The Federal Trade Commission has revised a telemarketing rule it proposed in February to focus more narrowly on deceptive and abusive telemarketing practices, but also to give law enforcement officials more flexibility to target the changing nature of telemarketing fraud.
The FTC is seeking public comments on the revised proposal until June 30. By federal statute, the FTC is required to promulgate the final rule by Aug. 16; it plans to make the rule effective 30 days after promulgation. Violations of the rule could result in civil penalties of up to $10,000 per violation.
"In several ways, the revised proposal is stronger than the original one as it applies to fraudulent telemarketers," said FTC Chairman Robert Pitofsky. "At the same time, it removes a number of requirements which would have had the unintended effect of impairing the ability of legitimate businesses to engage in telemarketing," he said.
For example, the FTC has replaced the extensive list of telemarketing practices to be banned as deceptive or abusive with more general prohibitions against misrepresentations of any material aspect of the goods or services being offered. The FTC also has substantially reduced the number of disclosures a telemarketer would be required to make. The revised proposal retains other requirements and prohibitions found in the original proposal only if they provide clear consumer benefits without imposing unintended or costly burdens on legitimate businesses whose only point in common with boiler room frauds is that they both sell over the telephone, the FTC said. These changes reflect many of the suggestions made during the 45-day comment period on the initial proposal and in a public workshop- conference the FTC held in Chicago April 18-20.
The revised rule still would cover most types of telephone sales transactions where a telemarketer initiates a call to a consumer. It would exempt telemarketing calls to consumers where the transaction is completed in a face-to-face sales presenta- tion, when the call is otherwise subject to extensive require- ments under other Commission rules (such as pay-per-call services and franchises), or where the call is initiated by the consumer and is not the result of a direct mail solicitation by the tele- marketer or seller. Catalog sales would remain exempt from the revised proposal's coverage, as would business-to-business sales. The revised proposal also clarifies that nonprofit entities and other entities not under the Commission's jurisdiction would be exempt.
The revised proposal would retain many of the disclosure requirements in the original proposal, but it would tie them more closely to the federal statute (the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994) and the likelihood of deceptive or abusive conduct. Other disclosure requirements would be eliminated.
Under the revised rule, a telemarketer would have to disclose the identity of the seller, the fact that he or she is making a sales call, the nature of the goods or services and, if the call is part of a prize promotion, that no purchase is neces- sary to win. These would have to be disclosed "promptly and clearly" during the call, rather than "at the beginning."
The revised proposal also would require telemarketers to clearly and conspicuously disclose the total costs and any material restrictions to purchase, receive or use any goods or services that are the subject of a sales offer. If a telemar- keter mentions a refund, exchange or repurchase policy as part of a sales presentation, he or she would have to disclose all material aspects of each policy's terms or conditions.
Generally, the rule would prohibit misrepresentations regarding any of the information required to be disclosed and concerning any material aspect of the performance, efficacy, nature or central characteristics of the goods or services that are being offered.
Other Prohibited Conduct
The proposed rule would retain limits on the hours for telemarketing calls (after 8 a.m. and before 9 p.m.) and on calls to consumers who have stated they do not want to be called. It would broaden the prohibition against threats or intimidation to include a ban on the use of profane or obscene language and on repeatedly or continuously calling any consumer with the intent to annoy, abuse or harass, but would eliminate the ban on calling a consumer more than once within any three month period. Provi- sions that would have restricted resoliciting customers and set time limits for delivering prizes have been deleted in the revised rule, because the Commission believes that any deception associated with these activities would be banned by the general provisions prohibiting misrepresentations. Sections of the initial proposal that dealt with offers for business ventures have been deleted from the revised proposal and will be con- sidered under the Commission's current review of its Franchise Rule.
Collecting Payment from Consumers
The revised rule would prohibit any false or misleading statement to induce any person to pay for goods or services, regardless of the payment system the consumer uses. This is a more flexible and fraud-focused provision than in the initial proposal, which would have required a telemarketer to have written authorization before taking funds from a consumer's checking, savings or similar account and would have prohibited telemarketers from directing couriers to pick up payment from consumers. The revised proposal would retain provisions pro- hibiting telemarketers from seeking payment from consumers until they render any credit repair services, loans, or services to recover funds lost or prizes never received in a prior telemarketing scam.
Assisting Telemarketing Fraud
The revised rule would prohibit anyone from providing substantial assistance -- this could include providing "sucker" lists, scripts or promotional materials, or appraisals of goods -- to a telemarketer when the assisting person knows or con- sciously avoids knowing that the telemarketer is engaged in conduct that would violate the rule and when the assistance offered is related to the committing or furthering the prohibited conduct. The revised rule also maintains the prohibition against credit card laundering.
Finally, the proposed rule retains various recordkeeping requirements to assist the FTC and State Attorneys General in enforcing it, but includes provisions that afford industry substantial flexibility to minimize any recordkeeping burden.
The Commission vote to announce the revised proposed rule for public comment was 5-0. It will be published in the Federal Register shortly. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580 and, if possible, should be accompanied by a copy on computer disk.
Copies of the Federal Register notice and other documents associated with this rulemaking proceeding are available from the FTC's Public Reference Branch, Room 130, same address as above; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. The revised proposal and all comments also are posted on the FTC's World Wide Web site on the Internet at http://www.ftc.gov.
(FTC Matter No. R411001)