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Complying with the Telemarketing Sales Rule FEDERAL TRADE COMMISSION

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  • 1.Complying with the Telemarketing Sales RuleFEDERAL TRADE COMMISSION

2. Table of Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4The Amended TSR at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Charities and For-Profit Telemarketers Calling on Their Behalf . . . . . . . . . . . . . . . . . . . . . . . . .6Who Must Comply with the Amended TSR? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Exemptions to the Amended TSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Some Types of Businesses and Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Coverage of the Business of Insurance is Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Some Types of Calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Exemptions Explained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Unsolicited Calls from Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Most Calls in Response to a Catalog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Business-to-Business Calls, Unless They Involve the Sale of Nondurable Officeor Cleaning Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Most Calls Responding to General Media Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Some Calls Responding to Direct Mail Advertising Are Exempt . . . . . . . . . . . . . . . . . . . . .11Partial Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Calls Relating to the Sale of 900-Number Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Calls Relating to the Sale of Franchises or Business Opportunities . . . . . . . . . . . . . . . . . . . . . . . .13Calls that Are Part of a Transaction Involving a Face-to-Face Sales Presentation . . . . . . . . . . . . .13Requirements for Sellers and Telemarketers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Sellers and Telemarketers Must Disclose Material Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14What Information Must Sellers and Telemarketers Provide to Consumers? . . . . . . . . . . . . . . . . . . . .15Cost and Quantity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Material Restrictions, Limitations, or Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16No-Refund Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16Prize Promotions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Credit Card Loss Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Negative Option Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Prompt Disclosures in Outbound Telemarketing Calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Oral Disclosures in Outbound Sales Calls and Upselling Transactions . . . . . . . . . . . . . . . . . . . . .18Oral Disclosures in Outbound Calls to Solicit Charitable Contributions . . . . . . . . . . . . . . . . . . .20Misrepresentations are Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .211 3. Sales Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Cost and Quantity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Material Restrictions, Limitations, or Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Performance, Efficacy, or Central Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Refund, Repurchase, or Cancellation Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Material Aspects of Prize Promotions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Material Aspects of Investment Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Affiliations, Endorsements, or Sponsorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Credit Card Loss Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Negative Option Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Charitable Solicitation Calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23The Nature, Purpose, or Mission of Entity on Whose Behalf Solicitation is Made . . . . . . . .23Tax Deductibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Purpose of a Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Percentage or Amount of Contribution that Goes to a Charitable Organization or Program . . .24Material Aspects of Prize Promotions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24Affiliations, Endorsements, or Sponsorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Payment Methods Other than Debit and Credit Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Written Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Oral Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Authorization by Written Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Assisting and Facilitating Sellers or Telemarketers Who Violate the Rule is Prohibited . . . . .28 Credit Card Laundering is Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Unauthorized Billing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Express Informed Consent is Required in Every Telemarketing Transaction . . . . . . . . . . . . . . . . . . . .30 Obtaining Express Informed Consent in Telemarketing Transactions Involving Pre-acquired Account Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 When the offer includes a free-to-pay conversion feature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 When the offer does not include a free-to-pay conversion feature . . . . . . . . . . . . . . . . . . . . . . . .33 Protecting Consumers Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 The Do Not Call Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 The Entity-Specific Do Not Call Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .342 4. The National Do Not Call Registry Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35How the National Do Not Call Registry Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36Small, Home-Based Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41Do Not Call Safe Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42Exemptions to the National Do Not Call Registry Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . .43 The Established Business Relationship Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 The Written Permission to Call Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44Other Provisions Relating to Do Not Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Selling or Using a Do Not Call List for Purposes Other than Compliance . . . . . . . . . . . . . .45 Denying or Interfering with Someones Do Not Call Rights . . . . . . . . . . . . . . . . . . . . . . . . .45Calling Time Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45Call Abandonment and Safe Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45Transmitting Caller ID Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47Threats, Intimidation, and Profane or Obscene Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48Calling Consumers Repeatedly or Continuously, with the Intent to Annoy, Abuse, or Harass . . . . . .48 Fraudulent Telemarketing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49Disclosing or Receiving Unencrypted Account Numbers for Consideration . . . . . . . . . . . . . . . . . . . .49Payment Restrictions on Sales of Credit Repair Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49Payment Restrictions on Sales of Recovery Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50Payment Restrictions on Sales of Advance-Fee Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Recordkeeping Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51Advertising and Promotional Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51Information about Prize Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51Sales Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52Employee Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52Verifiable Authorizations or Records of Express Informed Consent or Agreement . . . . . . . . . . . . . . .52Maintaining Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53Who Must Keep Records? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Who Can Enforce the Rule? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Penalties for Violating the Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Additional Sources of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .553 5. Introduction he Federal Trade Commission (FTC) issued The Federal Communications Commission (FCC)Tthe amended Telemarketing Sales Rule (TSR)on January 29, 2003. Like the original TSR issuedenforces the Telephone Consumer Protection Act(TCPA), which also regulates telemarketing. Thein 1995, the amended Rule gives effect to the FCC recently amended its TCPA regulations, whichTelemarketing and Consumer Fraud and Abusetouch on many of the topics covered by the TSR.Prevention Act. This legislation gives the FTC andFor more information about the TCPA, contact thestate attorneys general law enforcement tools toFCC at www.fcc.gov. The TSR and the TCPAcombat telemarketing fraud, give consumers addedregulations cover nearly all telemarketing withprivacy protections and defenses against unscrupulous similar rules.telemarketers, and help consumers tell the differencebetween fraudulent and legitimate telemarketing.Many states also have laws regulating telemarketing.The FTC and the FCC are working with states toOne significant amendment to the TSR prohibitsharmonize Do Not Call requirements at state andcalling consumers who have put their phonefederal levels for a unified national system enablingnumbers on the National Do Not Call Registry. one-stop service for consumers, as well asAnother change covers the solicitation of charitablebusinesses seeking to comply with the requirements.contributions by for-profit telemarketers.For information about a particular states laws,contact the state attorney generals office or anotherOther key provisions: state consumer protection agency. require disclosures of specific informationIf your telemarketing campaigns involve any calls prohibit misrepresentationsacross state lines whether you make outboundcalls or receive calls in response to advertising limit when telemarketers may call consumersyou may be subject to the TSRs provisions. Thisguide describes the types of organizations and require transmission of Caller ID informationactivities that are subject to the TSR and explains prohibit abandoned outbound calls, subject tohow to comply. It is the FTC staff s view of the a safe harborlaws requirements and is not binding on theCommission. prohibit unauthorized billingIf you have questions after reading this guide, contact: set payment restrictions for the sale of certainDivision of Marketing Practices goods and servicesBureau of Consumer Protection require that specific business records be kept Federal Trade Commission for two yearsWashington, DC 20580(202) [email protected] with the Telemarketing Sales Rule 6. The Amended TSR at a Glance riefly stated, the amended TSR: prohibits misrepresentations aboutB supplements the company-specific Do Not negative options. specifies that all required disclosures be Call provision of the original Rule with new made truthfully. provisions based on a National Do Not Call Registry. requires additional disclosures for prize promotions. creates an established business relationship exception to the National Do Not Call prohibits disclosing or receiving, for provisions so that a company may call a consideration, unencrypted consumer account consumer with whom it has such a relationship,numbers. even if the consumers number is on the Registry. requires sellers and telemarketers to get a allows a company to call a consumer who has consumers express informed consent before given the company express written permissionsubmitting the consumers billing information to call, even if the consumers number is onfor payment. the Registry. sets out guidelines for what constitutes evidence prohibits denying or interfering with a of express informed consent in transactions consumers Do Not Call request. involving pre-acquired account information and free-to-pay conversion offers. prohibits misuse of Do Not Call lists. requires telemarketers, for purposes of Caller covers charitable solicitations placed by for- ID, to transmit the telephone number, and, profit telefunders. The National Do Not Call when made available by the telemarketers Registry provisions do not apply to for-profit telephone company, the telemarketers name. telefunders; rather, for-profit telefunders must keep their own Do Not Call lists and honor prohibits telemarketers from abandoning any donors requests not to be called.outbound telephone call, subject to a safe harbor. requires sellers and telemarketers to obtain extends the applicability of most provisions of express verifiable authorization when payment the Rule to upselling. is made by methods other than credit card or debit card, and limits the use of the written requires telemarketers and sellers to maintain confirmation method.records of express informed consent and express agreement. requires sellers and telemarketers offering credit card loss protection plans to disclose narrows certain exemptions. specific information. clarifies that facsimile transmissions, electronic prohibits misrepresentations in the sale of mail, and similar methods of delivery are direct credit card loss protection plans.mail for purposes of the direct mail exemption. requires sellers and telemarketers making an offer that involves a negative option feature to disclose specific information. 5 7. Charities and For-Profit Telemarketers Callingon Their BehalfThe USA PATRIOT Act, passed in 2001, brought charitable solicitations by for-profit telemarketerswithin the scope of the TSR. As a result, most of the TSRs provisions now are applicable totelefunders telemarketers who solicit charitable contributions. Telefunders are required to: make certain prompt disclosures in every outbound call. get express verifiable authorization if accepting payment by methods other than credit or debit card. maintain records for 24 months. comply with the entity-specific Do Not Call requirements, but are exempt from the National Do Not Call Registry provision.Telefunders are prohibited from: making a false or misleading statement to induce a charitable contribution. making any of several specific prohibited misrepresentations. engaging in credit card laundering. engaging in acts defined as abusive under the TSR, such as calling before 8 a.m. or after 9 p.m., disclosing or receiving consumers unencrypted account information, and denying or interfering with a consumers right to be placed on a Do Not Call list. 6 Complying with the Telemarketing Sales Rule 8. Who Must Comply with the Amended TSR? he amended TSR regulates telemarketing systems. Similarly, it makes no difference whetherTdefined in the Rule as a plan, program, orcampaign . . . to induce the purchase of goods orthe calls are made from outside the United States;so long as they are made to consumers in theservices or a charitable contribution involvingUnited States, those making the calls, unlessmore than one interstate telephone call. (The FCC otherwise exempt, must comply with the TSRsregulates both intrastate and interstate calling. provisions. If the calls are made to induce theMore information is available from www.fcc.gov.)purchase of goods, services, or a charitableWith some important exceptions, any businesses or contribution, the company is engaging inindividuals that take part in telemarketing musttelemarketing.comply with the Rule. This is true whether, astelemarketers, they initiate or receive telephone Certain sections of the Rule apply to individuals orcalls to or from consumers, or as sellers, they companies other than sellers or telemarketers ifprovide, offer to provide, or arrange to providethese individuals or companies provide substantialgoods or services to consumers in exchange forassistance or support to sellers or telemarketers.payment. It makes no difference whether a The Rule also applies to individuals or companiescompany makes or receives calls using low-techthat provide telemarketers with unauthorizedequipment or the newest technology such asaccess to the credit card system.voice response units (VRUs) and other automated 7 9. Exemptions to the Amended TSR ome types of businesses, individuals, andThese types of entities are not covered by the RuleSactivities are outside the FTCs jurisdiction, andtherefore, not covered by the TSR. Certain calls orbecause they are specifically exempt from theFTCs jurisdiction. Nevertheless, any othercallers are exempt from the Rule, too. Moreover,individual or company that contracts with one ofsome of the exemptions from the original Rule these three types of entities to providehave been narrowed in the Amended Rule. As atelemarketing services must comply with the Rule.result, some calls or callers may be completely Examples:exempt or they may be partially exempt that is, A nonbank company that contracts with athey may have to comply with some of the Rulesbank to provide telemarketing services on theprovisions. The following sections explain thebanks behalf is covered.coverage of the Rule and the exemptions. Be awarethat the FCC also regulates telemarketing practices; A non-airline company that contracts with anits jurisdiction extends to some entities and airline to provide telemarketing services onactivities that are not subject to regulation by thebehalf of the airline is covered.FTC. For more information about the FCCs rules,visit www.fcc.gov. A company that is acting for profit is coveredby the Rule if it solicits charitablecontributions on behalf of a non-profitSome Types of Businesses andorganization.IndividualsSome types of businesses are not covered by theKeep in mind that a company soliciting aRule even though they conduct telemarketingcharitable contribution is not required to complycampaigns that may involve some interstatewith the Rules National Do Not Call Registrytelephone calls to sell goods or services. Theseprovisions.three types of entities are not subject to the FTCsjurisdiction, and not covered by the Rule:Under the provisions of the Telemarketing Act, a banks, federal credit unions, and federal number of entities and individuals associated withsavings and loans.them that sell investments and are subject to thejurisdiction of the Securities and Exchange common carriers such as long-distance Commission or the Commodity Futures Tradingtelephone companies and airlines when Commission are not covered by the Rule, even ifthey are engaging in common carrier activity. they engage in a plan, program, or campaign to sell non-profit organizations those entities thatthrough interstate telephone calls.1 These entitiesare not organized to carry on business forand individuals are covered by the FCCstheir own, or their members, profit. telemarketing rules. For more information, visitwww.fcc.gov. 8 Complying with the Telemarketing Sales Rule 10. Coverage of the Business of Exemptions Explained ____________ Insurance Is LimitedUnsolicited Calls from Consumers The McCarran-Ferguson Act provides that the FTC Any call from a consumer that is not placed in Act, and by extension, the TSR, are applicable to response to a solicitation by the seller, charitable the business of insurance to the extent that such organization, or telemarketer is exempt from business is not regulated by state law. Whether the coverage. Because the consumer initiates the call McCarran-Ferguson exemption removes without any inducement from the seller or insurance-related telemarketing from coverage oftelemarketer, the call is not considered part of a the TSR depends on the extent to which state lawtelemarketing plan, program, or campaign regulates the telemarketing at issue and whetherconducted to sell goods or services or to induce enforcement of the TSR would conflict with, and a charitable contribution. Some examples effectively supersede, those state regulations. include calls to: Unlike the jurisdictional exemptions for banks and make hotel, airline, car rental, or similar non-profit organizations, which do not extend to reservations. third-party telemarketers making calls on their behalf, in the case of the telemarketing of place carry-out or restaurant delivery insurance products and services, the TSR does notorders. necessarily apply simply because the campaign is contact a department store or charity conducted by a third-party telemarketer.without prompting from an advertisementor solicitation. Some Types of Calls obtain information or technical support. Some types of calls also are not covered by the Rule, regardless of whether the entity making or Consumer calls in response to a recorded receiving the call is covered. These include: message: Calls are not considered unsolicited unsolicited calls from consumers. when placed by consumers in response to a recorded message whether left on the calls placed by consumers in response to aconsumers answering machine, or presented catalog.when the consumer answers under the call business-to-business calls that do not involveabandonment safe harbor. retail sales of nondurable office or cleaning supplies. Upsells: If a seller or telemarketer upsells a consumer during an unsolicited call initiated by calls made in response to general media the consumer, the upsell is covered by the Rule. advertising (with some important exceptions). Most Calls Made in Response to a Catalog calls made in response to direct mail Generally, the Rule does not apply to calls advertising (with some important exceptions). placed by consumers in response to a mailed catalog if the catalog: contains a written description or illustrationof the goods or services offered for sale; includes the business address of the seller;9 11. includes multiple pages of written material Although sellers and telemarketers involved inor illustrations; telemarketing sales to businesses of nondurableoffice or cleaning supplies must comply with the has been issued at least once a year; and Rules requirements and prohibitions, the Rule the catalog seller doesnt solicit consumersspecifically exempts them from theby telephone, but only receives calls initiated recordkeeping requirements and from theby consumers in response to the catalog, andNational Do Not Call Registry provisions. Theseduring the calls, only accepts orders without sellers and telemarketers do not have to createadditional solicitation. The catalog seller or keep any particular records, or purgemay provide the consumer with information numbers on the National Do Not Call Registryabout or attempt to sell the consumer from their call lists to comply with the Rule.other items in the same catalog that prompted Most Calls Responding to General Mediathe consumers call or in a similar catalog.AdvertisingThe Rule generally does not apply to consumercalls made in response to general mediaIf a telemarketer offers goods or servicesthat are not in the catalog that prompted advertising, including: television commercials;the consumers call or in a substantially infomercials; home shopping programs; printsimilar catalog the sales transaction isadvertisements in magazines, newspapers, thecovered by the Rule. Regardless of theYellow Pages, or similar general directories;TSRs application to a particular sale, radio ads; banner ads on the Internet; and othercatalog merchandise sales also are coveredforms of mass media advertising andby the FTCs Mail or Telephone OrderMerchandise Rule (16 C.F.R. Part 435).solicitation. Nevertheless, if a seller ortelemarketer upsells a consumer during a callinitiated by the consumer, the upsell is coveredby the Rule. In addition, the Rule does coverBusiness-to-Business Calls, Unless They Involve calls from consumers in response to generalthe Sale of Nondurable Office or Cleaning Suppliesmedia advertisements relating to businessMost phone calls between a telemarketer and a opportunities not covered by the Franchisebusiness are exempt from the Rule. ButRule, credit card loss protection, credit repair,business-to-business calls to induce the retail recovery services, advance-fee loans, orsale of nondurable office or cleaning suppliesinvestment opportunities.2are covered. Examples of nondurable office orcleaning supplies include paper, pencils,solvents, copying machine toner, and ink inshort, anything that, when used, is depleted, andmust be replaced. Such goods as software,computer disks, copiers, computers, mops, andbuckets are considered durable because they canbe used again. 10 Complying with the Telemarketing Sales Rule 12. Some Calls Responding to Direct MailCharitable solicitations: Consumer calls in Advertising Are Exemptresponse to direct mail messages that solicit Direct mail advertising includes, but is notcharitable contributions benefit from the limited to, postcards, flyers, door hangers,limited direct mail exemption, provided they brochures, certificates, letters, email, facsimilecontain no material misrepresentation about transmissions, or similar methods of delivery the nature, purpose, or mission of the entity sent to someone urging a call to a specifiedon whose behalf the contribution is requested; telephone number regarding an offer of some the tax deductibility of any contribution; the sort. For purposes of the Rule, direct mail ispurpose for which the contribution will be not limited to messages sent via conventional used; the percentage or amount of the mail delivery or private couriers. The exemptioncontribution that will go to a charitable for calls responding to direct mail advertising organization or program; any material aspect that meets the Rules requirements is available of a prize promotion; or a charitable both to telemarketers soliciting sales of goods ororganization or telemarketers affiliations, services and to telefunders soliciting charitable endorsements, or sponsorships. contributions.The exemption is for sales calls elicited by directSales solicitations: Generally, consumer callsmail advertising that truthfully provides ain response to a direct mail solicitation thatconsumer with the specific informationclearly, conspicuously, and truthfully makesrequired under the Rule. In the case ofthe disclosures required by the Rule arecharitable solicitation calls elicited by directexempt from the Rule. These disclosures are:mail advertising, the exemption applies to directcost and quantity; material restrictions, mail advertising that conscientiously avoids thelimitations or conditions; any no-refundprohibited misrepresentations.policy; and, if the offer includes a prizepromotion, credit card loss protection, or aThere is no exemption for calls responding tonegative option feature, the information aboutany direct mail advertising that relates to creditany of those elements of the offer required bycard loss protection, credit repair, recoverythe Rule. If you are a seller or telemarketer services, advance-fee loans, investmentwho uses direct mail, you may use thisopportunities, prize promotions, or businessexemption only if your direct mail solicitation opportunities other than those covered by themessages make the disclosures required by Franchise Rule. This is regardless of whether theSection 310.3(a)(1) of the Rule clearly,advertisement makes the disclosures required byconspicuously, and truthfully.the Rule and contains no misrepresentations. Also, any instances of upselling following anexempt transaction are covered by the Rule.11 13. Upselling is not exempt. Upselling occurs when a seller or telemarketer tries to sell additional goods or services during a single phone call, after an initial transaction.Upsell transactions are covered by the TSR. Even if the initial transaction is exempt because it is an unsolicited call from a consumer, a response to a general media advertisement or certain direct mail solicitations, or an outbound non-sales call (say, a customer service call), any upsell following the initial transaction is subject to all relevant provisions of the Rule.Examples: A consumer calls a department store to inquire about the price of a microwave oven. Because the call is not the result of a solicitation by the seller, the initial inquiry is exempt from the Rule. If the seller tries to upsell a refrigerator during the same call, the upsell transaction is subject to the Rule.A consumer calls in response to an infomercial advertising a home gym product for sale. If the home gym product is the only item offered during the call, the call is exempt. But if the telemarketer offers a free-trial offer to a cookbook series after the sales pitch for the home gym, the cookbook offer constitutes a separate transaction and is an upsell covered by the TSR. If both the home gym product and the cookbook series are prominently featured in the general media advertisement, transactions involving either or both products fall within the general media exemption. But if the cookbook is visible on the set of the infomercial, mentioned only in passing, or mentioned as an afterthought, pitching the cookbook during the a consumers call about the home gym product is considered an upsell and is not exempt from the Rule.Partial Exemptions call any number on the National Do Not CallSome calls are exempt from most provisions of theRegistry or on that sellers Do Not Call list.TSR, but not all. These include: deny or interfere with a persons right to be calls relating to the sale of 900-Number pay- placed on any Do Not Call Registry. per-call services. call outside permissible calling hours. calls relating to the sale of franchises or abandon calls. certain business opportunities. fail to transmit Caller ID information. calls that are part of a transaction that involves a face-to-face sales presentation. threaten or intimidate a consumer or use obscene language.Calls Relating to the Sale of cause any telephone to ring or engage a900-Number Services ____________ person in conversation with the intent toThe sale of 900-Number pay-per-call services, annoy, abuse, or harass the person called.which is subject to the FTCs 900-Number Rule,is exempt from most provisions of the TSR. Still, Partial coverage under the TSR does notto comply with the TSR, sellers of pay-per-call affect the obligation of sellers and providers ofservices must not: 12 Complying with the Telemarketing Sales Rule 14. 900-Number Services to comply with thebegin with a face-to-face sales presentation and 900-Number Rule (16 C.F. R. Part 308).are completed in a telephone call, as well as those that begin with a telephone call and are Calls Relating to the Sale of Franchisescompleted in a face-to-face sales presentation. or Business Opportunities__________ Calls relating to the sale of franchises or businessThe key to the face-to-face exemption is the opportunities that are covered by the FTCs direct and personal contact between the buyer Franchise Rule (16 C.F.R. Part 436) are exemptand seller. The goal of the Rule is to protect from most provisions of the TSR. To comply with consumers against deceptive or abusive practices the TSR, sellers and telemarketers sellingthat can arise when a consumer has no direct franchise or business opportunities subject to thecontact with an invisible and anonymous seller Franchise Rule must not:other than the telephone sales call. A face-to-face meeting provides the consumer with more call numbers that are on the National Do Not information about and direct contact with Call Registry or on that sellers Do Not Call the seller, and helps limit potential problems thelist. Rule is designed to remedy. deny or interfere with a persons right to beplaced on any Do Not Call Registry.Nevertheless, even in transactions where there is a face-to-face meeting, telemarketers must not: call outside permissible calling hours. call numbers on the National Do Not Call abandon calls.Registry or on that sellers Do Not Call list. fail to transmit Caller ID information. deny or interfere with a persons right to beplaced on any Do Not Call Registry. threaten or intimidate a consumer or useobscene language. call outside permissible calling hours. cause any telephone to ring or engage a abandon calls.person in conversation with the intent toannoy, abuse, or harass the person called. fail to transmit Caller ID information. threaten or intimidate a consumer or use Partial coverage under the TSR does not affectobscene language. the obligation of franchisors to comply with the Franchise Rule. cause any telephone to ring or engage aperson in conversation with the intent to Calls that are Part of a Transaction annoy, abuse, or harass the person called. Involving a Face-to-Face Sales Presentation ____________________ If the transaction is completed in a face-to-face The TSR generally does not cover telephonemeeting at the consumers home or away from transactions where the sale of goods or servicesthe sellers place of business, the seller must or a charitable contribution is not completed comply with the FTCs Cooling Off Rule until after a face-to-face presentation by the seller (16 C.F.R. Part 429). or charitable organization, and the consumer is not required to pay or authorize payment until then. This exemption is for transactions that13 15. Requirements for Sellers and Telemarketers Sellers and Telemarketers Must goods or services or make a donation. Sellers andtelemarketers may provide the material information Disclose Material Informationeither orally or in writing. Failure to provide any of The Rule requires sellers and telemarketers,the required information truthfully and in a clear whether making outbound calls to consumers orand conspicuous manner, before the consumer receiving inbound calls from consumers, to providepays for the goods or services offered, is a deceptive certain material information before the consumertelemarketing act or practice that violates the Rule pays for the goods or services that are the subject ofand subjects a seller or telemarketer to a civil the sales offer. Material information is informationpenalty of $11,000 for each violation. that would likely affect a persons choice of goods or services or the persons decision to make aWhen making outbound calls, a telemarketer must charitable contribution. More simply, it ispromptly disclose certain types of information to information a consumer needs to make anconsumers orally in the sales presentation. informed decision about whether to purchase Before a Consumer Pays: Before sellers and telemarketers get a consumers consent to purchase orpersuade a consumer to send full or partial payment by check, money order, wire, cash, or any other means they must provide the consumer with the information required by Section 310.3(a)(1) of the Rule.Sellers and telemarketers also must provide the required information before asking for any credit card,bank account, or other information that they will or could use to obtain payment. In addition, sellers andtelemarketers must provide the required information before requesting, arranging for, or asking aconsumer to request or arrange for a courier to pick up payment for the goods or services offered. Couriersinclude Federal Express, DHL, UPS, agents of the seller or telemarketer, or any other person who will go toa consumers home or other location to pick up payment for the goods or services being offered. When sellers and telemarketers have pre-acquired account information, they must provide the requireddisclosures before the customer provides express informed consent. Pre-acquired account information isany information that enables you to cause a charge against a consumers account without obtaining theaccount number directly from the consumer during the transaction for which the consumer will becharged. Clear and Conspicuous: Clear and conspicuous means that information is presented in a way that aconsumer will notice and understand. The goal is that disclosures be communicated as effectively as thesales message. When written, clear and conspicuous information generally is printed in a type size that aconsumer can readily see and understand; that has the same emphasis and degree of contrast with thebackground as the sales offer; and that is not buried on the back or bottom, or in unrelated informationthat a person wouldnt think important enough to read. When a seller or telemarketer makes requireddisclosures in a written document that is sent to a consumer and follows up with an outbound sales callto the consumer, the disclosures are considered clear and conspicuous only if they are sent close enoughin time to the call so that the consumer associates the call with the written disclosures. When disclosuresare oral, clear and conspicuous means at an understandable speed and pace and in the same tone andvolume as the sales offer.14Complying with the Telemarketing Sales Rule 16. What Information Must Sellers andSometimes, though, the total cost and quantityare not fixed when the initial transaction takes Telemarketers Provide to Consumers?place, but, instead, are determined over time. For The law requires that when sellers andexample, in a negative option plan, like those telemarketers offer to sell goods or services, theyoffered by some record or book clubs, the must provide the consumer with materialconsumer may agree to purchase a specific information about the offered goods or servicesnumber of items over a specified time period. necessary to avoid misleading consumers. TheThe consumer receives periodic announcements term material means likely to affect someonesof the selections; each announcement describes choice of goods or services or decision to make athe selection, which will be sent automatically charitable contribution, or someones conduct withand billed to the consumer unless the consumer regard to a purchase or donation.tells the company not to send it. Similarly, acontinuity plan offers subscriptions to collections The Rule specifies six broad categories of materialof goods. During the course of the plan, the information that sellers and telemarketers mustconsumer can choose to purchase some or all the provide to consumers:items offered in the collection. Consumers whoagree to buy an introductory selection also agree1. Cost and Quantity ______________to receive additional selections on a regularThe Rule requires sellers and telemarketers toschedule until they cancel their subscription todisclose the total costs to purchase, receive, or usethe plan.the offered goods or services. While disclosing thetotal number of installment payments and theBoth negative option and continuity plans areamount of each payment satisfies thisstructured to provide consumers the opportunityrequirement, the number and amount of suchto purchase a series of products over time. Thepayments must correlate to the billing schedulecost of the plan as a whole is determined by thethat will be implemented. For example, the Rulesnumber and type of items in the series therequirements would not be met if you were toconsumer decides to accept, and at the time ofstate the products cost per week if the consumerthe initial sales offer, neither the seller nor thehas to pay installments on a monthly or quarterlyconsumer necessarily knows how much productbasis. The Rule also requires you to tell athe consumer will purchase, or the total cost ofconsumer the total quantity of goods thethe products.consumer must pay for and receive. You mustprovide both these items of material informationTo comply with the Rule, a seller or telemarketerto the consumer before the consumer pays for theoffering a negative option or a continuity plangoods or services that are the subject of the salesmust disclose the total costs and quantity ofoffer. You may provide this material informationgoods or services that are part of the initial offer;orally or in writing, as long as the information isthe total quantity of additional goods or servicesclear and conspicuous.that a consumer must purchase over the duration15 17. of the plan; and the cost, or range of costs, to in the case of a vacation certificate, apurchase each additional good or servicerestriction, limitation, or condition thatseparately. Some negative option plans are subjectprevents a purchaser from using theto the FTCs Negative Option Rule.certificate during the summer; or thatrequires a purchaser to make reservations aCost and Quantity Disclosure in the year in advance to travel using the certificate;Marketing of Credit Products: If sellers andor that requires the consumer to incurtelemarketers are offering credit productsexpenses beyond the price of the certificate tosubject to the Truth in Lending Act (TILA) orredeem the certificate for a vacation.Regulation Z, compliance with the creditdisclosure requirements and the timing of the the underlying illegality of goods or services,disclosures mandated by TILA or Regulationsuch as the illegality of foreign lotteryZ constitute compliance with the total costand quantity disclosure requirements of the chances.TSR with respect to the credit instrument.Nevertheless, the cost and quantity of any Sellers and telemarketers may disclose orally or ingoods or services purchased with that credit writing information about material restrictions,also must be disclosed.limitations, or conditions to purchase, receive, or use the goods or services being offered, as long as the information is clear and conspicuous and disclosed before the consumer pays.2. Material Restrictions, Limitations,or Conditions____________________3. No-Refund Policy ______________The Rule requires sellers and telemarketers to If theres a policy of honoring requests fordisclose all material restrictions, limitations, orrefunds, cancellations of sales or orders,conditions to purchase, receive, or use goods or exchanges, or re-purchases, sellers andservices that they are offering to the consumer. telemarketers must disclose information aboutMaterial information is information that a the policy only if they make a statement aboutconsumer needs to make an informed purchasingthe policy during the sales presentation. If thedecision. A material restriction, limitation, or sales presentation includes a statement aboutcondition is one that, if known to the consumer, such a policy, it must also include a clear andwould likely affect the decision to purchase the conspicuous disclosure of all terms andgoods or services offered; to purchase them at the conditions of the policy that are likely to affect aoffered price; to purchase them from thatconsumers decision on whether to purchase theparticular seller; or to make a charitable goods or services offered.contribution. Examples of material informationthat must be disclosed include:If the sellers policy is that all sales are final a requirement that a consumer pay forthat is, no refunds, cancellations of sales oroffered goods or services by cashiers check,orders, or exchanges or re-purchases are allowedmoney order, or in cash. the Rule requires you to let consumers know before they pay for the goods or services being in the case of an offer of a credit card, aoffered. You may give this information torequirement that a consumer make a deposit consumers orally or in writing, and thein order to receive and use the card offered information must be clear and conspicuous.(that is, that the credit card is a secured card). 16 Complying with the Telemarketing Sales Rule 18. 4. Prize Promotions ______________A legitimate prize promotion does not A prize promotion includes (1) any sweepstakesrequire any purchase or payment of money or other game of chance, and (2) anyfor a consumer to participate or win. If a representation that someone has won, has been purchase or payment of money is required selected to receive, or may be eligible to receive afor eligibility for a prize, it is not a prize prize or purported prize. A prize is anything promotion; it is a lottery, which is generally offered and given to a consumer by chance.unlawful under federal and state lottery laws. how they can enter the prize promotion For the element of chance to be present, all that iswithout paying any money or purchasing any necessary under the Rule is that the consumer isgoods or services. This disclosure must guaranteed to receive an item, and, at the time ofinclude instructions on how to enter, or an the offer, the telemarketer does not identify theaddress or local or toll-free telephone specific item that the person will receive. Fornumber where consumers can get the no- example, say you send a solicitation promisingpurchase/no-payment entry information. recipients that they will receive one of four or five listed items but you do not tell recipients which about any material costs or conditions to of the listed items they will receive. In that case, receive or redeem any prize. For example, if any item the consumer receives is a prize, and the one of the offered prizes is a vacation, but solicitation is a prize promotion. the recipient must pay for her ownaccommodations, thats a cost or condition A seller or telemarketer that offers a prize that is likely to affect the consumers response promotion must provide consumers with severalto the offer and therefore, must be disclosed. items of information before the consumer pays for any goods or services being offered. This 5. Credit Card Loss Protection ______ information may be given to consumers orally or A seller or telemarketer offering a credit card loss in writing, and the information must be clear and protection plan one that claims to protect, conspicuous. You must tell consumers: insure, or otherwise limit a consumers liability in the event of unauthorized use of a customers the odds of winning the prize(s). If the odds credit card must disclose the limits on acant be calculated in advance because they cardholders liability under federal law fordepend on the number of people who enter unauthorized use of a credit card (15 U.S.C. Partthe promotion, for example, you must tell 1643). Since the law limits cardholder liability forthat to consumers, along with any other unauthorized use for example, when a creditfactors used to calculate the odds. card is lost or stolen to no more than $50, that they can participate in the prize disclosure of this information to consumers willpromotion or win a prize without buyinghelp ensure that they have the materialanything or making any payment, and that information necessary to decide whether theany purchase or payment will not increaseprotection plan offered is worth the cost.the chances of winning. When offering aprize promotion in outbound calls, you mustdisclose this information orally and promptly.17 19. 6. Negative Option Features ________ Prompt Disclosures in OutboundThe term negative option feature is used in theTelemarketing CallsRule. It is when the seller interprets theconsumers silence, or failure to take anaffirmative action to reject goods or services orPromptly: Promptly is defined by Websterscancel an agreement as acceptance of the offer.Dictionary as performed at once or withoutOne type of negative option offer is a free-to-pay delay. For purposes of the Rule, promptlyconversion offer (also known as a free-trialmeans before any sales pitch is given andoffer), where customers receive a product or before any charitable solicitation is made.service for free for an initial period and then haveRequired information about a prize promotionto pay for it if they dont take some affirmative must be given before or when the prize offeredis described.action to cancel before the end of the period.Other types of negative option features includecontinuity plans and other arrangements whereconsumers automatically receive and incurcharges for shipments in an ongoing series unlessOral Disclosures in Outbound Sales Callsthey take affirmative action to stop the shipment. and Upselling Transactions ________ An outbound call is a call initiated by aUnder the TSR, any seller or telemarketer whosetelemarketer to a consumer. The Rule requiresoffer of a product or service involves a negativethat a telemarketer making an outbound sales calloption feature must truthfully, clearly, and promptly disclose the following four items ofconspicuously disclose three pieces of information truthfully, clearly, andinformation: conspicuously: the fact that the customers account will be The identity of the seller. The seller is the entitycharged unless he or she takes an affirmative that provides goods or services to the consumeraction such as canceling to avoid the in exchange for payment. The identity of thecharge. telemarketer, or person making the call, need the date(s) on which the charge(s) will be not be disclosed if it is different from thesubmitted for payment. identity of the seller. If the seller commonly uses a fictitious name that is registered with the specific steps the customer must take to appropriate state authorities, it is fine to use thatavoid the charges. name instead of the sellers legal name. While the best practice is to provide an actual date That the purpose of the call is to sell goods oron which payment will be submitted, it is acceptable services. The Rule requires that the purpose ofto disclose an approximate date if you dont orthe call be disclosed truthfully and promptly tocant know the actual date, provided the consumers. How you describe or explain theapproximate date gives the consumer reasonable purpose of the call is up to you, as long as yournotice of when to expect the debit or charge. As for description is not likely to mislead consumers.disclosing how the consumer can avoid charges, it is For example, it would be untruthful to state thatnot sufficient under the Rule to disclose that a a call is a courtesy call, if its a sales call.consumer would have to call a toll-free number tocancel without disclosing the number.18 Complying with the Telemarketing Sales Rule 20. The nature of the goods or services being offered.disclosures (if the initial transaction was anThis is a brief description of items you areoutbound call subject to the Rule) or if nooffering for sale.disclosures were required in the initialtransaction, such as a non-sales customer serviceIn the case of a prize promotion, that no call. For example, in an external upsell, where thepurchase or payment is necessary to participate second transaction in a single telephone callor win, and that a purchase or payment does not involves a second seller, you must tell theincrease the chances of winning. If the consumerconsumer the identity of the second seller theasks, you must disclose without delay one on whose behalf the upsell offer is beinginstructions on how to enter the prizemade. On the other hand, in an internal upsell,promotion without paying any money or where additional goods or services are offered bypurchasing any goods or services. the same seller as the initial transaction, no newdisclosure of the sellers identity is necessary These same disclosures must be made in anbecause the information is the same as that upselling transaction if any of the information in provided in the initial transaction. these disclosures is different from the initialMultiple Purpose Calls. Some calls have more than one purpose. They may involve the sale ofgoods or services and another objective, like conducting a prize promotion or determiningcustomer satisfaction. They may involve a charitable solicitation combined with a prize promotion.In any multiple purpose call where the seller or telemarketer is planning to sell goods or services inat least some of the calls, four disclosures must be made promptly that is, during the first partof the call before the non-sales portion of the call. Similarly, in any multiple purpose call wherethe telemarketer is planning to solicit charitable contributions in at least some of the calls, twodisclosures must be made promptly that is, during the first part of the call, before the non-charitable solicitation part of the call. ExampleSay a seller calls a consumer to determine whether he or she is satisfied with a previous purchaseand then plans to move into a sales presentation if the consumer is satisfied. Since the seller plansto make a sales presentation in at least some of the calls (the seller plans to end the call if theconsumer is not satisfied), four disclosures must be made promptly during the initial portion ofthe call and before inquiring about customer satisfaction. However, a seller may make calls to welcome new customers and ask whether they are satisfiedwith goods or services they recently purchased. If the seller doesnt plan to sell anything to thesecustomers during any of these calls, the four oral disclosures are not required. Thats the case evenif customers ask about the sellers other goods or services, and the seller responds by describing thegoods or services. Because the seller has no plans to sell goods or services during these calls, thedisclosures are not required.19 21. Oral Disclosures in Outbound Calls tothat is registered with appropriate stateSolicit Charitable Contributions authorities, that name may be disclosed insteadTelefunders must make two prompt oralof the charitable organizations legal name.disclosures clearly and conspicuously: That the purpose of the call is to solicit aThe identity of the charitable organization on charitable contribution. The Rule requires thatwhose behalf the solicitation is being made. The the purpose of the call be disclosed promptlycharitable organization is the entity on whose to consumers. How the purpose of the call isbehalf a charitable contribution is sought. Thedescribed or explained is up to you, as long asidentity of the telemarketer, or person making the your description or explanation is not likely tocall, need not be disclosed. If the charitable mislead consumers.organization commonly uses a fictitious name How does a for-profit company that telemarkets for a non-profit organization make the required oral disclosures? When a for-profit company makes interstate calls to solicit charitable contributions for a non-profit organization, the for-profit telemarketer must make the required prompt disclosures for charitable solicitation calls. The company must identify the entity on behalf of whom the charitable solicitation is made and state that the purpose of the call is to solicit a charitable contribution. However, if a for-profit company solicits charitable contributions on behalf of a charity and offers goods or services that are of more than nominal value a book, magazine subscription, or perhaps a membership to induce donations, the required oral disclosures for both sales and charitable contributions must be made. Nominal means a value less than the amount of any contribution being solicited. In a situation where the goods or services offered are of more than nominal value, stating the name of the non-profit organization on whose behalf the call is being made is sufficient. This disclosure also would satisfy the requirement that the entity on whose behalf a charitable contribution is being solicited be identified.Examples: I am calling on behalf of [name of non-profit organization] to offer you a subscription to the organizations newsletter, which [description of newsletter] and to ask for a donation to help support the work of [name of non-profit organization].I am calling for [name of non-profit organization] to seek your support. For a donation of $25 or more, [name of non-profit organization] will extend to you a one-year membership, which entitles you to [description of the membership]. Your donation will help us to continue the [non-profit organizations] important work . . . 20 Complying with the Telemarketing Sales Rule 22. Misrepresentations are Prohibited subscription for three years at $1.50 a month, The Rule prohibits sellers and telemarketers from when the subscription is available at that price for making false or misleading statements to induce one year only. anyone to pay for goods or services or make a 2. Material Restrictions, Limitations, or Conditions charitable contribution. For example: The Rule prohibits sellers and telemarketers from you cannot falsely claim that you need amisrepresenting any material restriction, consumers bank account number or creditlimitation, or condition to purchase, receive, or card number only for identification purposes, use goods or services offered to the consumer. when, in fact, you will use the number as For example, you may not falsely claim that a payment for the goods or services offered.hotel certificate may be used any time at any major hotel chain in the country, when it can be a seller of precious metals cannot induce used only at certain times or at a limited number anyone to invest by falsely claiming that the of hotels. seller offers the metals at or near wholesale price.3. Performance, Efficacy, or Central Characteristics it would be illegal under the Rule to solicit a The Rule prohibits sellers and telemarketers from charitable contribution by claiming that 100misrepresenting any material aspect of the percent of the funds collected would benefitperformance, efficacy, nature, or central the stated charity, when only 30 percent of the characteristics of the goods or services offered to money goes to the charity.the consumer. For example, it is a violation of the Rule to claim falsely that: In addition, the Rule prohibits sellers and a water processor offered for sale can telemarketers from misrepresenting specificeliminate all known contaminants from categories of information about a telemarketingtap water. transaction that are likely to affect a consumers decision to purchase the goods or services offered. a service offered by the seller can improve a The Rule also prohibits both express and implied persons credit rating. misrepresentations. Sellers and telemarketers a machine will operate properly without cannot circumvent the Rule by creating a falsemaintenance. impression in a consumers mind through the artful use of half-truths or misleading or precious metals outperform other types of incomplete information.investments.In sales transactions, the Rule prohibits a seller can recover money lost by the misrepresentations about the following:consumer in a previous telemarketingtransaction.1. Cost and Quantity a purchaser of a business venture can earnThe Rule prohibits sellers and telemarketers frommore money in a week than you now earn inmisrepresenting the total costs to purchase,a year or achieve specific levels of income.receive, or use the goods or services offered, orthe quantity of goods or services offered at thestated price. For example, you may not tellconsumers that they may purchase a magazine 21 23. 4. Refund, Repurchase, or Cancellation Policies 6. Material Aspects of Investment OpportunitiesThe Rule prohibits sellers and telemarketers from The Rule prohibits sellers and telemarketers frommisrepresenting any material aspect one thatmisrepresenting any material aspect of anlikely would have an effect on the consumers investment opportunity. You may not make anypurchasing decision of the nature or terms of false or misleading statements about anthe sellers refund, cancellation, exchange, or investment opportunity that are likely to affect arepurchase policies. For example, the Ruleprospective purchasers decision to invest. Youprohibits you from claiming that our policy is tomay not misrepresent any information needed tomake our customers happy if at any time youremake an informed investment decision. Examplesnot absolutely delighted, just send the merchandise of material aspects of an investment opportunityback, if there are time limits, restocking include: the risk involved in the investment, thecharges, or other important restrictions on the liquidity of the investment, or the earningsreturn of the goods. It also prohibits sellers andpotential or profitability of the investment.telemarketers from claiming that tickets may be Depending on the nature of the investmentcancelled any time up to the date of an event whenopportunity, other material aspects may includecancellation requests like that would not be honored. markup over acquisition costs; past performance,marketability, or value of an investment; or fees5. Material Aspects of Prize Promotions charged in credit-financed purchases of preciousThe Rule prohibits sellers and telemarketers from metals.misrepresenting any material aspect of a prizepromotion: you may not lie about any aspect of a7. Affiliations, Endorsements, or Sponsorshipsprize promotion that is likely to affect aThe Rule prohibits sellers and telemarketersconsumers decision to buy any goods or servicesfrom misrepresenting affiliations with oroffered in conjunction with a prize promotion, to endorsements or sponsorships by any person,buy them at the offered price, or to buy them organization, or government entity. For example,from you. For example, you may not misrepresent:you cannot falsely claim that youre a member ofthe Better Business Bureau or the local chamber the odds of being able to receive a prize (forof commerce, or that youre affiliated with theexample, falsely saying that everyone who local police or some national charity. Neither canenters is guaranteed to win a prize, or falsely you create the impression in a consumers mindclaiming that a particular person is the top that the postal permit number displayed on awinner in the entire state). mail solicitation is a sign that the U.S. Postal the nature or value of a prize (for example,Service has approved a promotion. In addition,falsely claiming a prize is an expensive sellers and telemarketers cannot falsely claim orgenuine diamond tennis bracelet, when thecreate the impression in a consumers mind thatprize has only nominal value or doesnt they are related to or affiliated with a companycontain any diamonds).with which the consumer usually does business. that a purchase or payment is required towin a prize or participate in a prizepromotion (for example, falsely claiming thata consumer must buy magazine subscriptionsto enter a prize promotion).22 Complying with the Telemarketing Sales Rule 24. 8. Credit Card Loss Protection In charitable solicitation calls, the Rule The Rule prohibits sellers and telemarketers fromprohibits misrepresentations about: misrepresenting that any customer needs offered goods or services to receive protection against 1. The Nature, Purpose, or Mission of the Entity on unauthorized charges that he or she already has Whose Behalf the Solicitation is Made under federal law (15 U.S.C. P 1643). For art The Rule prohibits telefunders from example, you cannot falsely claim that amisrepresenting the nature, purpose, or mission consumer who doesnt purchase the credit card of any entity on whose behalf a charitable loss protection youre offering might be liable for contribution is being solicited. It would violate thousands of dollars in unauthorized chargesthe Rule for a telefunder to claim, expressly or by should a credit card be stolen. In fact, the lawimplication, that a charitable contribution is caps a customers liability for unauthorizedbeing requested on behalf of a charity that seeks charges on her credit card at $50.to protect endangered species if the purpose of the charity is to support a local petting zoo of 9. Negative Option Features barnyard animals. And a telefunder may not The Rule prohibits sellers and telemarketers from represent that a charitable organization engages misrepresenting any material aspect of a negative in cancer research if the organization simply option feature of an offer, including: the fact thateducates the public about cancer through its the consumers account will be charged unless the fundraising calls. consumer takes an affirmative action to avoid the charges, the dates the charges will be submitted2. Tax Deductibility for payment, and the specific steps the customerWhether a contribution is tax deductible or must take to avoid the charges. For example, thean organization is tax exempt may be an Rule prohibits you from representing that to avoidimportant consideration when potential donors being charged, the consumer need only call a toll-are deciding whether or how much to contribute. free number to cancel if, in fact, the number isThe Rule therefore prohibits telefunders from never answered. In this case, you would bemisrepresenting, expressly or by implication, that misrepresenting the specific steps the customer any charitable contribution is partly or fully tax must take to avoid the charge, because the stepsdeductible, or falsely implying that an described wouldnt achieve that purpose.organization on whose behalf a contribution is solicited is tax exempt.3. Purpose of a Contribution The Rule prohibits telefunders from misrepresenting how the requested contribution will be used. This includes not only how a donation will be spent, but also the locality where the direct effect of the donation will be felt. The purpose for which a contribution is sought usually is important to a donor, and any 23 25. misrepresentations about that would be likely to 6. Affiliations, Endorsements, or Sponsorshipmislead a consumer. It would violate the Rule forThe Rule prohibits telefunders fromyou to state or imply that a donation will benefit misrepresenting their own or a charitablesick children in the local area if the money organizations affiliation with, or endorsement orcollected is not spent to benefit sick children or issponsorship by, any person, organizations, ornot spent to benefit sick kids in the donors localgovernment entity. For example, you cannotarea. You also cannot claim that a donation will falsely claim that the organization on whosebe used to pay for bullet-proof vests for local lawbehalf you are calling is affiliated with, sponsoredenforcement officers if the money goes to some by, endorsed by, or otherwise approved by anyother purpose. The charitable purpose describedother entity or organization. Nor could youto potential donors may not be peripheral or falsely claim to be endorsed or approved by theincidental to the primary purpose for which thelocal police. In addition, you cannot falsely claimdonation will be used. or create the impression that you are related to or affiliated with a charity that the4. Percentage or Amount of Contribution that donor has heard of or contributed to in the past.Goes to the Charitable Organization or ProgramThe Rule prohibits telefunders frommisrepresenting the percentage or amount of the Payment Methods Other than Debitcontribution that goes to a charitableand Credit Cardsorganization or program. This prohibition coversThe Rule requires express verifiablestatements made in response to the questions of authorization when the payment is made by apotential donors, as well as unprompted stand-method other than a credit card (subject to thealone statements. Even though the TSR does notTruth in Lending Act and Regulation Z), or a debitrequire you to affirmatively disclose the card (subject to the Electronic Fund Transfer Actpercentage or amount of the contribution that and Regulation E). Because many novel paymentgoes to a charitable organization or program, if amethods lack protection against unauthorizedpotential donor raises the question, you must charges and dispute resolution rights should theanswer truthfully and must not misrepresent thiscustomer be unhappy with the goods or services,information in any way. the Rule requires that when customers intelemarketing transactions pay by such methods,5. Material Aspects of Prize Promotionssellers and telemarketers must meet a higherThe Rule prohibits telefunders from standard for proving authorization. This provision,misrepresenting any material aspects of a prize the prohibition on sharing unencrypted accountpromotion in conjunction with a charitablenumbers, and the requirement that a consumerssolicitation. You may not make a false statementexpress informed consent be obtained in everyabout any aspect of a prize promotion that couldtelemarketing transaction, are in place to protectaffect a donors decision to make a charitableconsumers from unauthorized charges.contribution in conjunction with the prizepromotion. 24 Complying with the Telemarketing Sales Rule 26. What about cash, checks, and money orders? The express verifiable authorization requirement does not apply to conventional checks that the consumer writes, signs, and mails, or to payments by money order, cash, gift certificates, or direct billing (where the customer or donor receives a written bill or statement before having to pay). These payment methods have been used for years, and consumers are familiar with the advantages and relative risks of each. But there are payment methods that consumers may be unfamiliar with and that lack fundamental protections. In the latter instance, the Rule requires more proof of authorization to protect consumers from unauthorized charges: If payment is made by demand draft or phone check, mortgage or utility billing (where goods or services other than the mortgage or utility payment is billed on these accounts), or a similar unconventional method, a telemarketer must obtain the customer or donors express verifiable authorization.Who is responsible for obtaining verifiable authorization? Under the Rule, sellers and telemarketers that receive payment by methods other than credit or debit cards are responsible for obtaining verifiable authorization in those transactions. Even if you use the services of a third party to process or submit billing information other than credit or debit card information, you are responsible for ensuring that the disclosure requirements of the Rule for verifying authorization are met. Under the Rule, a third party also can be held liable for violating the Rule if the third party substantially assists a seller or telemarketer and knows or consciously avoids knowing that the seller or telemarketer is violating the Rule by failing to obtain verifiable authorization.Processing and submitting account information constitutes substantial assistance to a seller or telemarketer. Therefore, if a third party is processing account information for a seller or telemarketer, the third party should ensure that whoever is obtaining consumers account information obtains verifiable authorization in accordance with the Rules requirements. A third party who processes and submits bank account information cannot avoid liability by not asking questions about whether authorization procedures comply with the Rule. Indeed, a third party can be held liable under the Rule if it knows that the authorization procedures do not comply with the Rule and it processes or submits account information for payment anyway.Does the Rule apply if I only supply the software to process or submit bank account information for payment? Maybe. Providing the means to submit a consumers account information for payment constitutes substantial assistance to a seller or telemarketer. If the seller or telemarketer who is using the software is violating the Rule, a law enforcement agency may ask about the extent to which the software provider ensured that authorization procedures were in place to comply with the Rule. A software provider cannot sell its product with its eyes closed to the business practices used by the software purchaser, consciously avoiding any knowledge of the wrongdoing. Deceptive telemarketers favor novel payment methods, such as demand drafts. Therefore, third parties should know who theyre doing business with and whether the people they do business with are complying with the Rule. Under the Rule, authorization is considered written confirmation of the transaction sent verifiable if it is obtained in one of three ways:to the consumer before you submit the charge for payment. advance written authorization from the consumer; an audio recording of the consumer giving express oral authorization; or25 27. Here are the requirements for each type of the customer or donors billing information,authorization.identified in specific enough terms that theconsumer understands which account will beWritten Authorization ____________used to collect payment for the transaction.Any form of written authorization from a a telephone number that is answered duringconsumer is acceptable, as long as it has thenormal business hours by someone who canconsumers signature. For example, a consumeranswer the consumers questions.may transmit written authorization to the selleror telemarketer by facsimile or may send a the date of the consumers oral authorization.voided signed check as written authorization.An electronic signature also is valid, provided itwould be recognized as a valid signature under The Electronic Fund Transfer Act (EFTA)applicable federal or state contract law.Other laws, such as the EFTA (15 U.S.C. Part 1693 et seq.), may impose different obliga-Oral Authorization________________ tions about obtaining a consumers authori-Any audio recording of an oral authorization3 forzation of a charge. It is the responsibility ofpayment must clearly demonstrate that theeach seller and telemarketer to determine how to comply with all applicable laws andconsumer has received each of seven specific rules. Compliance with the TSR require-pieces of information about the transaction andments for obtaining authorization does notthat the consumer has authorized that funds be eliminate the obligation to comply withtaken from (or charged to) his or her accountEFTA and other applicable laws.based on the required disclosures by the seller ortelemarketer. A general question like, Do youunderstand all the terms of the sale? followed bya consumers uh-huh or yeah is not enough to The Rule also requires that audiorecorded oraldemonstrate authorization. The tape recordingauthorization be made available upon request tomust show that the consumer received each piecethe customer or donor, as well as to the customerof information below and that, based on this or donors bank or other billing entity.information, the consumer understood andacknowledged each term of the transaction andAuthorization by Writtenauthorized the transaction.Confirmation ____________________ If sellers and telemarketers choose verifiableA consumer must be told and must acknowledge:authorization through written confirmation, they must send the confirmation to the consumer via the number of debits, charges, or payments first class mail and identify it clearly and(if more than one). conspicuously as confirmation of payment the date the debits, charges, or payments will before submitting the consumers billingbe submitted for payment.information for payment. That does not mean that you must wait to submit this information the amount of the debits, charges, oruntil a consumer receives the confirmation: Thepayments.Rule requires only that you send it before you the customer or donors name.submit the billing information for payment. 26 Complying with the Telemarketing Sales Rule 28. The Rule leaves it to sellers and telemarketersin place and must disclose in the written to determine what procedures are necessary confirmation how to obtain a refund if the to ensure that confirmations are sent prior to consumer disputes the written confirmation. submission, to put these procedures in place,The Rules prohibition on misrepresenting a and to ensure that records are generated and refund policy applies in the context of obtaining maintained to document that confirmations areverifiable authorization by means of written sent at the appropriate time and required refundsconfirmation. Note: In transactions involving are provided.pre-acquired account information combinedwith a free-to-pay conversion, sellers and The written confirmation must contain alltelemarketers may not use the written the information required in a tape recordedconfirmation method of obtaining authorization. In addition, if you choose to authorization. In these transactions, written use the written confirmation method of confirmation does not constitute express authorization, you must have a refund policy verifiable authorization.Date the debit, charge, or payment will be submitted for payment This disclosure ensures that consumers know when to expect the charge or debit. To comply with this requirement, it makes good sense to provide an actual date on which payment will be submitted: This debit from your checking account will occur on April 14, 2004. However, it is acceptable for you to disclose an approximate date if you dont or cant know the actual date, provided the approximate date gives the consumer reasonable notice of when to expect the debit or charge. For example, you could tell a consumer, The charge will appear on your next mortgage statement, or Your account will be charged within two weeks from today.Similarly, in a transaction involving a continuity plan, it would be sufficient for you to note when any initial charge will be submitted for payment, and then at what intervals each successive payment would be submitted, should the customer opt not to decline to purchase additional goods or services. For example, in a book club plan, you could tell a customer that the initial $4.95 charge would be debited from his or her bank account on May 15, and that each month after that, his or her account will be billed one week from the date of each successive shipment.Billing information in specific enough terms that the consumer understands what account will be used to collect payment for the transaction To identify the account with sufficient specificity for the customer or donor to understand what account will be charged, you must state the name of the account and enough other distinguishing information about the account to ensure that the customer understands which account will be charged.For example, telling the consumer that the charge will be placed on his mortgage account is not specific enough information. It would be necessary to identify the account further, perhaps by the name of the lender and the property address, or a reference to some portion of the account number or expiration date. It is your obligation to ensure that the consumer knows specifically what account will be charged for the goods or services.27 29. Assisting and Facilitating Sellers or TelemarketersWho Violate the Rule is Prohibitedt is a violation of the Rule to substantially assist Third parties who do business with sellers and Ia seller or telemarketer while knowing or consciously avoiding knowing that the seller or telemarketers should be aware that their dealings may provide a factual basis to support an inference telemarketer is violating the Rule. Thus taking that they know or deliberately remain ignorant deliberate steps to ensure ones own ignorance of a of the Rule violations of these sellers and seller or telemarketers Rule violations is antelemarketers. For example, a third party who ineffective strategy to avoid liability. The help thatprovides sellers or telemarketers with mailing lists, a third-party provides must be more than casual help in creating sales scripts or direct mail pieces, or incidental dealing with a seller or telemarketer or any other substantial assistance while knowing that is not related to a violation of the Rule. For or deliberately avoiding knowing that the seller or example, cleaning a telemarketers office,telemarketer is engaged in a Rule violation may be delivering lunches to the telemarketers premises,violating the Rule. or engaging in some other activity with little or no relation to the conduct that violates the Rule would not be enough to support liability as an assistor or facilitator. 28Complying with the Telemarketing Sales Rule 30. Credit Card Laundering is Prohibitedredit card laundering is the misuse of aIn credit card laundering work, sellers andC merchant account with a financialinstitution. A merchant account is a kind of banktelemarketers who are unable to establish amerchant account with a financial institutionaccount: it is what a seller or telemarketer needs to sometimes use the unlawful services of again access to a credit card collection and payment launderer (also known, inaccurately, as a factor).system and to get cash for goods and services sold. A launderer opens a back door into the creditObtaining access to the credit card system throughcard system by providing access to a merchantanothers merchant account without theaccount and the whole credit card collectionauthorization of the financial institution is creditand payment system without the authorizationcard laundering. This practice violates the Rule, of the financial institution or the credit cardand is a criminal offense under federal law and the system. Except as expressly permitted by a creditlaws of some states.card system, it is a Rule violation for anyone: with a merchant account to deposit into theHeres how the system works for companies thatcredit card system any credit card sales draftmake legitimate use of the credit card system: Togenerated by a telemarketing transaction thatbe able to accept payment from a consumer whois not the result of a sale to the buyer by thewants to charge the price of goods or services to aperson who has the merchant account.credit card, a seller or telemarketer must have amerchant account with a financial institution to use or solicit someone who has a merchantthat is a member of a credit card system (for account (or an employee, representative, orexample, Visa or MasterCard) that issued theagent of someone who has a merchantconsumers credit card. When the consumer paysaccount) to deposit into the credit card systemby credit card, the merchant generates a credit any credit card sales draft generated by acard sales draft. The seller then deposits the drafttelemarketing transaction that is not the resultinto the sellers merchant account, and obtains the of a sale to the buyer by the person who hascash amount of the deposited draft. The financial the merchant account.institution sends the credit card sales draftthrough the particular credit card system, which to obtain access to the credit card systemposts a corresponding charge to the consumersthrough a business relationship or ancredit card account.affiliation with a merchant, when the access isnot authorized under the terms of themerchant account or by the applicable creditcard system. 29 31. Unauthorized Billingt is a violation of the Rule to cause billingExpress Informed Consent Is Iinformation to be submitted for payment directly or indirectly without the express Required in Every Telemarketing informed consent of the customer or donor. Transaction The Rule requires that in any telemarketing The Rule contains no specific requirements for transaction, sellers and telemarketers obtain how sellers and telemarketers must obtain express the express informed consent of the customerinformed consent in transactions where they do or donor to be charged a specific amount on not use pre-acquired account information. As a a particular identified account, to pay for practical matter, however, in these transactions it the goods or services offered, or to make would be necessary for you to get the account a charitable contribution.number to be charged from the consumer, because the information isnt available any other way. In obtaining this information from the consumer, you must get his express agreement to be charged for the goods or services being offered and to be charged using the account number he or she provides. Any false or misleading statement to induce someone to divulge his or her account information to pay for goods or services or to make a charitable contribution is an additional Rule violation.What is express informed consent? Under the Rule, consent is express if it is affirmatively and unambiguously articulated by the consumer. Silence is not express consent, nor is an ambivalent response like, Well, maybe . . ., Gee, I dont know about that . . ., or a noncommital uh-huh. For consent to be informed, a consumer, prior to giving consent, must receive all the disclosures required by the Rule.For example, consent would not meet the requirement that it be informed if the consumer does not receive all the Rules required material disclosures both the prompt oral disclosures for outbound calls and the disclosures of all material information required in all telemarketing transactions. Consent is an affirmative statement that the consumer agrees to purchase the goods or services (or to make the charitable contribution) and is aware that the charges will be billed to a particular account. 30Complying with the Telemarketing Sales Rule 32. Obtaining Express Informed ConsentThats because when used together with free-to- pay conversion offers, pre-acquired account in Telemarketing Transactions information has resulted in significant numbers of Involving Pre-acquired Accountunauthorized charges to consumers who think Information they cant be charged at the end of a free trial Pre-acquired account information is any because they havent provided their account information that enables sellers and telemarketersinformation. The Rule specifies what sellers and to place a charge against a consumers accounttelemarketers must do to prevent this from without getting the account information directlyoccurring and to get a consumers express from the consumer during the transaction forinformed consent. which the account will be charged. The use of pre- acquired account information radically changes the When pre-acquired account information is