FTC Proposes Rule to Ban Deceptive, Abusive Telemarketing Practices

Note: if youÍre interested in either this specific topic or in the rule making process, see business regulation area in the reference room for full rule and various comments submitted to FTC FEBRUARY 9, 1995 The Federal Trade Commission has proposed a rule to ban numerous deceptive or abusive telemarketing sales practices, and to prohibit credit card laundering and other forms of assistance to deceptive telemarketers. Among other requirements under the rule, telemarketers would have to tell consumers at the beginning of each call that it's a sales call and the name of the seller. The rule also would prohibit telemarketers from calling before 8 a.m. or after 9 p.m., sending couriers to pick up payments, and resoliciting consumers before the prior transaction is complete. Telemarketers offering credit or loans, credit repair services, or assistance to consumers in recovering money lost in a prior tele marketing scheme, would be prohibited from seeking payment from consumers until the services have been rendered, under the rule. The FTC is seeking public comments for 45 days on the proposed rule, which is required by the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, enacted in August 1994. Approximately one month after the comment period closes, the Commission staff will hold a two-and-a-half day public workshop-conference in Chicago, Illinois, to discuss issues raised during the comment period. Under the Telemarketing Act, the Commission is required to finalize its rule by Aug. 16, 1995. Much of the conduct prohibited by the proposed rule has been challenged by the FTC in more than 140 law-enforcement actions against telemarketing fraud in the last four years, the agency said. Violations of the final rule could result in civil penal ties of up to $10,000 per violation. The FTC-proposed rule would cover most types of telemarketing calls to consumers, including offers of goods and services, busi ness ventures, investment opportunities and certain "telefunding" or charitable solicitation calls. It also would apply to calls from consumers responding to postcards or other promotional mater ials they've been sent (except catalogs), and to other sales com munications through telephone lines, such as via the Internet or by facsimile machine. The rule also would apply to business-to-business sales calls when the telemarketer is pitching office supplies, or promising a prize or offering goods and services in connection with a charitable solicitation. Required Disclosures Generally, the proposed rule would require telemarketers to disclose to consumers all material information about the offer, the seller, and any refund or exchange policies. At the beginning of each call, a telemarketer would have to state the caller's first and last name, the name of the seller, and the fact that it's a sales call. In addition, if telemarketers are selling goods or services or offering a prize in connection with a char itable solicitation, they must disclose their status as paid, professional fundraisers and that the purpose of the call is to solicit a donation. Additional material information about the value of a prize or premium would have to be disclosed in tele marketing calls involving such items. In addition, telemarketers would have to obtain from con sumers a signed acknowledgement of written disclosures regarding prize- promotion and investment offerings before seeking payment. These disclosures must identify the seller, its address and phone number, and other names under which it has done business. Dis closure documents from prize-promotion telemarketers also would include information about the retail price of each prize, the odds of winning, all costs for obtaining the prize, and the statement, "No purchase or payment is necessary to win." Telemarketers offering investments would have to include the complete cost of the investment, the known risks, how long the seller has been in business, and the percentage markup over acquisition cost for tangible assets. Prohibited Misrepresentations The FTC-proposed rule would prohibit telemarketers from misrepresenting any information required by the rule, and any material aspects about the solicitation or the offered goods or services. Moreover, it includes, among others, specific prohibitions against misrepresentations: -- that any person has been selected to receive a prize; -- regarding any affiliation with any government entity; -- regarding the purpose for which a consumer's checking account, credit card or Social Security number will be used; -- about any prior purchasing agreement with the consumer; -- about the level of risk, market or liquidation value, or profit potential of any investment; -- regarding the seller's ability to help consumers liquidate investments; -- that telemarketers can improve consumers' credit records or obtain loans or other credit for them regardless of their credit records; or -- that they can recover money or goods the customer lost. Other Prohibited Conduct As noted above, the proposed rule would set hours for calling and prohibit abusive telemarketing practices, such as using threats or intimidation, resoliciting consumers before the prior transaction is complete, calling consumers more than once every three months to sell the same thing, and calling consumers who have stated they do not want to be called by that telemarketer. The proposed rule also would require them to distribute all prizes within 18 months of making the initial offer. Business Ventures Telemarketers offering business ventures would be prohibited from misrepresenting the level of earnings, the market for the goods and services, the nature or availability of sales terri tories for buyers, retail outlets or accounts for the goods or services or locations for vending machines or display racks, or the service they will provide to help buyers secure retail out lets. The rule also would prohibit the use of phony references, or "shills," and would require that any references be unpaid, and that they have purchased the business and operated it for at least six months (or less, if the telemarketer discloses how long). Collecting Payment from Consumers Generally, the rule would prohibit covered telemarketers from obtaining money from consumers without their express authorization (checks would require written authorization), and would prohibit telemarketers from directing couriers to pick up payment from consumers. It also would prohibit telemarketers offering credit or loans, credit repair services, or assistance to consumers in recovering lost money or goods, from seeking payment from consumers until the services have been rendered. Assisting Telemarketing Fraud The proposed rule would prohibit anyone from providing sub stantial assistance to telemarketers they know, or should know, are violating the rule. Examples of substantial assistance the Commission cited include providing customer lists, sales call scripts, coupons, or promotional materials; offering paid endorse ments or testimonials for business ventures or investment oppor tunities; or securing retail outlets or accounts for goods or ser vices in connection with a business venture. Further, the rule would ban credit card laundering by, among other things, prohibiting merchants from presenting for payment any credit card sales draft for another telemarketer. Finally, the proposed rule contains various recordkeeping requirements that would assist the FTC and State Attorneys General in enforcing it. The Commission vote to announce the proposed rule for public comment was 4-0. It will be published in the Federal Register shortly. Written comments should be captioned "Proposed Telemar keting Sales Rule," addressed to the FTC, Office of the Secretary, Room 159, Washington, D.C. 20580 and, if possible, should be accompanied by a copy on computer disk. Those interested in participating in the public workshop-conference in Chicago should write to Carole Danielson, Division of Marketing Practices, at the above address. Copies of the Federal Register notice announcing the proposed rule are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202- 326-2222. ----- Brought to you by - The 'Lectric Law Library The Net's Finest Legal Resource For Legal Pros & Laypeople Alike. http://www.lectlaw.com