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FTC's 2/95 Proposed Rules Re: Telemarketing

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PREMIUM LEGAL RESOURCES LEGAL FORMS ASK A LAWYER

PART 310: TELEMARKETING SALES RULE.
Sec.
310.1 Scope of regulations in this part.
310.2 Definitions.
310.3 Deceptive telemarketing acts or practices.
310.4 Abusive telemarketing acts or practices.
310.5 Recordkeeping requirements.
310.6 Exemptions.
310.7 Actions by states and private persons.
310.8 Federal preemption.
310.9 Severability.

Authority: 15 U.S.C. 6101-6108.
Sec. 310.1 Scope of regulations in this part. This part implements the Telemarketing and Consumer Fraud and Abuse Prevention Act (15 U.S.C. 6101-6108).

Sec. 310.2 Definitions.

(a) Acquirer means a business organization, financial institution, or an agent of a business organization or financial institution that has authority from an organization that operates or licenses a credit card system to authorize merchants to accept, transmit, or process payment by credit card through the credit card system for money, goods or services, or anything else of value.

(b) Attorney General means the chief legal officer of a State.

(c) Business venture means any written or oral business arrangement, however denominated, including but not limited to a "franchise," as that term is defined in the "Franchise Rule," 16 CFR 436.2(a), which consists of the payment of any consideration for:

(1) The right or means to offer, sell, or distribute goods or services (whether or not identified by a trademark, service mark, trade name, advertising, or other commercial symbol); and

(2) The promise of more than nominal assistance to any person or entity in connection with or incidental to the establishment, maintenance, or operation of a new business or the entry by an existing business into a new line or type of business.

The term "business venture" does not include any business arrangement in which persons acquire, or purportedly acquire, government-issued licenses or interests in one or more businesses derived from the possession of such licenses.

(d) Cardholder means a person to whom a credit card is issued or who is authorized to use a credit card on behalf of or in addition to the person to whom the credit card is issued.

(e) Commission means the Federal Trade Commission.

(f) Credit card means any instrument or device, whether known as a credit card, credit plate, bank service card, banking card, check guarantee card, charge card, or debit card, or by any other name, issued with or without a fee for the use of the cardholder in obtaining money, goods, services, or anything else of value.

(g) Credit card sales draft means any record or evidence of a credit card transaction, including but not limited to any paper, sales record, instrument, or other writing, or any electronic or magnetic transmission or record.

(h) Credit card system means any method or procedure used to generate, transmit, or process for payment a credit card sales draft.

(i) Customer means any person who is or may be required to pay for goods or services offered through telemarketing.

(j) Goods or services means any goods or services, including but not limited to: any investment opportunity; any business venture; any certificate or coupon which may be later exchanged for a product or service; any membership; any license right; any timeshare or campground interest; any offer to list a timeshare or campground interest for sale; any real property interest; any offer to improve a person's credit record, history, rating, or to obtain an extension of credit; any charitable service promoted in conjunction with an offer of a prize, chance to win a prize, or the opportunity to purchase any other goods or services; any service promoted by an employment agency; any multi-level marketing service; and any offer of advice or assistance to a person.

(k) Investment opportunity means anything, tangible or intangible, excluding a business venture, that is offered, offered for sale, sold, or traded (1) to be held, wholly or in part, for purposes of profit or income; or (2) based wholly or in part on representations, either express or implied, about past, present or future income, profit, or appreciation. The term "investment opportunity" includes, but is not limited to, any business arrangement where persons acquire, or purportedly acquire, government-issued licenses or interests in one or more businesses derived from the possession of such licenses.

(l) Material means likely to affect a person's choice of, or conduct regarding, goods or services.

(m) Merchant means a person who is authorized under a written contract with an acquirer to honor or accept, transmit, or process credit cards in payment for goods or services.

(n) Merchant agreement means a written contract between a merchant and an acquirer authorizing the merchant to honor or accept, transmit, or process credit cards in payment for goods or services.

(o) Person means any individual, group, unincorporated association, limited or general partnership, corporation, or other business entity.

(p) Premium means anything offered or given, independent of chance, to customers as an incentive to purchase goods or services offered through telemarketing.

(q) Prize means anything offered, or purportedly offered, to a person at no cost and with no obligation to purchase goods or services and given, or purportedly given, by chance.

(r) Prize promotion means:

(1) A sweepstakes or other game of chance; or

(2) An oral or written representation that a person has won, has been selected to receive, or may be eligible to receive a prize or purported prize.

(s) Seller means any person who, in connection with telemarketing, provides or offers to provide goods or services in exchange for consideration or a donation.

(t) State means any State of the United States, the District of Columbia, Puerto Rico, the Northern Mariana Islands, and any territory or possession of the United States.

(u) Telemarketer means any person who, in connection with telemarketing, initiates or receives a telephonic communication from a customer.

(v) Telemarketing means a plan, program, or campaign which is conducted to induce payment for goods or services by use of one or more telephones (including the use of a facsimile machine, computer modem, or any other telephonic medium) and which involves more than one interstate telephone call or connection. The term includes, but is not limited to, calls initiated by persons in response to postcards, brochures, advertisements, or any other printed, audio, video, cinematic or electronic communications by or on behalf of the seller. The term does not include the solicitation of sales through the mailing of a catalog which: contains a written description or illustration of the goods or services offered for sale; includes the business address of the seller; includes multiple pages of written material or illustrations; and has been issued not less frequently than once a year, when the person making the solicitation does not solicit customers by telephone but only receives calls initiated by customers in response to the catalog and during those calls takes orders only without further solicitation. For purposes of the previous sentence, the term "further solicitation" does not include providing the customer with information about, or attempting to sell, any other item included in the same catalog which prompted the customer's call.

(w) Telephone solicitation means the initiation of a telephone call by a telemarketer to induce payment for goods or services.

(x) Verifiable retail sales price means the actual, bona fide price at which one or more retailers, in the area of the seller's principal place of business, has made a substantial number of sales, which the seller has documented.

Sec. 310.3 Deceptive telemarketing acts or practices.

(a) Prohibited deceptive telemarketing acts or practices.

It is a deceptive telemarketing act or practice and a violation of this Rule for any seller or telemarketer to engage in the following conduct:

(1) Before payment is requested for goods or services offered, failing to disclose any of the following information in the same manner and form as the payment request:

(i) The total costs, terms, and material restrictions, limitations, or conditions of receiving any goods or services;

(ii) The quantity of any goods or services; and

(iii) All material terms and conditions of the seller's refund, cancellation, exchange, or repurchase policies, including, if applicable, a statement that no such policies exist;

(2) Misrepresenting, directly or by implication, any of the following:

(i) The total costs, terms, or material restrictions, limitations, or conditions of receiving any goods or services;

(ii) The quantity of any goods or services;

(iii) Any material aspect of the performance, efficacy, or central characteristics of any goods or services;

(iv) The duration of any offer made;

(v) The nature or terms of the seller's refund, cancellation, exchange, or repurchase policies;

(vi) That any person has been selected to receive a prize;

(vii) That a premium is a prize;

(viii) The odds of winning any prize;

(ix) That a seller or telemarketer is in compliance with any Federal, State, or local law, statute, regulation, or ordinance;

(x) That compliance with any Federal, State, or local law, statute, regulation, or ordinance constitutes an endorsement or approval of the seller's or telemarketer's business or conduct;

(xi) Any affiliation, association, connection, or relationship with law enforcement, a public safety organization, or any Federal, State, or local government agency;

(xii) The purpose for which the seller or telemarketer will use a person's checking, savings, share, or similar account number, credit card account number, social security number, or related information;

(xiii) The nonprofit, tax-exempt, or charitable status, purpose, affiliation, or identity of the seller or telemarketer;

(xiv) A person's eligibility or likelihood to receive a tax deduction, loan, or other benefit if the person pays money to the seller or telemarketer;

(xv) The nature, terms, or existence of any prior affiliation, association, connection, or relationship with any person;

(xvi) The nature, terms, or existence of any prior purchase or agreement to purchase by any person;

(xvii) The level of risk, liquidity, markup over acquisition costs, past performance, or earnings potential of any investment opportunity;

(xviii) The market value of any investment opportunity;

(xix) The likelihood that the market value for an investment opportunity will either increase or decrease;

(xx) The seller's success in assisting persons to liquidate goods or services they purchased from the seller, or the profit derived from such liquidation;

(xxi)That goods or services can or are likely to improve a person's credit history, credit record, or credit rating, or result in a person obtaining credit;

(xxii) The eligibility of, or likelihood that, a person, regardless of that person's credit history, will obtain a loan or other credit-related service;

(xxiii) That a seller or telemarketer can recover or otherwise effect or assist in the return of money or any other item of value to a person; or

(xxiv) Any other information required to be provided under this Rule;

(3) Misrepresenting, directly or by implication, in connection with the offer, offer for sale, or sale of any business venture, any of the following:

(i) The level of earnings;

(ii) The extent or nature of the market for the goods or services to be sold;

(iii) The nature or availability of any territory;

(iv) The existence, availability, or provision of retail outlets or accounts for the sale of goods or services;

(v) The existence, availability, or provision of locations or sites for vending machines, rack displays, or any other sales display;

(vi) The nature or availability of any services offered to secure any retail outlets, accounts, sites, locations, or displays;

(vii) That any person owns or operates a business venture purchased from the seller; or

(viii) That a person can give an accurate, independent, description of his or her experience as an owner or operator of a business venture purchased from the seller;

(4) Obtaining or submitting for payment from a person's checking, savings, share, or similar account, a check, draft, or other form of negotiable paper without the person's express written authorization; or

(5) Obtaining any amount of money from a person through any means, unless such an amount is expressly authorized by the person.

(b) Assisting and facilitating. (1) It is a deceptive telemarketing act or practice and a violation of this Rule for a person to provide substantial assistance or support to any seller or telemarketer when that person knows or should know that the seller or telemarketer is engaged in any act or practice that violates this Rule.

(2) Substantial assistance or support to telemarketing for purposes of Sec. 310.3(b)(1) includes, but is not limited to, the following:

(i) Providing lists of customer contacts to a seller or telemarketer;

(ii) Receiving consideration in exchange for providing a testimonial, endorsement, certification, appraisal, or financing, or for serving as a reference, with respect to any business venture or investment opportunity offered by a seller;

(iii)Securing retail outlets or accounts for the sale of goods or services, or locations or sites for vending machines, rack displays, or any other sales displays, used in connection with any business venture;

(iv) Providing any certificate or coupon which may later be exchanged for goods or services; or

(v) Providing any script, advertising, brochure, promotional material, or direct marketing piece to be used in telemarketing.

(c) Credit card laundering. It is a deceptive telemarketing act or practice, and a violation of this Rule, for:

(1) A merchant to present to or deposit into, or cause another to present to or deposit into, the credit card system for payment, a credit card sales draft generated by a telemarketing transaction that is not the result of a telemarketing credit card transaction between the cardholder and the merchant;

(2) Any person to employ, solicit, or otherwise cause a merchant or an employee, representative, or agent of the merchant, to present to or deposit into the credit card system for payment, a credit card sales draft generated by a telemarketing transaction that is not the result of a telemarketing credit card transaction between the cardholder and the merchant; or

(3) Any person to obtain access to the credit card system through the use of a business relationship or an affiliation with a merchant, when such access is not authorized by the merchant agreement.

Sec. 310.4 Abusive telemarketing acts or practices.

(a) Abusive conduct generally. It is an abusive telemarketing act or practice and a violation of this Rule for any seller or telemarketer to engage in the following conduct:

(1) Threats or intimidation;

(2) Providing for or directing a courier to pick up payment from a customer;

(3) Requesting or receiving payment of any fee or consideration for goods or services represented to improve a person's credit history, credit record, or credit rating until:

(i) The term of the contract, or time frame in which the seller has represented all of the goods or services will be provided to that person, has expired; and

(ii) The seller has provided the person with documentation:

(A) From the original furnisher or provider of the information to the consumer reporting agency, confirming that the promised results have been achieved; or

(B) In the form of a consumer report from the consumer reporting agency demonstrating that the promised results have been achieved, such report having been issued more than six months after the results were achieved. Nothing in this Rule alters the requirement in the Fair Credit Reporting Act, 15 U.S.C. 1681, that a consumer report may only be obtained for a specified permissible purpose.

(4) Requesting or receiving payment of any fee or consideration for goods or services represented to recover or otherwise assist in the return of money or any other item of value to a person until three

(3) days after such money or other item is delivered to that person. This provision shall not apply to goods or services provided to a person by a licensed attorney or licensed private investigator pursuant to a written agreement with that person;

(5) Requesting or receiving payment of any fee or consideration in advance of obtaining a loan or any credit service when the seller or telemarketer has guaranteed or represented a high likelihood of success in obtaining or arranging a loan or credit service for a person;

(6) Failing to distribute all prizes or purported prizes offered in a prize promotion, within 18 months of the initial offer to any person;

(7) Offering or selling goods or services through a telephone solicitation to a person who previously has paid the same seller for goods or services, until all terms and conditions of the initial transaction have been fulfilled, including but not limited to the distribution of all prizes or premiums offered in conjunction with the initial transaction; or

(8) Identifying a person as a reference for a business venture unless:

(i) Such person has actually purchased the business venture;

(ii) Such person has operated that business venture for a period of at least six (6) months, or the seller or telemarketer discloses the length of time the person has operated such business venture; and

(iii) Such person does not receive consideration for any statements made to prospective business venture purchasers.

(b) Pattern of calls. (1) It is an abusive telemarketing act or practice and a violation of this Rule for a telemarketer to engage in, or for a seller to cause a telemarketer to engage in, the following conduct:

(i) Without a person's prior consent, calling that person's residence to offer, offer for sale, or sell, on behalf of the same seller, the same or similar goods or services more than once within any three (3) month period. This requirement does not apply to attempted calls which do not reach a person or to calls made solely to verify a previous telephone sale; or

(ii) Calling a person's residence when that person previously has stated that he or she does not wish to receive telephone solicitations made by or on behalf of the seller whose goods or services are being offered.

(2) A seller or telemarketer will not be liable for violating Sec. 310.4(b)(1) once in any calendar year per person called if:

(i) It has established and implemented written procedures to comply with Sec. 310.4(b)(1)(i) and (ii);

(ii) It has trained its personnel in the procedures established pursuant to Sec. 310.4(b)(2)(i);

(iii) The seller, or the telemarketer acting on behalf of the seller, has maintained and recorded lists of persons who may not be contacted, in compliance with Sec. 310.4(b)(1)(i) and (ii); and

(iv) Any subsequent call is the result of administrative error.

(c) Calling time restrictions. Without the prior consent of a person, it is an abusive telemarketing act or practice and a violation of this Rule for a telemarketer to engage in telephone solicitations to a person's residence at any time other than between 8:00 a.m. and 9:00 p.m. local time at the called person's location.

(d) Required oral disclosures. It is an abusive telemarketing act or practice and a violation of this Rule for a telemarketer to fail to make any oral disclosures set forth in this Section.

(1) All telephone solicitations shall begin by disclosing:

(i) The caller's true first and last name, the seller's name, and that the purpose of the call is to sell goods or services; or

(ii) If a telephone solicitation includes a charitable solicitation, the caller's true first and last name, the telemarketer's name, the telemarketer's status as a paid professional fundraiser, the seller's name, that the purpose of the call is to solicit charitable donations, and if other goods or services are offered, that the purpose of the call is also to sell goods or services.

(2) If a caller verifies a telemarketing sale, the caller verifying the sale must repeat the disclosures required under Sec. 310.3(a)(1).

(3) Any telemarketing which includes a prize promotion must disclose, in addition to all other disclosures required under this Section, the following information:

(i) That no purchase or payment is necessary to win;

(ii) The verifiable retail sales price of each prize offered or a statement that the retail sales price of the prize offered is less than $20.00; and

(iii) The odds of winning each prize offered.

(4) Any telemarketing which includes an offer of a premium must disclose, in addition to all other disclosures required under this Section, the verifiable retail sales price of such premium or comparable item, or a statement that the retail sales price of the premium is less than $20.00.

(e) Written disclosures/acknowledgements. It is an abusive telemarketing act or practice and a violation of this Rule for a seller or telemarketer to fail to make any written disclosures set forth in this Section.

(1) Prize promotions. If a seller or telemarketer conducts a prize promotion, the seller or telemarketer may not request that a person pay for goods or services, or accept a payment in any form from a person, without first providing the person with a written disclosure, in duplicate, and receiving from the person a written acknowledgement that the person has read the disclosure. The information shall be disclosed on one page, in not less than 10-point type (unless otherwise noted), and of a color or shade that readily contrasts with the background of the notice. This disclosure shall be sent in an envelope that contains no writing representing that the person to whom the envelope is addressed has been selected or may be eligible to receive a prize and shall contain no other enclosures except for a return envelope, if the seller or telemarketer wishes to include such an envelope. This disclosure must contain the following information:

(i) The seller's legal name and telephone number, and the complete street address of the seller's principal place of business;

(ii) If the seller has been in operation under any other name(s), each such name and the length of time the seller has operated under each name;

(iii) The verifiable retail sales price of each prize offered or a statement that the retail sales price of the prize offered is less than $20.00;

(iv) The odds of winning each prize offered and the number of persons who will receive each prize;

(v) The total amount and description of any shipping or handling fees or any other charges that must be paid to receive or use a prize;

(vi) A complete description of any restrictions, conditions, or limitations on eligibility to receive or use a prize, including all steps a person must take to receive the most valuable prize offered;

(vii) The statement: "No purchase or payment is necessary to win," with a description of the no-purchase entry method;

(viii) A statement that a list of winners is available and the address to which a person may write to obtain such a list;

(ix) A statement that it is a violation of this Rule for the seller to accept payment in any form unless the seller has received from the person the written disclosure acknowledgement required pursuant to Sec. 310.4(e)(1); and

(x) The statement: "I have read and understand this disclosure," in at least 12-point bold face type immediately preceding a signature block.

(2) Investment opportunities. (i) If a seller or telemarketer offers for sale any investment opportunity, the seller or telemarketer may not request that a person pay, or accept a payment in any form from a person, for that investment opportunity without first providing the person with a written disclosure, in duplicate, and receiving from the person a written acknowledgement that the person has read the disclosure. The information shall be disclosed in not less than 10-point type (unless otherwise noted), of a color or shade that readily contrasts with the background of the notice, and segregated from all other information. This disclosure shall be sent in an envelope that contains no other enclosures except for a return envelope, if the seller or telemarketer wishes to include such an envelope. This disclosure must contain the following information:

(A) The seller's legal name and telephone number, and the complete street address of the seller's principal place of business;

(B) If the seller has been in operation under any other name(s), each such name and the length of time the seller has operated under each name;

(C) The complete cost to make the investment and a detailed list of all present charges and any anticipated future charges;

(D) A description of all known risks associated with the investment opportunity, including the possibility that additional payments might be required for a person purchasing the investment opportunity to retain that person's interest in the investment opportunity, to realize the projected or stated returns of the investment opportunity, to prevent total loss of the investment opportunity, or for any other reason;

(E) The length of time the seller has been in business and has offered the particular investment opportunity;

(F) A statement disclosing whether or not the seller is licensed and, if so, with whom, the type of license, and the length of time the seller has held such license;

(G) A statement that it is a violation of this Rule for the seller to effect an investment transaction unless the seller has received from the person the written disclosure acknowledgement required pursuant to Sec. 310.4(e)(2); and

(H) The statement: "I have read and understand this disclosure," in at least 12-point bold face type immediately preceding a signature block.

(ii) If a seller or telemarketer offers for sale any investment opportunity involving tangible assets, the following additional information must be included in the written disclosure set forth in Sec. 310.4(e)(2)(i):

(A) The percentage markup that the seller places on the item above its own cost in acquiring the item; and

(B) An estimate of the value that persons are likely to receive if they were to liquidate the asset through a market sale immediately following the purchase. All such estimates must be substantiated by competent and reliable evidence.

(iii)If a seller or telemarketer offers for sale any investment opportunity involving tangible assets sold on credit or leverage, the following additional information, as well as the information set forth in Sec. 310.4(e)(2)(ii), must be included in the written disclosure set forth in Sec. 310.4(e)(2)(i):

(A) The percentage of a person's down payment that would be devoted to fees and costs by the end of the first six months after the investment is made;

(B) The percentage of a person's down payment that would be devoted to fees and costs by the end of the first year after the investment is made; and

(C) A statement that all such investment opportunities are extremely risky.

(iv) If a seller or telemarketer offers for sale any investment opportunity involving the acquisition of government- issued licenses or interests in businesses derived from the possession of such licenses, the following additional information must be included in the written disclosure set forth in Sec. 310.4(e)(2)(i):

(A) All material terms and limitations of any government-issued license(s) that serve as the basis for the investment opportunity, including but not limited to whether and to whom the license or licenses have been issued;

(B) The percentage of the person's payment that will be used to acquire any applicable license(s) from the licensee(s) or from any person or entity not affiliated in any way with the seller; and

(C) The percentage of the person's payment that will be used to capitalize any business derived from such license(s).

(f) Distribution of lists. It is an abusive telemarketing act or practice and a violation of this Rule for any person who is subject to any federal court order resolving a case in which the complaint alleged a violation of Sec.Sec. 310.3, 310.4(a) or 310.4(e) of this Rule, and the court did not dismiss or strike all such allegations from the case, to sell, rent, publish, or distribute any list of customer contacts from that person.

Sec. 310.5 Recordkeeping requirements.

(a) Any seller or telemarketer shall keep, for a period of 24 months from the date the record is produced, the following records relating to its telemarketing activities:

(1) All advertising, brochures, telemarketing scripts, and promotional materials;

(2) The name and address of each prize recipient and the prize awarded;

(3) The name and address of each customer, the goods or services purchased, the date such goods or services were shipped or provided, and the amount paid by the customer for the goods or services;

(4) The name, home address and telephone number, and job title(s) for all current and former employees directly involved in telephone sales; and

(5) Any written notices, disclosures, and acknowledgements required to be provided or received under this Rule.

(b) Failure to keep all records required by Sec. 310.5(a) shall be a violation of this Rule. The seller and telemarketer calling on behalf of the seller are not required to keep duplicative records if the seller and telemarketer have entered into a written agreement allocating responsibility for the recordkeeping required by this Section. When a seller and telemarketer have entered into such an agreement, the terms of that agreement shall govern. If the agreement is unclear as to whom must maintain any required record(s), the seller shall be responsible for keeping such record(s).

(c) In the event of any dissolution or termination of the seller's or telemarketer's business, the principal of that seller or telemarketer shall maintain all records as required under this Section. In the event of any sale, assignment, succession, or other change in ownership of the seller's or telemarketer's business, the successor business shall maintain all records required under this Section.

Sec. 310.6 Exemptions.
The following acts or practices are exempt from this Rule:

(a) The solicitation of sales by any person who engages in fewer than ten (10) sales each year through the use of the telephone;

(b) Telephonic contacts between businesses, except such contacts involving the sale of office or cleaning supplies or the inducement of payment for any charitable service promoted in conjunction with an offer of a prize, chance to win a prize, or the opportunity to purchase any goods or services; and

(c) A telephonic contact made solely by a person when there has been no initial sales contact directed to that particular person, by telephone or otherwise, from the seller or telemarketer; provided, however, that this exemption does not apply to such contacts related to employment services where the seller or telemarketer requests or receives payment prior to providing the promised services, business ventures, investment opportunities, prize promotions, or credit-related programs.

Sec. 310.7 Actions by States and private persons.
Any attorney general or other officer of a State authorized by the State to bring an action under the Telemarketing and Consumer Fraud and Abuse Prevention Act, and any private person who brings an action under that Act, shall serve written notice of its action on the Commission, if feasible, prior to its initiating an action under this Rule. The notice shall be sent to the Office of the Director, Bureau of Consumer Protection, Federal Trade Commission, Washington, D.C. 20580, and shall include a copy of the State's or private person's complaint and any other pleadings to be filed with the court. If prior notice is not feasible, the State or private person shall serve the Commission with the required notice immediately upon instituting its action.

Sec. 310.8 Federal preemption.
Nothing in this Rule shall be construed to preempt any State law that is not in direct conflict with any provision of this Rule.

Sec. 310.9 Severability.
The provisions of this Rule are separate and severable from one another. If any provision is stayed or determined to be invalid, it is the Commission's intention that the remaining provisions shall continue in effect.

By direction of the Commission.
Donald S. Clark
Secretary

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