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The Hobby Protection Act is something of a misnomer.  Most hobbies don’t need much by way of protection.  But if you or your clients are involved in the sale of coins or certain collectibles, it’s a law you need to know about.  The FTC’s settlement with the National Collector’s Mint and Avram C. Freedberg alleges violations of the Hobby Protection Act — and also raises interesting issues about how the company’s automated ordering system compounded other deceptive practices challenged in the case.

In 2010, Congress authorized the U.S. Mint to manufacture and sell a commemorative medal to mark the tenth anniversary of the September 11th attacks.  Around the same time, the defendants were marketing their own coin in an extensive TV and online campaign.  The face of the product said “10th Anniversary September 11th Commemorative” and ads described it as “exclusively authorized.”  So how does the Hobby Protection Act come into play?  Under the law, to avoid consumer confusion, imitation numismatic items – like the commemoratives the defendants sold — have to be plainly and permanently marked with the word “COPY,” which the defendants didn’t do.

But according to the FTC, that’s not all that went wrong with this promotion.  The defendants’ TV commercials directed people to an automated telephone system to order products via voice or keypad.  After inputting their name, address, and payment method, consumers heard this recording:

You can order up to five 10th Anniversary September 11th Commemorative proofs during this call.  Each one includes a certificate of authenticity and you'll save up to 50% on shipping and handling when you order more than one.  So how many would you like?

The system asked callers at least three times to confirm whether they were sure they wanted only one product.  The system then presented multiple upsells that couldn’t be skipped.  In many instances, when people pressed zero to indicate they didn’t want any additional merchandise, they got a recording that said, “I'm sorry, but I did not understand what you said,” and the offer was repeated — and repeated and repeated.  According to the FTC, even when people continued to decline the additional items, the defendants’ system registered orders.  Because the defendants allegedly failed to provide the total cost of the purchase or a breakdown of the items ordered, many people didn’t realize there was a problem until merchandise they didn't ask for arrived at their door.

How about returning the items?  That proved to be a travail, too.  Despite the defendants’ promise that buyers could return merchandise within 30 days for a prompt refund, the lawsuit charged that the return process was complicated and people often had to jump through hoops that hadn’t been clearly disclosed in advance.  The FTC says buyers weren’t told they’d have to pay for insurance and shipping first and that for purchases over $100, they had to call to get an authorization from one of the defendant’s operators.  The trouble was finding someone to pick up the phone.  The FTC alleged that even consumers lucky enough to reach someone got the royal run-around when they asked for a refund.

The settlement includes payment of $750,000 and mandates compliance with the Hobby Protection Act, the Telemarketing Sales Rule, the Unordered Merchandise Statute, and the FTC Act.  The order also requires the defendants to clearly disclose the total costs and fees before a customer agrees to pay for anything, and puts procedures in place to prevent the ordering and refund problems consumers experienced.

Even if numismatics isn’t your hobby, the case offers insights that are right on the money:

  • Laying down the law.  Most marketers are aware of the FTC Act’s ban on unfair and deceptive practices.  But Congress has given the agency authority to enforce a number of other laws, including the Hobby Protection Act and the Unordered Merchandise Statute.  To simplify your compliance responsibilities, the FTC maintains a list of consumer protection laws it enforces.  The BCP Business Center offers links to rules and guides tailored to your industry.
  • Avoid an automation situation.  If you use an interactive voice response (IVR) system, design it with consumers in mind.  Confusing prompts and “unresponsive responses” can infuriate customers and attract the attention of law enforcers.
  • Refund-amentals.  Like any other material term, disclose your refund policy up front where buyers are bound to see it and in language that’s easy to understand.  Legal consideration aside, it just makes good business sense.  Even if the product didn’t prove to be the perfect choice, honoring your refund policy can transform momentary disappointment into long-term customer loyalty.
  • Read up on upsells.  Some marketers assume the Telemarketing Sales Rule applies just to cold calls placed to consumers.  Not so.  The TSR also kicks in when “soliciting the purchase of goods or services following an initial transaction during a single telephone call” — in other words, when you upsell.  The FTC’s lawsuit against National Collector’s Mint cites TSR violations for the way the company handled its upsells.  If you’re up for a refresher, read Complying with the Telemarketing Sales Rule.


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