclosure requirements do not conflict or overlap with
those statutes. It is therefore unnecessary to specifically
exempt transactions subject to the TILA and CLA from the
provisions of this Rule. Similarly, the Commission believes that
the disclosure provisions of the Negative Option Rule do not
conflict or overlap with the provisions of this Rule and
therefore there is no need to exempt those transactions.
Other commenters asked that the Commission exempt those
entities that are not subject to the FTC Act.176 The revised
proposed Rule has added language to Section 310.1 that clarifies
the scope of the Rule in accordance with those comments. Many of
these commenters, however, also asked that agents of exempt
entities or of entities engaging in exempt activities similarly
172 See, e.g., IFA at 4; Time Warner at 44-45; CHC at 7;
ISA at 20-27; PMAA at 34-38.
173 "Trade Regulation Rule Pursuant to the Telephone
Disclosure and Dispute Resolution Act of 1992," 16 CFR Part 308.
174 "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures," 16 CFR Part 436.
175 See, e.g., BOB at 2; ANA at 14; ABA at 3; ACA at 1;
Advanta at 2; MBNA at 1.
176 See, e.g., GHAA at 3; AT&T at 6-13; AmEx at 3; ABA at
1; BOB at 1; ASAE at 2; SCIC at 7.
be exempted from the Rule's provisions.177 The Commission
rejects such an extension. Exemptions under the FTC Act are
either based on "status," or a specific activity.178 Exempting
agents is contrary to the Commission's assertion of its
jurisdiction under established case law. This Rule will cover
sellers and telemarketers who do not fall within those status or
activity-based exemptions of the FTC Act. Moreover, the
Commission's decision is consistent with Congressional intent
that the Telemarketing Act neither expand nor contract the
Section 310.6(b) of the revised proposed Rule exempts
"telephone calls 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 during which the customer has the opportunity to examine
the goods or services offered." In addition to Congress' clear
intent not to cover such transactions,180 numerous commenters
explained how face-to-face sales are not the type of
telemarketing transactions that Congress was concerned about in
passing the Telemarketing Act.181 The Commission agrees that
such face-to-face contacts where consumers have the opportunity
to examine the goods or services should be exempt under the Rule.
This exemption also applies to telephone contacts made subsequent
to a face-to-face sales presentation to the extent such contacts
are for the sole purpose of consummating the sale of goods or
services that the customer had the opportunity to examine.
Section 310.6(c) of the revised proposed Rule exempts
telephone calls initiated by a customer that are not the result
of any solicitation by the seller or telemarketer. The
Commission added this exemption to address many commenters'
concerns that the definition of telemarketing might include an
177 See, e.g., ABA at 1; Advanta at 1; Chase at 2; Citicorp
at 3; NFN at 2.
178 See 15 U.S.C. 44 and 45(a)(2). For examples of status
exemptions, see FTC v. Green Tree Acceptance Corp., No. CA-4-86-
469-K, slip op. (N.D. Tx. Sep. 30, 1987); Official Airlines
Guides, Inc. v. FTC, 630 F.2d 920 (2d Cir. 1980); FTC v. Miller,
549 F.2d 452 (7th Cir. 1977); Breen Air Freight, Ltd. v. Air
Cargo, Inc., 470 F.2d 767 (2d Cir. 1972). For an example of an
activity exemption, see Community Blood Bank of Kansas City, Inc.
v. FTC, 405 F.2d 1011 (8th Cir. 1969).
179 See Senate Report at 14.
180 House Report at 7; Senate Report at 7-8.
181 See, e.g., DSA.
inbound call from a customer to make hotel, airline, car rental
or similar reservations, to place carry-out or restaurant
delivery orders, obtain information or customer technical
support, or other incidental uses of the telephone that were not
in response to a direct solicitation.182 This exemption is
consistent with Congress' intent not to cover transactions
involving incidental use of the telephone.183
The Commission has replaced former Section 310.6(c) with
revised Sections 310.6(d) and (e). Section 310.6(c) of the
initially proposed Rule had exempted telephone contacts made by a
person "when there has been no initial sales contact directed to
that particular person, by telephone or otherwise, from the
seller or telemarketer." Many commenters expressed confusion over
what was meant by "initial sales contact" or "directed to that
particular person," and requested that the Commission clarify the
scope of this exemption.184 The Commission agrees that clarification
is needed as to the scope of this exemption. Revised proposed
Sections 310.6(d) and (e) now treat separately calls prompted by
advertisements in any media, other than direct mail solicitations, and
calls prompted by direct mail solicitations. Revised Section 310.6(d)
exempts "telephone calls initiated by a customer in response to an
advertisement through any media, other than direct mail solicitations;
provided, however, that this exemption does not apply to calls
initiated by a customer in response to an advertisement relating to
investment opportunities, goods or services described in Sections
310.4(a)(2)-(3), or advertisements that guarantee or represent a high
likelihood of success in obtaining or arranging for extensions of
credit, if payment of a fee is required in advance of obtaining the
extension of credit." The revised language of Section 310.5(d)
addresses some commenters' concerns that calls in response to
television commercials, infomercials, magazine and newspaper
advertisements, and other forms of mass media advertising would be
covered by the Rule.185 The Commission does not intend that
telephone contacts in response to general media advertising be covered
Rule. Rather, deceptive general media advertising will continue
to be subject to enforcement actions under the FTC Act.
182 See, e.g., ACRA at 6; DSA at 5; Olan at 19-20; Viacom
at 6-7; MCI at 5-6.
183 Senate Report at 8.
184 See, e.g., ANA at 10-11; Viacom at 6-7; Olan at 27;
AFSA at 3-4; QVC at 13-14; DMA at 37; MPA at 9; Time Warner at
185 See, e.g., INTV at 4; QVC at 2-3; NAA at 10-12; ANA at
On the other hand, the Commission knows that some fraudulent
sellers and telemarketers use mass media or general advertising
to entice their victims to call, particularly in relation to the
sale of investment opportunities, specific credit-related
programs, and recovery rooms. Given the Commission's experience
with these fraudulent telemarketing schemes being marketed
through television commercials, infomercials, magazine and
newspaper advertisements, and other forms of mass media
advertising, the Commission has excluded these activities from
the general media advertising exemption.
The revised proposed Rule no longer excludes "prize
promotions" from the general media exemption because the
Commission believes that the majority of fraudulent prize
promotions do not employ mass media or general advertising. In
addition, the revised proposed Rule has dropped "employment
services" as one of the exceptions to the general media
exemption. Although the Commission and other law enforcement
agencies have brought actions against advance fee employment
services that use mass media advertising, many legitimate
employment services use the same type of mass media advertising
and also require advance fees. The Commission believes that
neither the legislative history of the Telemarketing Act nor the
rulemaking record for the Rule provide a sufficient basis for
singling out the employment service industry for an exception to
the general media advertising exemption. Deceptive employment
opportunity advertising will, however, still be subject to
enforcement actions under the FTC Act.
Section 310.6(e) exempts telephone calls initiated by a
customer in response to "a direct mail solicitation that clearly
and conspicuously discloses all material information listed in
Section 310.3(a)(1) of this Rule for any item offered in the
direct mail solicitation; provided, however, that this exemption
does not apply to calls initiated by a customer in response to a
direct mail solicitation relating to investment opportunities,
goods or services described in Sections 310.4(a)(2)-(3), or
direct mail solicitations that guarantee or represent a high
likelihood of success in obtaining or arranging for extensions of
credit, if payment of a fee is required in advance of obtaining
the extension of credit." Some commenters suggested that the
Commission include under the general media exemption all direct
mail solicitations -- which, in effect, would have excluded all
inbound calls from coverage under the Rule. However, the
Commission's enforcement experience demonstrates that deceptive
telemarketers frequently use direct mail solicitations as an
integral part of their fraudulent schemes. Inbound calls
prompted by such solicitations frequently result in the caller be
subjected to the deceptive practices the Telemarketing Act is
designed to address. Therefore, the Commission has determined
that including all direct mail solicitations within the general
media exemption is unworkable. The Commission acknowledges,
however, that most direct mail solicitations are not deceptive.
In particular, the likelihood of deception is greatly diminished
when direct mail solicitations contain all material information
about the offered goods or services. Revised Section 310.6(e)
therefore exempts only those direct mail solicitations that
disclose, clearly and conspicuously, all the information
specified in Section 310.3(a)(1) as material to a person's
purchase decision. As in the general media exemption, revised
Section 310.6(e) excludes from this exemption direct mail
solicitations relating to investment opportunities, specific
credit-related programs, and recovery rooms because of the
Commission's enforcement experience in these areas.
The Commission decided to delete the "de minimis" exemption
for incidental telemarketing activity contained in former Section
310.6(a). Comments indicate that neither the law enforcement nor
the business communities found such an exemption helpful or
workable. Law enforcement agencies believed that the exemption
would hamper quick law enforcement, while providing a loophole
for fraudulent telemarketers who specialize in high-price scams
directed at only a few victims.186 The business community found
the exemption to be so restrictive that it would be of little
significance.187 The Commission agrees with those observations
and believes that revisions made elsewhere in the revised
proposed Rule, including exemptions in Section 310.6, eliminate
the need for this specific exemption.
Comments about the initially proposed "business-to-business"
exemption188 fell to opposite extremes. Several industry
commenters asked that the exemption be expanded to include
entities other than businesses.189 Other commenters asked that
the Commission clarify the type of office supplies excluded from
the exemption.190 Still other industry commenters suggested
that a "business-to-business" exemption was only defensible if
provided on an across-the-board basis, without exceptions.191
On the other hand, law enforcement and consumer agencies urged
186 See, e.g., NYSCPB at 13; NACAA at 6; NAAG at 38-40; IA
DOJ at 21.
187 See, e.g., DMA at 36; Olan at 27; ICTA at 57; AAAA at
188 Initially proposed Rule Section 310.6(b).
189 See, e.g., Viacom at 9.
190 See, e.g., IBM at 28; BPIA at 4.
191 See DMA at 36-37.
the Commission to exclude additional goods or services from the
Because the Commission has extensive enforcement experience
pertaining to deceptive telemarketing directed to businesses, it
does not believe that an across-the-board exemption for business-
to-business contacts is appropriate. The Commission does agree,
however, that clarification of the goods or services that are
excluded from this exemption is necessary. Revised Section
310.6(f) states that only the retail sale of nondurable office or
cleaning supplies are excluded from the exemption.193
Many commenters suggested an exemption for transactions
where the customer is able to examine the goods or services
before paying for them but does not involve a face-to-face sales
presentation. 194 The Commission does not believe such an
exemption is necessary, given the changes elsewhere in the
revised proposed Rule, as noted above.
Many commenters suggested an exemption based on a prior
business relationship with the customer.195 The Commission does
not believe that such an exemption would be workable in the
context of telemarketing fraud. A fraudulent telemarketer need
only obtain an initial purchase from an unsuspecting victim to
claim a "prior business relationship" exemption.
In addition, many commenters suggested an exemption for
"established businesses," including businesses that offer basic
customer protection policies such as a moneyback guarantee.196
The Commission agrees with the comments of other law enforcement
agencies that such broad-based "safe harbor" provisions are not
Such a "safe harbor" or "established business" exemption
might have an anticompetitive effect on new businesses entering
the market. In addition, the experience of law enforcement
192 See NAAG at 41; ID AG at 2; USPS at 25.
193 See, e.g., IBM at 28; BPIA at 4.
194 See, e.g., CHC at 8, 12.
195 See, e.g., ARDA at 39; ACRA at 9-10; MSSC at 27; Time
Warner at 44; ADC at 2; DMA at 38.
196 See, e.g., Time Warner at 23-26; DMA at 38; AmEx at 2;
APAC at 1-2,6; Viacom at 6; Olan at 28; ACRA at 10; ARDA at 40;
NRF at 17-18.
197 See, e.g., Tr. at 705-26.
agencies indicates that much telemarketing fraud is perpetrated
by so-called "established businesses." Furthermore, the
existence of policies such as a moneyback guarantee is no
assurance that the company is not fraudulent. Law enforcement
agencies are well aware that fraudulent telemarketers often tout
their "moneyback guarantees" and refund policies as part of the
sales solicitation. Unfortunately, such companies rarely honor
those moneyback guarantees.
Therefore, the Commission has decided not to include a broad
"safe harbor" or "established business" exemption in the revised
proposed Rule. The Commission believes that changes made
elsewhere in the revised proposed Rule, including exemptions set
forth in Section 310.6, obviate the need for such an exemption or
Section 310.7 Actions by States and Private Persons
The Telemarketing Act permits certain State officials and
private persons to bring civil actions in an appropriate Federal
district court for violations of this Rule.198 Section 310.7 of
the initially proposed Rule set forth the notice such parties
must provide to the Commission concerning those actions. The
language regarding the notice has not changed in the revised
proposed Rule. However, the revised proposed Rule has added
Section 310.7(b), which clarifies that the Rule does not vest
State officials or private persons with jurisdiction over any
person or activity outside the jurisdiction of the FTC Act.
The Commission added this language in response to questions
from a number of commenters regarding the scope of the Rule and
the authority to bring actions for violations of the Rule.199
When coupled with the new language in section 310.1 on the scope
of the Rule, the language in Section 310.7(b) clarifies that the
Rule does not apply to any person outside the jurisdiction of the
FTC Act, and that neither the Commission nor any other party
authorized to bring suit for violations of the Rule may bring an
action against such persons.
This restriction on the scope of the Rule and authority to
bring actions under the Rule tracks Section 6(b) of the
Telemarketing Act: "[N]o activity which is outside the
jurisdiction of [the FTC] Act shall be affected by this Act."200
The language also is consistent with the legislative history of
the Telemarketing Act and reflects the intent of Congress:
198 See 15 U.S.C. 6103 and 6104.
199 See, e.g., AARP at 3; ABA at 1; BOB at 2.
200 15 U.S.C. 6105(b).
[T]he legislation . . . does not vest the FTC, the
State attorneys general, or private parties with
jurisdiction over any person over whom the FTC does not
otherwise have authority.201
Section 310.8 Federal Preemption
Section 310.8 of the initially proposed Rule stated that
nothing in the Rule shall be construed to preempt any State law
that is not in direct conflict with any provision of the Rule.
Several commenters asked that this Section clarify that the Rule
establishes a threshold requirement that State laws can exceed as
long as they do not conflict with the Rule's requirements.202
At least one commenter expressed concern that they would be
subject to making State-required disclosures that are similar to
the Rule's requirements but not directly in conflict.203
The Commission does not believe any changes are necessary to
this Section. The language in this Section is clear and provides
sufficient guidance that additional State requirements and
prohibitions would be permitted as long as they do not conflict
directly with the Rule. Thus, State registration, certification,
or licensing requirements for telemarketing most likely would not
be preempted because they would not be in direct conflict with
any provisions of this Rule.
The NPR asked for comments on whether 30 days would provide
sufficient time to come into compliance with the initially
proposed Rule provisions.204 Most of the parties who commented
on the effective date indicated that 30 days would be
insufficient given the need "to make system changes, establish
training programs [for] employees involved in telephone sales
. . ., develop new recordkeeping procedures, prepare written
disclosure and acknowledgement forms, draft and negotiate new
contracts with service bureaus, [and] develop internal monitoring
programs."205 Most of the commenters who believed 30 days was
201 Senate Report at 14.
202 See, e.g., AARP at 25; NYSCPB at 13-14; NAAG at 41-42;
NACAA at 6.
203 See Prudential at 4.
204 60 FR at 8328.
205 NRF at 41. See also APAC at 9; NCL at 55; Olan at 29;
NAA at 24; DMA at 40; SCIC at 71; ARDA at 41; Time Warner at 41.
But see USPS at 26.
insufficient suggested a 6-month time frame in order to achieve
compliance.206 NCL noted that some of the prohibited deceptive
and fraudulent practices could be instituted immediately (for
example, the prohibitions against misrepresentations), but that
industry might need additional time to comply with certain other
requirements of the initially proposed Rule.207
Because the revised proposed Rule eliminates many of the
disclosure requirements that generated the foregoing compliance
time predictions, the Commission proposes to set the effective
date at 30 days from the date the final Rule is published.
Thirty days should not unduly burden legitimate industry because,
based on information provided by industry, legitimate sellers and
telemarketers already comply with the revised proposed Rule. For
example, legitimate industry represented that it already makes
the affirmative disclosures required under Section 310.3(a)(1);
it does not misrepresent material information pertaining to the
sale of goods or services prohibited under Section 310.3(a)(2);
it does not knowingly provide substantial assistance or support
to deceptive sellers or telemarketers prohibited under Section
310.3(b); and it does not engage in credit card laundering
prohibited under Section 310.3(c). Further, telemarketers have
been required to comply with the TCPA since 1992 and should
already have in place and be implementing the "do not call"
procedures required under that Act. Such procedures therefore
would comply with Section 310.4(b)(2) of this Rule, as well.
Finally, the Commission understands from the workshop that
participants already maintain the records required under Section
310.5. Because the Commission does not require that records be
kept in any special form, legitimate industry is most likely
already in compliance with Section 310.5 of the Rule. Based on
the foregoing, the Commission does not believe that a further
delayed effective date for the Rule is reasonable.
Section C. Invitation to Comment
Before adopting this revised proposed Rule as final,
consideration will be given to any written comments submitted to
the Secretary of the Commission on or before June 30, 1995.
Comments submitted will be available for public inspection in
accordance with the Freedom of Information Act, 5 U.S.C. 552, and
Commission regulations, on normal business days between the hours
of 8:30 a.m. and 5 p.m. at the Public Reference Section, Room
130, Federal Trade Commission, 6th Street and Pennsylvania
Avenue, N.W., Washington, D.C. 20580.
206 See, e.g., DMA at 40; Olan at 29; NRF at 41; SCIC at 7;
Time Warner at 41.
207 NCL at 55.
Section D. Communications by Outside Parties to Commissioners or
Pursuant to Commission Rule 1.26(b)(5), communications with
respect to the merits of this proceeding from any outside party
to any Commissioner or Commissioner advisor during the course of
this rulemaking shall be subject to the following treatment.
Written communications, including written communications from
members of Congress, shall be forwarded promptly to the Secretary
for placement on the public record. Oral communications, not
including oral communications from members of Congress, are
permitted only when such oral communications are transcribed
verbatim or summarized at the discretion of the Commissioner or
Commissioner advisor to whom such oral communications are made
and are promptly placed on the public record, together with any
written communications and summaries of any oral communications
relating to such oral communications. Oral communications from
members of Congress shall be transcribed or summarized at the
discretion of the Commissioner or Commissioner advisor to whom
such oral communications are made and promptly placed on the
public record, together with any written communications and
summaries of any oral communications relating to such oral
Section E. Regulatory Flexibility Act
During the comment period, only a few commenters208
asserted that the initially proposed Rule might have a
significant economic impact on a substantial number of small
entities. However, based on the revised proposed Rule's modified
regulatory approach, the provisions of the Regulatory Flexibility
Act relating to an initial and final regulatory analysis, 5
U.S.C. 603, 604, are not applicable to this document because it
is believed that these revised regulations, if promulgated, will
not have a significant economic impact on a substantial number of
small entities, 5 U.S.C. 605.
The Telemarketing Act requires the Commission to issue
regulations, not later than 365 days after the date of enactment,
prohibiting deceptive telemarketing acts or practices and other
abusive telemarketing acts or practices. The Act limits the
scope of the regulations to entities that engage in telemarketing
through one or more interstate telephone calls; telemarketing
sales by local companies to local customers would most likely be
intrastate calls and thus outside the parameters of the proposed
rule. The Act also exempts certain catalog sales operations from
the scope of the regulations. In addition, the revised proposed
rule exempts pay-per-call services subject to the Commission's
"Trade Regulation Rule Pursuant to the Telephone Disclosure and
208 See generally Olan; ATFA; ANA; ABA.
Dispute Resolution Act of 1992," exempts telephone calls in which
a payment is not required until after a face-to-face sales
presentation has occurred, telephone calls initiated by a
customer that are not in response to any solicitation, and
customer telephone calls that are in response to mass media
As a result of these statutory and regulatory limitations,
the Commission believes that many small entities will fall
outside the scope of the regulations. In addition, any economic
costs imposed on small entities remaining within the parameters
of the rule are, in many instances, specifically imposed by
statute. Where they are not, efforts have been made to make the
revised proposed Rule's requirements flexible, in part to
minimize any unforeseen burden on small entities, as described
elsewhere in this notice.
To ensure that no substantial economic impact is being
overlooked, public comment is requested on the effect of the
proposed regulations on the costs to, profitability and
competitiveness of, and employment in small entities. Subsequent
to the receipt of public comments, it will be decided whether the
preparation of a final regulatory flexibility analysis is
warranted. Accordingly, based on available information, the
Commission hereby certifies under the Regulatory Flexibility Act,
5 U.S.C. 605(b), that the proposed regulations will not have a
significant economic impact on a substantial number of small
entities. This notice serves as certification to that effect for
the purposes of the Small Business Administration.
List of Subjects in 16 CFR Part 310
Telemarketing, Trade practices
Accordingly, it is proposed that chapter I of 16 CFR be
amended by adding a new part 310 to read as follows:
PART 310: TELEMARKETING SALES RULE
310.1 Scope of regulations in this part.
310.3 Deceptive telemarketing acts or practices.
310.4 Abusive telemarketing acts or practices.
310.5 Recordkeeping requirements.
310.7 Actions by states and private persons.
310.8 Federal preemption.
Authority: 15 U.S.C. 6101-6108.
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. This part does
not apply to any activity outside the jurisdiction of the Federal
Trade Commission Act, 15 U.S.C. 41, et seq.
(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) 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.
(d) Commission means the Federal Trade Commission.
(e) Credit means the right granted by a creditor to a debtor to
defer payment of debt or to incur debt and defer its
(f) 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.
(g) Credit card sales draft means any record or evidence of a
credit card transaction.
(h) 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.
(i) Customer means any person who is or may be required to pay
for goods or services offered through telemarketing.
(j) 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. The term "investment opportunity"
does not include sales of franchises subject to the
Commission's Rule entitled "Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity
Ventures," 16 CFR Part 436.
(k) Material means likely to affect a person's choice of, or
conduct regarding, goods or services.
(l) 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 purchase of goods or services.
(m) 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.
(n) Outbound telephone call means a telephone call initiated by
a telemarketer to induce the purchase of goods or services.
(o) Person means any individual, group, unincorporated
association, limited or general partnership, corporation, or
other business entity.
(p) 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.
(q) 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.
(r) Seller means any person who, in connection with a
telemarketing transaction, provides or offers to provide
goods or services to the customer in exchange for
(s) 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.
(t) Telemarketer means any person who, in connection with
telemarketing, initiates or receives telephone calls to or
from a customer.
(u) Telemarketing means a plan, program, or campaign which is
conducted to induce the purchase of goods or services 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
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 for goods or services offered,
failing to disclose, in a clear and conspicuous manner,
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 the sales offer;
(ii) All material restrictions, limitations, or
conditions to purchase, receive, or use the
goods or services that are the subject of the
(iii) All material terms and conditions of the
seller's refund, cancellation, exchange, or
repurchase policies if a representation about
any such policy is made a part of the sales
(iv) That no purchase is necessary to win if a
prize promotion is offered in conjunction
with a sales offer of goods or services;
(2) Misrepresenting, directly or by implication, 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;
(ii) Any material restriction, limitation, or
condition to purchase, receive, or use goods
or services that are the subject of a sales
(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
winning, the nature or value of a prize, or
that payment is required to receive a prize;
(vi) Any material aspect of an investment
opportunity including, but not limited to,
risk, liquidity, earnings potential, or
(vii) A seller's or telemarketer's affiliation
with, or endorsement by, any government or
third-party organization; and
(3) Making a false or misleading statement to induce any
person to pay for goods or services.
(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 310.3(a) or (c), or 310.4
of this Rule, and such substantial assistance is related to
the commission or furtherance of that act or practice.
(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,
(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.
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:
(1) Threats, intimidation, or the use of profane or obscene
(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
(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; or
(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.
(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; or
(ii) Initiating an outbound telephone call to a person
when 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.
(2) A seller or telemarketer will not be liable for
violating 310.4(b)(1)(ii) if:
(i) It has established and implemented written
procedures to comply with 310.4(b)(1)(ii);
(ii) It has trained its personnel in the procedures
established pursuant to 310.4(b)(2)(i);
(iii)The seller, or the telemarketer acting on behalf
of the seller, has maintained and recorded lists
of persons who may not be contacted, in compliance
with 310.4(b)(1)(ii); and
(iv) Any subsequent call is the result of error.
(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. It is an abusive telemarketing
act or practice and a violation of this Rule for a
telemarketer in an outbound telephone call to fail to
disclose 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
(3) The nature of the goods or services; and
(4) That no purchase is necessary to win if a prize
promotion is offered in conjunction with a sales offer
of goods or services. This disclosure must be made
before the prize is described to the person called. If
requested by that person, the telemarketer must
disclose the no-purchase entry method for the prize
310.5 Recordkeeping requirements.
(a) Any seller or telemarketer shall keep, in any form, for a
period of 24 months from the date the record is produced,
the following records relating to its telemarketing
(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 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; and
(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
(b) Failure to keep all records required by 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), the seller shall be responsible for keeping such
(d) Absent a written agreement described in Section 310.5(c)
between the seller and the telemarketer, the seller shall be
responsible for complying with Sections 310.5(a)(1)-(3); the
telemarketer shall be responsible for complying with Section
310.5(a)(4). The seller and telemarketer may keep any
required records in the manner, format, or place as they
keep such records in the ordinary course of business.
(e) 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, succession, or other change in ownership of the
seller's or telemarketer's business, the successor business
shall maintain all records required under this Section.
The following telemarketing acts or practices are exempt
under this Rule:
(a) Pay-per-call services subject to the Commission's "Trade
Regulation Rule Pursuant to the Telephone Disclosure and
Dispute Resolution Act of 1992," 16 CFR Part 308.
(b) Telephone calls 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 during which the customer has the opportunity
to examine the goods or services offered.
(c) Telephone calls initiated by a customer that are not the
result of any solicitation by a seller or telemarketer.
(d) Telephone calls initiated by a customer in response to an
advertisement through any media, other than direct mail
solicitations; provided, however, that this exemption does
not apply to calls initiated by a customer in response to an
advertisement relating to investment opportunities, goods or
services described in Sections 310.4(a)(2)-(3), or
advertisements that guarantee or represent a high likelihood
of success in obtaining or arranging for extensions of
credit, if payment of a fee is required in advance of
obtaining the extension of credit.
(e) Telephone calls initiated by a customer in response to a
direct mail solicitation that clearly and conspicuously
discloses all material information listed in Section
310.3(a)(1) of this Rule for any item offered in the direct
mail solicitation; provided, however, that this exemption
does not apply to calls initiated by a customer in response
to a direct mail solicitation relating to investment
opportunities, goods or services described in Sections
310.4(a)(2)-(3), or direct mail solicitations that guarantee
or represent a high likelihood of success in obtaining or
arranging for extensions of credit, if payment of a fee is
required in advance of obtaining the extension of credit.
(f) Telephone calls between a telemarketer and any business,
except calls involving the retail sale of nondurable office
or cleaning supplies.
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) This Rule does not vest the attorney general of any State or
any private person with jurisdiction over any person or
activity outside the jurisdiction of the Federal Trade
310.8 Federal preemption.
Nothing in this Rule shall be construed to preempt any State
law that is not in direct conflict with any provision of this
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
Billing Code: 6750-01P