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U.S. Postal Service Comments On Proposed Telemarketing Sales Rule

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FTC File # R411001
Comment of U.S. Postal Service

FEDERAL TRADE COMMISSION
WASHINGTON, DC 20580

Preliminary Statement

The Postal Inspection Service is the investigative and audit arm of the U.S. Postal Service. It is a federal law enforcement agency which enforces over 100 federal statutes, including 18 U.S.C. 1341, mail fraud; and 39 U.S.C. 3005, the civil false representations statute. Postal Inspectors have developed substantial experience with telemarketing schemes which involve the use of the mails.

We are encouraged by the passage of the Telemarketing Act ("the Act") and by the Federal Trade Commission's proposed Rule. We are aware that fraudulent, deceptive and abusive telemarketing schemes have multiplied despite the concentrated efforts of local, state and federal law enforcement. While the most criminal and unscrupulous operators may attempt to evade the FTC Rule, the Rule will be a valuable tool in bringing them to justice. It will definitely deter a significant number of fraudulent, deceptive and abusive practices, and prevent substantial losses to the public.

Overall, we support the proposed Rule and hope that it will retain most or all of its current requirements in final form. The proposal is comprehensive and balanced. Compliance with the Rule would ensure that consumers are given significant information that is currently withheld by many telemarketers, and would permit law enforcement to take quicker action against violating promoters.

Our experience is primarily with fraudulent and deceptive schemes; however, when possible our comments will include views on privacy considerations and other potential abuses. We are offering few comments on the financial and logistical impact of the proposed Rule on telemarketers and sellers, as our experience qualifies us primarily to discuss the Rule from the perspective of consumers and law enforcement. To the extent that we are recommending revisions to the Rule it is to clarify it and in some cases strengthen it. We believe the strongest acceptable Rule is needed to combat this serious problem.

Responses to FTC Questions

1. Definitions of "acquirer," "cardholder," "credit card," "credit card sales draft," "credit card system," "merchant," and "Merchant agreement."

a. & b. The definition of "acquirer" is confusing. It would help to provide an example of a typical "acquirer."

The definition of "credit card" includes not only what are typically thought of as credit cards (i.e. VISA and Mastercard), but also bank debit cards. It may be convenient to group all non-cash and non-check payments under this one name; however, debit cards are not used for "credit," since their use results in a payment being quickly deducted from the user's bank account. Thus, a separate category for debit cards might be appropriate.

2. Definition of "business venture."

a.- c. The definition appears appropriate. It appears to, and should, include multi-level marketing opportunities. Multi-levels generally require that a person pay for the opportunity to sell merchandise and to recruit "downline" members to do the same. However, in order to make it clear that multi-level business ventures are included in this definition, they could be expressly mentioned as an example. (See comment below regarding goods and services)

3. Definition of "goods or services."

a.- c. The examples given in the definition are for items that might less obviously be included under the term "goods or services." The definition could be made more complete by including more obvious items such as "any tangible product, commodity or merchandise."

In addition, it is not clear what is meant by "multi-level services." While goods are often sold in connection with multi-levels, a multi-level operation is more often in the nature of a business venture than a service. We would suggest that the sale of merchandise by multi-level marketers be governed by the definition of goods and services, but that the sale of opportunities to earn money as multi-marketing salespersons be classified as a business venture.

4. Definition of "Investment Opportunity."

a. & b. The definition is clear, meaningful and sufficiently comprehensive.

5. Definitions of "premium," "prize, and "prize promotion."

a. & c. These definitions appear to be clear, meaningful and appropriate in the context of these regulations, except in that they do not define chance. If chance is not defined elsewhere in FTC Rules or precedent, it would be useful to define it here as including any situation where an individual is told s/he is eligible to receive a prize, is not told what the prize is and/or its retail value. A typical deceptive prize scheme will involve a list of items, with the victim being told s/he is guaranteed to receive one of them. The Rules should make it clear that even if a person is guaranteed to receive a prize, chance will exist if the prize is unknown to the recipient.

It is important to distinguish between premiums and prizes. Many telemarketing schemes involve premiums which are misrepresented to be prizes. (A premium is essentially a prize minus the element of chance.) Under these Rules, many promotions which currently are "prize" promotions would probably become more like "premium" promotions, which are not as inherently deceptive.

b. The definitions appear to be sufficiently comprehensive.

6. Definitions of "seller" and "telemarketer."

a. These definitions are clear, meaningful and appropriate, as are the distinctions between "seller" and "telemarketer." In the context of these Rules, it is necessary at times to impose different requirements upon the person who is actually making a telephone connection and the person whose goods or services are being marketed through that connection.

b. No comment.

c. The definitions appropriately reflect the scope of the Rule.

7. Definition of "telemarketing."

a. The definition is clear, meaningful and appropriate within the context of Title 15, United States Code, Section 6016. However, the words "involves more than one interstate telephone call or connection" could be narrowly read by some to restrict the Rule to situations where more than one interstate call per customer or transaction occurs. This narrow reading would frustrate the purpose of the Rule.

b. The definition of telemarketing appears sufficiently broad to encompass current as well as future technology.

c. As noted above, the only approach that would be more useful would be to expressly include telemarketing efforts which include only one telephone call or connection per customer or transaction.

8. Inclusion of computer modem communications in Rule.

a. Coverage of on-line information services is appropriate. They are a natural extension of more traditional telemarketing. From a law enforcement standpoint, there is good reason to include them in order to eliminate a loophole for fraudulent operators.

b. The Postal Inspection Service has insufficient expertise in this area to comment on this question at this time.

9. Catalog sales exemption

a. The proposed Rule is sufficiently clear.

b. Catalog sellers will benefit by not having to repeat on the telephone information which is already available in their catalogs. It is our opinion that, overall, catalog sales are not typically thought of as "telemarketing" and that such sales are best not included in this Rule.

10. Definition of "verifiable retail sales price"

a. This definition is clear, but not completely meaningful and appropriate. By requiring documentation of only one retail sales price, it leaves open the opportunity to substantiate a retail price with one merchant's distorted retail value of merchandise.

b. A more useful approach would require documentation of a substantial number of sales by two or more retailers.

11. Section 310.3(a): Deceptive telemarketing acts or practices (overall)

a. It would be appropriate to include in the final Rule a general prohibition against material misrepresentations and the failure to disclose material information. The advantage to this approach would be to make the Rule more comprehensive. Our experience in fraud enforcement has shown that it is simply not possible to anticipate every way in which a telemarketer could deceive or fail to inform customers. The existence of particular requirements will cause an illegitimate promoter to immediately begin to find the loopholes in those requirements. A broad prohibition against material misrepresentations and failure to disclose material facts would close any unanticipated loopholes. We do not see any major disadvantages to such an approach, as legitimate operators already comply with such a requirement.

b. The approach taken in the proposed Rule is appropriate.

c. No comment.

12. Section 310.3(a): Liability of both seller and telemarketer

a. Liability for violation of these provisions should apply to both sellers and telemarketers.

b. The overall benefit of making sellers and telemarketers equally liable is to ensure that both parties have a strong incentive to obtain all information and take all steps necessary to comply with the Rule.

c. No comment.

d. If they were not jointly liable for deceptive practices, telemarketers would seek to avoid knowledge of questionable practices of the sellers for whom they work, and vice versa.

13. Section 310.3(a)(1): Disclosures before payment request a. The disclosures in subsection (a)(1) appear to be complete. b. The description of the information to be disclosed is clear, meaningful and appropriate. c. No comment d. No comment

14. Section 310.3(a)(2): Misrepresentations

a. 1) Since the definition of "goods or services" apparently does not include "prizes" and "premiums," subsections (i), (ii) and (iii) should cover prizes and premiums in addition to goods and services. In addition, there should be a specific prohibition against misrepresenting the retail value of any goods or services, prize or premium. These issues are covered somewhat in 310.4(3) and (4), but some coverage of prize and premium promotions is needed under the mantle of deceptive practices as well as abusive practices.

2) We would broaden (viii) to read: the odds or likelihood of winning any prize. This would cover all potential misrepresentations of "odds," for example where the hype or other banter about the value of the large prize in a sweepstakes is so emphasized that it implies that the consumer has actually won that prize.

3) We would add a prohibition against misrepresenting the percentage or other amount of a charitable contribution or other payment will be paid to a professional fundraiser. While it is apparently not permissible to require that charities always disclose what percentage of funds goes to administrative costs, there should be a specific prohibition against misrepresenting that number when a potential donor asks for it. Many consumers are now sophisticated enough to ask the question, and professional fundraisers often misrepresent it.

4) We would add "date of birth" to subsection (2)(xii).

Frequently dates of birth are collected to compile mailing lists of elderly consumers or lists which permit users to imply a previous contact with a person (for example, lists use to promote astrology or other purportedly psychic information). If consumers' dates of birth are being sought for that purpose, they should not be told that it is for another purpose.

None of the prohibited misrepresentations is unnecessary. Each misrepresentation addresses particular deceptive practices currently in use by illegitimate telemarketers.

b. The description of the prohibited misrepresentations appears to be meaningful, clear and appropriate.

c. This section will benefit consumer and law enforcement interests by expressly prohibiting specific misrepresentations that are pervasive in the illegitimate telemarketing industry today. It will put telemarketers on notice that these misrepresentations are prohibited. It will increase the amount of information consumers have on which to base their decisions. It will provide specific and often easily-demonstrated grounds on which the FTC, state attorneys general and even individual citizens may proceed against illegitimate telemarketers. If it has its intended effect, it will decrease the amount of telemarketing fraud, and reduce the need for law enforcement resources in the area of telemarketing.

15. Misrepresentations relating to business ventures

a. If multi-level marketing ventures are indeed to be included within the definition of business ventures, then specific prohibitions relating to multi-levels could be included. However, the Postal Inspection Service does not have strong evidence that it is common for multi-level marketing to be conducted through telemarketing; thus, specific prohibitions at this time might unnecessarily complicate the Rule.

b. The description of the prohibited misrepresentations is clear, meaningful and appropriate.

c. This Section will benefit consumers by helping to ensure that any investment in a business venture will be based on complete and reliable information and not, as is often currently the case, on the deceptive or overblown assurances of an eager salesperson. It will presumably help law enforcement by making it a per se violation to not disclose material information, thus making proof of a violation easier. It could also reduce the number of deceptive or fraudulent business venture sales, thus reducing the need for law enforcement resources.

16. Section 310.3(a)(4) Written authorization for payment from accounts

a. The prohibition is not entirely clear. It seems to cover a situation where a person mails a signed check for payment. Where a signed check is mailed, it contains signed authorization to debit the account, and further express authorization would seem duplicative. However, in any situation where a debit from an account is obtained, it is reasonable to require authorization in the form of a signature from the account holder.

b.-d. No comment

17. Section 310.(a)(5) Express authorization for amount of money obtained

a. The prohibition is clear, meaningful and appropriate.

b. The clear advantage of this prohibition is that it will prevent confusion or misunderstanding on the part of consumers as to what amounts they are paying for goods or services. The express statement that a certain amount will be charged to a person's account or will be billed to a consumer is already a common practice among legitimate telemarketers, and should be required of all of them.

c. The prohibition appears sufficiently broad.

18. Section 310.3(b)(1): Assisting and facilitating violations of the Rule

a. The primary advantage to the broad Rule is that it would discourage all those involved in ancillary telemarketing activity from assisting illegitimate telemarketers. These telemarketers could not survive without assistance from list brokers, advertising copy writers, product fulfillment, and others.

b. The disadvantage to the Rule is the difficulty in determining what is "substantial assistance," and who "should know" that they are assisting a party who is violating the Rule. However, there may be legal precedents defining these terms of which we are unaware.

c. It would be useful to put some obligations on providers of telephone service to disclose to law enforcement officials the names, addresses and other pertinent information regarding subscribers to their numbers. Currently, absent a subpoena, telephone companies refuse to disclose to the Inspection Service who is the subscriber of an "unlisted" 800-number. A person or company doing business with the public should neither expect nor receive such anonymity, particularly from law enforcement personnel.

This requirement would add to the Rule an element that is largely absent: Specific means by which the persons running telemarketing operations can be identified by law enforcement. While there are disclosure requirements placed on telemarketers, more is needed to find those who falsity that information.

d. No comment.

19. Section 310.3(b)(2): Specific acts that provide substantial assistance

a. It is appropriate to single out these practices, as they are among the most common forms of assistance provided to telemarketers and sellers.

b. Perhaps a prohibition against general consulting by people who have previously been found in violation of the Rule. Often illegitimate promoters resurface as "paid consultants" in new schemes which mirror the type for which they were found in violation. An alternative would be to require a person found to have violated the Rule to notify the Federal Trade Commission when s/he is working as a consultant and to identify the telemarketer or seller for whom s/he is consulting.

c. The description is clear, meaningful and appropriate.

20. Section 310.3(c): Credit Card Laundering

a. The descriptions appear clear, meaningful and appropriate.

b. The most significant advantage is that it will thwart the illegitimate promoters who are so unscrupulous or lacking in qualifications that they do not qualify as valid credit card merchants. It will also aid consumers who will have greater knowledge of who has made a charge against their credit card account. There are no significant disadvantages to this portion of the Rule.

c. It appears to be sufficiently comprehensive.

d. No comment.

e. No comment.

f. Legitimate businesses should have the ability to obtain credit card services without having to go through other merchants.

21. Section 310.4: Abusive Acts or Practices--Additional conduct

1) This section (or another) could address telemarketing aimed at elderly customers. The 1994 Crime Bill amended the sentencing guidelines to add years to the sentence of a person whose criminal activity targeted the elderly. A specific prohibition relating to the elderly would be appropriate in this Rule as well. For example, telemarketers could be prohibited from targeting elderly persons without a bona fide, demonstrable reason for doing so. If this were too vague, then an alternative would be to simply prohibit the targeting of elderly persons in connection with promotions involving sweepstakes, prizes, credit, recovery, and investments (these are the types of promotions in which the elderly are most commonly victimized). Or, the penalties against a person whose violation of the Rule involved a substantial number of elderly consumers could be increased.

2) A provision could be added to prohibit telemarketers from asking for persons' dates of birth or age, whether on the telephone or in a mailing prior or subsequent to a telephone call. This would prevent them from compiling lists of elderly prospects. (Another option, suggested above, would be to add date of birth to 310.3(a)(2)(xii). However, if no representation at all is made as to why the date of birth is sought, it might be difficult to proceed under that subsection).

3) Telemarketers who talk very quickly are difficult to understand. However, it is difficult to define how fast is too fast. The Rule could prohibit speech so rapid that it is "not easily understandable." It could also prohibit telemarketers from refusing to repeat information upon request. It could also provide the public with the right to receive all spoken information in writing upon request, and to require the telemarketer to notify all persons of this right and to send such information upon request. This might provide an incentive for telemarketers to speak at an understandable pace.

4) A provision also could be added making it an abuse to ask for a person's social security number unless it is also stated that the person is not required to provide the number if s/he does not wish to do so. There are few legitimate reasons a telemarketer needs a consumer's social security number (it is our understanding that legitimate credit card issuers, for example, can obtain a consumer's credit report without it), and the potential for using a person's number for an improper purpose is substantial. Thus, consumers should not be obligated to provide their social security number to any telemarketer or seller.

5) Another valuable provision would be a prohibition against offering purportedly "free" trial periods for goods or services but requiring that a payment or credit card number be provided immediately. Illegitimate promoters frequently seek payment immediately but state that any check or other payment will not be cashed or deposited for 30 days--during which time the consumer presumably can return the product and risk no loss. Or, these promoters instruct consumers to post-date checks by 30 days. In both of these circumstances, it is common for promoters to simply cash or deposit checks and other payments and then to refuse or resist giving a refund. Thus, a provision that payment for a product may not be required during any "trial" period would be effective in reducing this common practice.

6) Another provision could make it an abusive practice to failure to register a boilerroom with the Federal Trade Commission or a State authority, and to post a bond in order to conduct a telemarketing business (this could also be implemented in a separate part of the Rule). Two of the most difficult law enforcement issues relating to telemarketing are locating and identifying boilerroom operations and obtaining restitution for victims of telemarketing schemes. A registration and bond requirement would address both of these issues by requiring telemarketers to identify themselves up front to government authorities, and to guarantee sufficient funds to make restitution to any dissatisfied customers. It would also tie into the assisting and facilitating portions of the Rule: a telephone company could reasonably request proof that a company was properly registered before agreeing to give the company telephone service.

7) It should be an abusive practice to solicit calls to an 800-number unless the entire cost to the caller of placing and completing the call is zero.

8) It should be an abusive practice to make representations or provide information, whether orally or in writing, which contradicts any disclosures required by the Rule. Often telemarketing is initiated by a mailed promotional piece, full of attractive offers and possibilities, that directs the recipient to call for further information. If this information contradicts subsequent telephone conversations, it could create enough ambiguity or confusion to dilute or nullify the effect of the required disclosures. Also, even when disclosures are made on printed material, they are usually in small print, inconspicuously placed, and ambiguously worded.

This issue may be addressed in subsection 310.3(a)(2)(xxiv), which prohibits the misrepresentation of "any other information required to be provided under this Rule." However, that section could be read narrowly to address only the manner in which disclosures are made, and not prior or subsequent contradictory messages.

22. Joint liability of sellers and telemarketers for engaging in abusive practices

a. The joint liability of sellers and telemarketers under all sections is appropriate.

b. The overall benefit of making sellers and telemarketers equally liable is to ensure that both parties have a strong incentive to both comply with the Rule and to only do business with those with a strong history of legitimate marketing practices.

c. No comment.

d. If they were not jointly liable for abusive practices, telemarketers would seek to avoid knowledge of questionable practices of the sellers for whom they work, or other indications of trustworthiness.

23. Section 310.4(a): Threats and Intimidation

a. It is appropriate to include this practice as an abusive act or practice. It is common for illegitimate telemarketers to "turn mean" when customers do not agree to their terms. This is clearly an abuse that should be prohibited.

b. The description is sufficiently clear, meaningful and appropriate.

c. No comment.

d. The terms "threats" and "intimidation" are self-explanatory; however, a few non-exclusive examples would probably be of assistance.

24. Section 310.4(a)(2): Prohibition against courier

a. It is appropriate to include this practice as an abusive act or practice. It is common for illegitimate telemarketers to seek a consumer's money before the person has reflected on the wisdom of the transaction or looked into a company's background. Also, the use of a courier often lends an unwarranted air of legitimacy or importance to a transaction. In addition, the use of a courier might be an intentional avoidance of liability under postal laws (although use of private delivery services has been added to the mail fraud statute). There is no legitimate reason that a telemarketer would need to receive money immediately in connection with a promotion.

b. The description of the prohibited activity is clear, meaningful and appropriate.

c. Another approach to prohibiting this activity would be to provide a three-day cooling off period before any payment could be required from a customer.

d. No comment.

e. No comment.

f. A prohibition on courier pick ups will help reduce the injury from telemarketing fraud by giving persons an opportunity to either reflect upon a transaction or takes steps to check with law enforcement or the BBB before parting with their money.

25. Section 310.4(a)(3): "Credit Repair."

a. It is entirely appropriate to include this as an abusive act or practice. So-called credit repair services are frequently misrepresented as actual services in which a company will interact with creditors and credit reporting services as an advocate for a consumer. In fact, these "services" usually consist of written advice to customers on how to obtain copies of their credit reports. They also often offer information on how to falsely document a good credit history by leveraging one bank deposit (by using it for security on a number of loans and repaying those loans with other borrowed funds). Moreover, there are presumably some persons whose credit cannot be easily repaired. Thus, requiring that actual results be accomplished before payment can be requested or received will cause those who do not actually repair credit to cease operating (at least by telemarketing).

Offering these so-called services is particularly abusive because the targeted buyers are typically those who can least afford to pay.

b. The description of the prohibited activity is clear, meaningful and appropriate.

c. No comment.

d. While we are aware of no dollar figures for total consumer losses from this particular type of scheme, the dollar loss per person is generally between $20.00 and $100.00. Thus, if protection of hundreds of thousands of persons resulted from this provision, a substantial economic benefit would result.

e. No comment

26. Section 310.4(a)(4): Recovery/return of money services

a. It is completely appropriate, and necessary, to include this provision in the Rule. "Recovery" schemes have become common, and they compound earlier frauds by taking money from victims of those frauds a second time, based on the false promise that losses from the earlier fraud will be recovered. Most so-called recovery services make no effort to recover funds. Their most common victims are the elderly. Even when persons running "recovery" schemes make some effort to get refunds for victims, they frequently misrepresent the likelihood that they will be able to do so. In fact, no person running a recovery business could offer any assurances whatsoever that lost funds would be recoverable. Thus, it is appropriate that payment for recovery of funds not be sought until after the recovery is actually accomplished.

b. The description is meaningful, clear and appropriate.

c. No comment.

d. While we are aware of no dollar figures for total consumer losses from so-called recovery services, the dollar loss per person is generally a percentage of the amount a person previously lost. If victimization of hundreds of thousands of persons were prevented by this provision, a substantial economic benefit would result.

e. No comment.

f. It is useful to exempt licensed attorneys. They would presumably have legitimate means to secure recovery for clients, and, due to the regulation of their profession, would not be likely to offer recovery services without a good faith belief in their ability to effect recovery. Furthermore, a written agreement setting out the service to be provided, and any fee, would offer adequate protection to the consumer.

We have no experience concerning the role of private investigators in recovering funds, and cannot comment on that aspect of the Rule.

27. Section 310.4(a)(5): Loans and Credit

a. It is extremely appropriate to include this practice as an abusive act or practice. So-called advance fee loan schemes, in which a fee is requested in exchange for a promise to provide a loan, are among the most prevalent schemes conducted through telemarketing. These schemes victimize people who can least afford to lose money -- those who are in need of credit but cannot obtain it through more conventional means. Frequently, a fee is obtained and the loan is not provided. Instead, the victim receives nothing, or receives information on how to apply for a loan or credit card or a list of potential lenders, but not the loan or credit card itself.

b. The description of the prohibited activity could be made more clear and appropriate. The word "obtaining" in the third line could be substituted with the words "providing or arranging." The word "obtaining" does not clearly describe what the telemarketer or seller is purportedly doing for the customer. In addition, what constitutes a representation of a "high likelihood of success" may be unclear. Since generally even legitimate telemarketers would not know in advance whether a consumer would obtain a loan, any representation of a likelihood of success would be speculative. Thus, we would recommend removing the word "high" and have this subsection apply where any likelihood of success is represented.

c. See b.

d. Advance fee loan schemes are one of the most prevalent telemarketing frauds. While we are aware of no dollar figures for total consumer losses from advance fee loan schemes, the dollar loss per person is generally between $20.00 and $300.00. Thus, if protection of one million persons resulted from this provision, hundreds of millions in losses would be prevented.

e. We are not aware of legitimate credit providers who use telemarketing to obtain customers and who charge a fee in advance of providing a loan or credit card. Thus, it is unlikely that legitimate lenders would be affected by this provision.

28. Section 310.4(a)(6): Distribution of Prizes

a. It is appropriate to include this practice as abusive. Long time lags between the offer and the distribution of prizes create confusion in prize recipients and also permit a promoter to run the same contest with the same prizes for an excessively long period of time before being required to award any prizes.

b. The description is clear. However, it would be more meaningful and appropriate if a limit of one year or even less were mandated.

c. Another approach would be to require express notification of when a consumer will receive his or her prize (while still limiting the permitted time lag to one year). This would at least reduce expectations that a prize award is imminent.

d. No comment.

e. We are unable to imagine a legitimate reason to conduct a prize promotion that extends longer than one year. Even a one year period would result in confusion and perceived deception by persons expecting prizes. As noted above, this could be ameliorated by a requirement that the time of prize distribution be expressly disclosed to winners.

29. Section 310.4(a)(7) Limit on subsequent telephone solicitations

a. This subsection is essential, for the reasons stated in the Commission's explanation. "Reloading" is an integral part of many or most illegitimate telemarketing schemes, because it offers the chance of victimizing especially vulnerable prospects more than once. It also gives them extra leverage, because they can threaten not to deliver a prize promised in an earlier transaction if the victim does not pay a second or third time. Since these scam artists cannot rely on the value of their goods or services for repeat business, they must rely upon deception and consumer vulnerability instead. This subsection would prevent that practice.

b. The description is clear, meaningful and appropriate. The word "until" could be changed to "before."

c. A possible loophole in this section is that it is limited to telephone solicitations. Mailed or other solicitations could be prohibited as well.

d. Reloading is very common, and compliance with this subsection of the Rule would result in hundreds of millions of savings for consumers.

e. Current practices of telemarketers include calling a victim once to induce payment for a prize; then calling a second time to induce payment by representing that it is a "higher" round in the prize promotion that was part of the earlier call. Thus, a second call could persuade the victim that s/he is even closer to winning a large sweepstakes prize. Other telemarketers simply call a person receptive to an earlier call to victimize them in some other scheme, usually involving a prize promotion or credit card or loan program.

f. We are unaware of any telemarketing activities for which compliance with this subsection would not be feasible. Legitimate salespeople would typically provide a product or service quickly, so that any future call to the same customer could occur relatively soon.

30. Section 310.4(a)(8): Identification of References for

Business Ventures

a. It is appropriate to include this practice as an abusive act or practice. References are highly persuasive and their veracity must be ensured.

b. The descriptions are meaningful, clear and appropriate.

c. No comment.

d. If only credible references are used, fewer persons will invest in nonexistent or unsuccessful ventures. We do not know the amount of current losses in this area, so cannot speculate on potential savings.

e. We have no specific information in this area.

31. Section 310.4(b)(1): Multiple calls for same or similar product

a. These descriptions of the prohibited activities are clear, meaningful and appropriate.

b.- g. No comment.

32. Section 310.4(b)(2): Defenses to violations of 310.4(b)(1)

a. It is appropriate to provide a defense, as a violation could be inadvertent.

b. & c. No comment.

d. The description is clear, meaningful and appropriate.

e.- g. No comment.

33. Section 310.4(c): Calling time restrictions

a. The description is clear, meaningful and appropriate.

b. & c. No comment.

d. The period when telephone solicitations are permitted should be narrowed to 9:00 a.m. to 9:00 p.m. While we have no particular expertise with earlier calls, our sense is that calls prior to 9:00 a.m. are likely to be disruptive to many persons.

34. Section 310.4(d)(1): Required oral disclosures

a. The disclosures are clear, meaningful and appropriate.

b. Another disclosure that should be made at some point during calls initiated by the telemarketer, if not at the very beginning, is a telephone number at which the person receiving the call may telephone the caller or seller with any future questions about the product or service being sold. This would give a person an opportunity to call the telemarketer or seller after a period of reflection to either obtain further information or attempt to cancel an order. Persons who feel they have been misled by telemarketers may feel helpless because they do not know where they can quickly contact the company they dealt with. (This disclosure could appear in 310.3(a)(1) instead.)

Another important disclosure regarding addresses should occur at some point, although probably not at the beginning of the call. When telemarketers request payment through the mail to an address, or otherwise provide an address, if that address is a commercial mail receiving agency (CMRA) (such as Mail Boxes Etc.) that fact should be disclosed to the consumer. Often payment to a CMRA is solicited to what appears to be a "suite" number, or simply to a street address where the consumer believes the company can be found. At a minimum, consumers should know that the address to which a company directs payment is not its actual physical address.

While persons renting boxes at CMRA's are required to fill out postal forms which identify them, provide a driver's license number, and provide their actual physical location, our experience is that fraudulent telemarketers routinely falsify the information on those forms. Thus, a more stringent option would be to require telemarketers using CMRA's to also disclose an actual physical address where they are located.

c. No comment.

d. The requirements for charitable fundraisers are necessary. Too often persons believe they are dealing with actual employees, members or beneficiaries of a charity when they are in fact dealing with a professional fundraiser. Professional fundraisers attempt to play on the sympathy of prospects by pretending they are a part of the charity. In addition, persons making donations in the mistaken belief that they are donating directly to a charity may believe that 100% of their donation will go to a charity, when in fact a large percentage will actually go to the professional fundraiser. Whether or not citizens' decisions will be affected by this information, their right to know it is far stronger than a charity's right to conceal it. (See also comment 14a.3, above).

e. Certainly illegitimate telemarketers do not make the required disclosures. They give out only false and fictitious information in order to avoid detection by law enforcement. They pose as actual members or beneficiaries of charities in order to appeal to the sympathy of potential donors. They do not notify potential victims that they are selling merchandise, because they want them to believe they are winning a prize, not buying merchandise.

f. It is appropriate to prohibit the use of aliases.

One of the biggest advantages to persons engaging in telemarketing fraud is the ability to conceal their identity. It would be tremendously valuable to increase the number of actual names revealed by telemarketers. For example, because many boilerroom employees go on to other boilerrooms or start their own, it would be easier to detect a pattern of conduct by a particular person if his or her name appeared repeatedly in complaints. Or, even as part of a single telemarketing operation, it would be beneficial to have the ability to identify a person as having made particular statements or promises.

An alternative to prohibiting aliases would be to require telemarketers to register the aliases in use by their employees with law enforcement, and to provide a copy of a driver's license revealing the true identity of each "alias."

35. Section 310.4(d)(2): Disclosures when verifying sales

a. The descriptions are clear, meaningful and appropriate.

b. See 34b. above.

c. No comment.

d. Illegitimate telemarketers do not currently make the disclosures, for the same reasons indicated in 34e. above.

36. Sections 310.4(d)(3) and (4): Prize Promotions

a. It is appropriate to classify the failure to make these disclosures as an abusive act or practice. Prize promotions are among the most confusing and deceptive telemarketing schemes in use, and failure to clearly disclose all terms and material facts involved in these promotions is the cause of that confusion.

b. The descriptions are clear and meaningful. However, we would propose the following:

1) In (d)(3)(ii) and (d)(4), change $20.00 to $10.00. One of the most common misrepresentations, express or implied, in prize promotions is that the amount of the prize is worth more than any payment or purchase requested to receive it. While these Rules would ensure that consumers are aware that they need not pay, those who chose to pay might do so on the assumption that the prize would make up the cost of receiving it. Thus, when prizes are worth very little, i.e., less than $10.00, consumers should be aware of it.

2) In (d)(3), a new subsection should be added requiring that, when a prize is money, the exact amount of the prize must be revealed. Often promoters promise a "cash prize" that turns out to be less than one dollar. Consumers need to know the actual value of any cash prize in order to know whether it is even worth the price of a stamp to claim it.

3) The disclosures would be even more meaningful if it were prohibited by these Rules to make any statement inconsistent with these disclosures. Even if these disclosures were made, other statements made during the phone call could raise an ambiguity that diluted the effect of the disclosures.

c. Section 310.4(d)(4) should expressly require that a premium be identified. In other words, instead of saying the caller will receive "a premium worth $20.00," the telemarketer should say "a [garment bag, necklace, etc.] worth $20.00. Telemarketers should not be permitted to conceal the identity of premiums, because under the lottery laws (39 U.S.C. 3005; 18 U.S.C. 1302), they could be found to be prizes for which no payment may be required. Simply stating the value of a premium is not enough.

d. These additional oral disclosures will help consumers protect themselves from fraudulent or deceptive telemarketers. First and foremost, a clear disclosure that no payment is required to receive a prize would deter or eliminate a large number of fraudulent operations which require large fees for what are represented to be large prizes. These prizes are usually never awarded. While schemes such as these violate criminal statutes and may be prosecuted thereunder, those prosecutions cannot take place until many people have been victimized. These Rules could permit action early on in a promotion by making it per se abusive not to disclose this important information when offering a prize.

Even in promotions where prizes are awarded, much confusion, deception and misrepresentation takes place as to the value of prizes. The requirement that the value of a prize be disclosed would be tremendously important in preventing this confusion and deception.

e. These disclosures should be orally and in writing. This is necessary for informed decision-making by consumers. The way the proposed Rule is structured is appropriate: the most basic information is required both orally and in writing, and the more complete and detailed information (which would be difficult to provide orally) is required in writing.

f. Illegitimate telemarketers disclose none of the information required by these sections. Instead, they require payment for prizes, and they state or imply that prizes are worth far more than they are.

37. Section 310.4(e): Written Disclosures

a. The advantages of the written disclosures are that they can be read at a speed at which a person can understand them (unlike oral disclosures which may be presented too quickly); they are more inclusive than the required oral disclosures, and provide more information than the oral disclosures; and they are provided separately from any "hype" or other sales material in connection with the promotion, and thus will be read without the possible confusion caused by a sales pitch.

The disadvantage is that the amount of disclosure required may be difficult for less sophisticated readers to digest. Since the written disclosure would have the look of the Rules or other information typically included on the reverse side of a printed offer, it could be ignored. However, some of the suggestions we have for improving the Rules would help prevent that.

b. It is appropriate to make a failure to include these disclosures an abusive practice. In addition to the general confusion over what is required to obtain a prize, there is substantial confusion about what the actual prize consists of. Telemarketers count on this confusion as a way to profit. This is abusive and should be prevented by these Rules.

c. We would change the following the disclosure requirements:

1) We would require that the statement in (e)(1)(vii) (No purchase or payment necessary) be in type bolder than the other type.

2) We would change (e)(1)(iii) from $20.00 to $10.00 (see 36b. above).

3) We would change (e)(1)(v) to make it clear that shipping and handling fees could only be required when the winner has been told the actual identity and value of the prize. Frequently the actual cost of a "prize" is disguised as shipping and handling fees. Under the federal lottery laws, no payment whatsoever may be required for a prize, even legitimate shipping and handling fees, if the "winner" does not know exactly what the prize consists of.

4) We would further suggest 12 point type, which is more readable and of a standard size. In addition, we would require that each category of information be in a separate, numbered paragraph, with empty lines between each numbered paragraph. It is common for illegitimate promoters to make required disclosures, but to jumble them together so as to make them difficult to comprehend.

d. The disclosures appear complete and appropriate.

e. No comment.

f. The specifications are absolutely necessary to ensure the clarity of the disclosures. Illegitimate promoters will take any opportunity to create ambiguity or otherwise negate the effect of disclosures, and the Rule should not permit them to do so. "Clear and conspicuous" requirements tend to move promoters toward the grey area of what is really effective for informing consumers. The specific requirements would keep them out of the grey area.

g. The time frames are useful, however, there may be a need to rework the time frames in accordance with the length of time the proposed investment opportunity will take place. In other words, if the investment is sold as "long term" (ten years), then the promoters could easily mask the first year's payments as something other than fees or costs. Instead of a time frame, it may be more helpful if promoters are required to disclose actual projected costs of the scheme to the consumer. If the scheme is promoted as a long-term investment, the promoter should be forced to give the consumer an idea as to how much ownership they will have at the conclusion of

the scheme as well as how much money, in total real-dollars, the consumer will have paid in fees and costs.

h. The economic impact of these disclosures could be great. First, the consumer will be given greater knowledge and perhaps realize that the promoters are not looking out for their best interests but are rather trying to make money for themselves - most likely at the consumer's expense. The economic impact for the promoter will mean they will have to spend more time planning the solicitation and developing cost figures, however, this practice does not seem much different than when a lender is forced to give the borrowing consumer the total dollar cost of a loan at maturity. The written requirement will, most likely, cause promoters to spend time and money preparing written disclosure documents for consumers, who upon receipt of the information, might not sign and take part in the investment opportunity. This will raise the promoter's cost but will give the consumer a greater level of comfort and power with regard to a decision to invest with the promoter.

i. It is the Postal Service's experience that most telemarketers do not adequately meet the disclosure requirements outlined in Section 310.4(e). Written acknowledgements before payment are rare.

j. The duplicate written disclosures will be expensive for the telemarketer to develop and or maintain. However, they will benefit both the consumer and the telemarketer. The telemarketer will have a tangible piece of evidence regarding the consumer's consent to the transaction. For the consumer there will be a delay between receipt of the written disclosure and the beginning of the investment; however, he or she will also have the opportunity to make a more informed decision before spending money on a venture.

For law enforcement, having duplicate copies of written consent will mean easier tracing between the victim and the telemarketer. Supplying the consumer with a duplicate is the best way to ensure the consumer retains a copy of the disclosure. Elderly and other consumers may not remember most of the pitches that they receive over the telephone and the duplicate may provide more accuracy than their memory. The downside to a confirmation process involving strictly the telephone is the lack of any tangible evidence as to what was said by the telemarketer and what was heard by the consumer. Some telemarketers confirm with a separate person who comes on the phone to confirm orders. This system works with legitimate promoters, but with disreputable promoters confirmations involving live persons do not guarantee that the consumer will not be sold or deceived once again during the confirmation process.

Taping systems may be unwieldy and unreliable. Tapes of confirmations, while allowing for accuracy in the memorializing the confirmation, dot readily or easily provide law enforcement any information regarding the actual confirmation. Law enforcement agencies would be required to go to the promoter before hearing the tapes and then would be required by to go through the tapes in order to find the right day, time and consumer.

k. No comment.

l. No comment.

38. Section 310.4(f) - Prospective prohibitions against previous violators

a. The term "customer contacts" is vague. Does that mean a list of names and the amount of money that the person paid as part of a telemarketing scheme? It would be more appropriate to forbid the distribution of any names, addresses, telephones numbers or other identifying characteristics of consumers obtained in connection with the scheme.

b. The impact to the telemarketer could be significant. Re-selling the names to other promoters is a significant source of funds for the promoter.

c. Telemarketers distribute lists extremely frequently. They are often sold, or, given to other "partners" or sister "businesses" so that the consumers can be hit again or "flipped."

d. Telemarketers should not be allowed to distribute the list under any circumstances. Even if a list is old, other promoters can trace people at new addresses, especially if they are consumers who have fallen prey to schemes involving large dollar amounts. Law enforcement efforts would be hindered in the same way if computer hackers were allowed to write books detailing how they broke into the computers at the Federal Reserve in order to illegally transfer millions of dollars. A good "sucker list" is the lifeline of the telemarketer; it is what allows them to go forward and make a huge amount of money right from the start of their scheme. Keeping the "keys to the safe" away from bad telemarketers will slow their growth considerably.

e. A broader class, one that includes anyone who has signed a settlement agreement arising out of a violation of the telemarketing fraud statute. Currently only those subject to a court order have to refrain from distributing the lists.

39. "Cooling Off" Rule

A cooling off period of seven days would be a valuable addition to the Rule. Payment should be prohibited until the end of a cooling off period. Consumers need as much time as possible to reflect on a purchase or check a telemarketer's or seller's background before they have parted with money. In addition, those who care for an elderly or incompetent person might have an opportunity to intervene and advise if a cooling off period were provided.

A mandatory refund provision would also be beneficial. However, it might give consumers a false sense of security (especially if a promoter used it as a selling point that the FTC provided a right to a refund). Promoters go out of business or sometimes make the refund process so difficult that consumers never actually receive a requested refund. Thus, unless telemarketers were required to post a bond with the Federal Trade Commission or a State Government agency, and unconditional refunds were mandated, a Rule requiring refunds would be problematic.

Section 310.5 Recordkeeping Requirements

40. 24 Month Recordkeeping Requirement

a. The records required to be kept by the promoter are essential to determining compliance with the Rule. For law enforcement purposes, being able to access information regarding those persons who responded to the promotion is essential to witness identification and preparation. Old scripts will be of tremendous help to law enforcement agencies. Telemarketers should be required to keep consumer complaints. Consumer complaints can show the promoter's knowledge of how their telemarketing practices are perceived by the public. It is also an easy way to identify consumers who clearly have a problem with the telemarketer and were upset enough to complain about the problem in writing.

b. 24 months would be an appropriate time.

c. No comment.

d. Legitimate telemarketers and sellers most likely will already be keeping the records outlined in the Rule. Most illegitimate telemarketers, however, do not keep any information, especially complaints, that will incriminate them. Most often the people called by illegitimate telemarketers are people who are listed in nationwide directories or directories of those who are known to be vulnerable (such as nursing home residents and previous victims). Illegitimate telemarketers have no interest in keeping any records except for records of people who owe money or have been "hit" previously.

e. The recordkeeping requirements are not that difficult or expensive, especially when computer technology is taken into account.

f. Without record keeping requirements, compliance investigations would have to be done by undercover law enforcement work, conversations with employees or former employees, test purchases and collection of consumer complaints from various government and private consumer agencies.

g. No comment.

h. No comment.

41. Division of Recordkeeping

The division of recordkeeping requirements seems appropriate and clear.

Section 310.6: Exemptions

42. The 10 Call Exemption

Although some unscrupulous and talented telemarketers could conceivably still illegally make considerable amounts of money with only ten phone calls a year, it is doubtful that any one who is making money would limit themselves to 10 calls a year and therefore for all practical purposes, anyone who law enforcement officials will be interested in investigating will be subject to the Rule.

43. The Business to Business Exemption

a. This exemption is appropriate and clear.

b. Sales of light bulbs also should not be exempted from the Rule. In past cases they have been sold by telemarketing to businesses just like office supplies or cleaning supplies. They are often sold in the same manner as photocopying machine toner and cleaning solvents.

In addition, sales of advertising and classified directory listings should not be exempted from the Rule. Often advertising in nonexistent or misrepresented publications is sold by telephone.

In addition, the sale of subscriptions or publications to businesses should not be exempted. There is a significant potential for telemarketing fraud in the sale of these items.

c. No comment

d. The main problem would be an increase in deceptive promotions to businesses due to the exemption. Businesses can be just as vulnerable to fraud and deception as individuals, particularly when a telemarketer communicates with more than one person at a business.

44. No Initial Sales Contact Exemption

a. This exemption is appropriate and clear and is limited enough to allow legitimate businesses to receive orders and schedule appointments. These businesses would still be covered by the Deceptive Trade Practices Act.

b. No comment.

c. It is appropriate to exclude these promotions, due to the potential for misrepresentation and the need for fully informed decisionmaking in these transactions.

d. This exemption would not be appropriate for on-line computer information services because those are the equivalent of telephone calls, across state lines, without face to face contact. All computer contacts should be included. Any exemption should not create a new problem for law enforcement efforts to stop deceptive or abusive telemarketing.

e & f. No comment.

45. Other Product Exemptions

No comment.

46. Telemarketing Information

The Postal Service does not have information in this area.

47. Federal Preemption

No comment.

48. 30-day Implementation

We would expect that all telemarketers would be able to comply with the Rule within 30 days.

49. New Technologies

No comment.

50. Other Technologies

No comment.

51. Rule's Effect on Small Business

There are many illegitimate telemarketers, often operating out of their home, who, if there were special exceptions for small telemarketers, would fit any exception and continue to defraud consumers. Thus, it is our position that the costs to small telemarketers are outweighed by the benefit to consumers overall.

52. Regulatory Alternatives

No comment.

53. The Rule's Aggregate Costs and Benefits

Telemarketers will have greater costs when operating under this Rule. Those extra costs will be passed on to consumers. There may, however, be some savings to telemarketers: consumers may seek fewer refunds; telemarketers may not be exposed to as many costs that would normally arise out of business activities that run afoul of the law; and telemarketing may ultimately be thinned out, (resulting in fewer, more reputable companies), which in turn will enhance the reputation of telemarketing and therefore increase business.

To the extent that costs are passed on to consumers, they will be a worthwhile price for the greater security, protection and savings resulting from the Rule.

54. Conflict With Other Laws

The proposed Rule will overlap, but not necessarily conflict, with 39 U.S.C. 3005, the Postal False Representation and Lottery statute. That statute prohibits the obtaining of money or property through the mail by means of false representations. There may be some cases where a party manages to comply with the Rule but still makes false representations, for example by making required disclosures but contradicting them or making them ambiguous by means of other information.

In addition, there is some potential for conflict with provisions of Section 3005 which prohibit conducting a lottery through the mail. A lottery under that statute contains the elements of prize, chance and consideration. However, the provisions in the current Rule may conflict in only one section (regarding the payment of shipping and handling fees to obtain a prize; see Question 37 c.3 above). However, this requires no extensive change to the Rule.

In general, the Rule will aid in the enforcement of the lottery statutes, because it requires such specific disclosure of the no purchase or payment option to receive prizes.

Conclusion

We strongly support the purpose and most provisions of the proposed Rule. Please feel free to contact the undersigned if any further information is required.

Jennifer Y. Angelo
Chief Counsel
Consumer Protection Law
475 L'Enfant Plaza S.W.
Washington, DC 20260-1147
(202) 268-3081

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