Statement of Commissioner Orson Swindle
I have voted to approve the Stipulated Final Judgment in this matter. As a whole, the relief is entirely appropriate in light of the practices alleged in the complaint. Nevertheless, I do not support the requirement that the defendants obtain consumers' written authorization to purchase any product or service. This provision is over-broad and unnecessary to prevent deception and may have unintended negative effects on legitimate activities.
The complaint alleged that the defendants deceptively telemarketed credit card loss protection. The defendants allegedly misrepresented that they were affiliated with consumers' credit card issuers and that consumers could be held fully liable for all unauthorized charges to their credit card accounts, when in fact consumers are liable only up to $50. The defendants also allegedly charged consumers for their services without authorization.
The order bans the defendants from future sales of credit card loss protection and requires the defendants to post a $1 million bond before any future telemarketing. It also enjoins the defendants from making the same misrepresentations that gave rise to the complaint. I have reason to believe that the defendants were engaged in fraudulent practices, and therefore I believe that this relief is warranted and will serve the public interest by deterring future unlawful conduct.
One provision of the order, however, goes beyond the goal of preventing deception. Part III.F requires the defendants to obtain consumers' written authorization on a specified form before debiting their credit card or checking account for any good or service. The top of the required authorization form states: "WARNING - DO NOT SIGN UP OR PAY MONEY UNTIL YOU READ THIS NOTICE." The form contains 4 disclosures: (1) that the defendants are not related to Visa, MasterCard or any bank that issues credit cards; (2) the cost of the product or service; (3) the defendants' refund policy; and (4) if the defendants are selling low interest credit cards, that the defendants cannot help the consumer to obtain a credit card and that they are merely selling a list of banks that offer credit cards. Consumers must initial the form by each disclosure, sign it and provide their address and telephone number.
Although this is a well-intentioned effort to ensure that consumers are informed of certain information and that they have authorized charges to their account, the order provision is over-broad and unnecessary to prevent deception. The requirement applies to the sale of any product or service. It is unnecessary to require cost and refund information to be disclosed in writing for every transaction. For telemarketing sales, the Telemarketing Sales Rule requires sellers to disclose the total cost of the product or service and the fact that they do not have a refund policy, if such is the case. 16 C.F.R. §§ 310.3(a)(1)(i) and (ii). For face-to-face transactions, consumers already must sign a credit card slip or other form, which no doubt contains cost information, to authorize a charge or debit to their credit card or checking account.(1) In addition, two of the mandated disclosures -- that the defendants are not related to credit card issuers and information about low interest credit card offers -- relate only to the sale of credit or debit account products or services. The order already enjoins misrepresentations about these facts. At the most, an additional safeguard of a written disclosure might achieve some benefit solely in connection with the sale of credit-related goods or services.
The requirement to obtain the consumer's written authorization in the manner specified by the order also may have an unintended effect of hindering legitimate sales activities. If consumers must sign an authorization form with "WARNING" written across the top before purchasing any good or service, they may reasonably decide to shop elsewhere. In addition, the requirement effectively bars the defendants from engaging in any future telemarketing. Because consumers must sign the authorization form before their credit card or checking account can be debited, sales cannot be consummated over the telephone and telemarketing will not be an efficient or practical means of conducting business. If the Commission's intent is to ban the defendants from all future telemarketing, the order should clearly state that fact.
I believe that there are clearer, more narrowly tailored ways of protecting consumers and ensuring that the defendants comply with the law. The order already enjoins the defendants from making the same misrepresentations that gave rise to the complaint. If additional protection is warranted to prevent future unauthorized charges, the order could, for example, require the defendants to obtain consumers' express verifiable agreement with the terms of the sale. Such agreement could be accomplished either in writing or over the telephone, via a tape recording that includes appropriate disclosures and is conducted in a specified, complete manner.(2) This would eliminate the need for a separate written "warning" form that impedes any telemarketing, immediately conjures a negative reaction, and merely duplicates a credit card slip or other debit form that consumers already must sign in face-to-face transactions. This also would achieve the balance between protecting consumers and allowing the defendants to engage in future legitimate activities.
I emphasize that strong relief is appropriate to guard against deception. I believe, however, that the Commission is obligated to ensure that its orders are reasonably related to preventing future deception. I therefore dissent from Part III.F of the Stipulated Final Judgment.
1. Because the complaint in this case did not allege that the defendants misrepresented any refund policy, it is questionable whether a written disclosure of the refund policy with every sale is needed to prevent deception.
2. I note that the order already includes such specifications for tape-recorded calls, if the defendants choose to use tape recording to verify that consumers agreed to purchase goods or services. Of course, this provision is meaningless, since Part III.F also requires the defendants to obtain written authorization from consumers.