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American Telemarketing Assn Comments on FTC's Proposed Telemarketing Sales Rule

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March 30, 1995

Mr. Donald S. Clark, Secretary
Federal Trade Commission Room 159
Washington, D.C. 20580

Re: "Proposed Telemarketing Sales Rule," FTC File No. R411001

Dear Mr. Clark:

The American Telemarketing Association, Inc. ("ATA") appreciates this opportunity to comment on the Federal Trade Commission's ("Commission") proposed telemarketing sales rule, 60 Fed. Reg. 8313, February 14, 1995 (the "Proposed Rule"), which is designed to implement the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C.  6101 (the "Act"). The ATA is a professional, not-for-profit trade association representing the telemarketing industry. Founded in 1983, the ATA has grown to nearly 1400 members, including 500 corporations, in the United States and nine foreign countries. Our membership includes business executives who manage telephone-assisted marketing, own or operate telemarketing service agencies, consult to the telemarketing industry and supply related products such as computer systems and monitoring equipment.

The ATA is anxious to eliminate telephone swindlers as they undermine the credibility of legitimate telemarketers and harm the businesses that they promote. We are dedicated to providing leadership and education in the professional and ethical use of the telephone to increase marketing, sales and service effectiveness and to enhance customer satisfaction and improve decision-making. To help accomplish our mission, the ATA regularly updates and distributes publications including consumer guidelines designed to educate consumers on how to deal with unscrupulous telemarketers and how to handle product dissatisfaction. In addition, we publish a code of ethics and numerous position statements in areas including call monitoring and 900 number telephone service.

Telemarketing is an estimated $250 billion industry employing approximately 4.6 million people in the United States alone. Spending on telemarketing exceeds $60 billion annually, with millions more dedicated to support industries like computer hardware and software. A wide variety of industries make use of telemarketing including the automotive, catalog, communications, entertainment, financial, manufacturing, retail, and travel industries.

I. Overview

While the ATA fully supported the Act's passage, we object to the Proposed Rule as it reaches beyond the Act's plain language and legislative intent in that it generally regulates all telemarketing, rather than giving consumers necessary protection against deceptive and abusive practices, and thus imposes undue burdens on legitimate business enterprises. Because the Act gives consumers and state attorneys general enforcement power, the Commission could better implement the Act by creating the simple prohibitions discussed below which reference existing statutes and regulations in this area. This would bring a substantial body of existing authority to the aid of consumers in asserting claims against fraudulent telemarketers. Moreover, it would allow legitimate businesses to continue to abide by existing policies instead of having to cope with unduly burdensome, and often inconsistent regulations.

The Proposed Rule needs to be changed to conform with the Act's authority and legislative intent. As the Commission recognizes in the Supplementary Information section, at 60 Fed. Reg. 8314, the Act explicitly states that its purpose and intent is to "offer consumers necessary protection from telemarketing deception and abuse." (emphasis added) (15 U.S.C.  6102). By using the term "necessary protection," Congress required that the Telemarketing Act and implementing Rule must not bar or regulate activities that would burden legitimate businesses without protecting consumers. In addition, the term implies that the implementing rules go beyond their charter when they stray into the area of unnecessary interference with consumer decision-making. Congress recognized in the crafting of the Act that the sale of goods and services over the telephone, commonly called telemarketing, has been a cost effective way for many legitimate businesses to reach potential customers. (H.R. Rep. 103-20; see also S. Report 103-80 "Legitimate purchases are made by telephone in increasing numbers.") In addition, it was found that "the most frequent pattern of telemarketing fraud was "fly-by-night" operators "whose contact with the consumer is limited to the telephone and whose mobility and anonymity precludes the consumer from any recourse if goods are deficient or undelivered." (S. Report 103-80). In short, as stated by the House, "Regulating legitimate mutually-beneficial activities is not the purpose of this legislation." (H.R. Rep. 103-20) Therefore, the Proposed Rule needs to be substantially changed so that it provides necessary protection to consumers and does not regulate or impede legitimate telemarketing activities.

We understand that the Act's power to protect consumers from deception and abuse lies in the newly granted enforcement power. Under the Act, states attorneys general are given the authority to bring actions in Federal court on behalf of residents to enjoin a pattern or practice of telemarketing which violates the rule promulgated by the Commission and to obtain damages, restitution, or other compensation. In addition, private persons are also granted the authority to bring actions in Federal court which meet an amount in controversy threshold. This Congressionally mandated expansion of enforcement power is designed to address two enforcement problems existing at the time of the Act's passage. First, the Commission lacked the resources to pursue an increasing number of fraudulent telemarketers, and second, fraudulent telemarketers tended to operate "fly-by-night" schemes, moving quickly from jurisdiction to jurisdiction, making it difficult for a state attorney general to use state law and state enforcement to locate and charge such swindlers. Now that the Act addresses these problems, the ATA believes the Commission may accomplish the Act's mission by making the following changes:

- The definitions section should be corrected so that it remains within the scope of the Act.

- The deceptive telemarketing acts or practices section should be entirely replaced by a general prohibition on "misrepresentation of material facts" without enumeration.

- The abusive telemarketing acts or practices section should be eliminated and replaced with a simple prohibition on abusive telemarketing acts or practices.

- The arbitrary restrictions regulating the frequency of contact that a seller may have with a consumer who has not made a "do not call" request should be removed.

In light of the substantial changes needed in the Proposed Rule, and welcomed by the Supplemental Information section, the Commission should issue a second Proposed Rule, and if necessary, seek an extension from Congress in order to allow all interested parties to have an opportunity to work with the Commission on further iterations of the Proposed Rule.

II. Comments

A. Definitions (310.2)

The definitions section should be corrected so that it remains within the scope of the Act. The Commission is not authorized by Congress to regulate activities and parties not subject to the Act's jurisdiction. In addition, by expanding the coverage, the Commission does not increase the necessary protection to consumers, but instead merely burdens legitimate businesses who were not aware that they could be covered by the Act.

The definition of "telemarketing" must be returned to the Act's definition. The Act defines "telemarketing" as:

[A] plan, program, or campaign which is conducted to induce purchases of goods or services by use of one or more telephones and which involves more than one interstate telephone call.

15 U.S.C. 6106(1)(4).

The Proposed Rule expands the definition of "telemarketing" by changing the induce purchasing language to inducing "payment." The change expands the Proposed Rule to cover collection alone, which was not authorized by the Act. In addition, the Proposed Rule expands the term telemarketing, by qualifying either the whole concept or the term "telephones" to include "the use of facsimile machine, computer modem or an other telephonic medium."

In light of this expansion, it is not clear whether it is the term "telemarketing" or the term "telephone solicitation" which is meant to include new technologies. These changes expand and do not merely "clarify" as the Supplementary Information Section would suggest. This definition goes beyond the scope of the Act and is inconsistent with industry usage of the term. Telemarketing is not a computer communicating with another computer. Telemarketing is one person talking to another. Furthermore, it goes beyond the Act when it adds the new technologies: (1) there is no evidence to suggest that these media were or could be used in the fraudulent transactions which led to the Act's enactment, (2) these media were not covered by the Act and (3) consumers receive, review and have control of information in new technologies very differently from the way they respond to telephone solicitations.

For example, soliciting a consumer by telephone after 9 p.m. local time at the consumer's home would be in violation of the Telephone Consumer Protection Act ("TCPA") as well as the Proposed Rule. However, sending an email to a consumer at any hour should not be prohibited by the Proposed Rule. An email can be opened and read at the consumer's convenience, at an hour of the consumer's choosing. Furthermore, disclosures provided by telephone, such as the name of the caller (which is objectionable for reasons described below), become meaningless with an electronic transmission to a large audience.

In addition, while the Act appears to focus only on the activities of "telemarketers" when they are actually "telemarketing", i.e., actually soliciting consumers by a person-to-person telephone conversation to purchase goods or services, the Proposed Rule goes beyond the Act. It creates two different types of players, "telemarketers" and "sellers," which may cover the same business recognized in the Proposed Rule.

Furthermore, many sections of the Proposed Rule could be read to actually regulate "telemarketers" or "sellers" even when they are not engaged in phone sales. It becomes very apparent that this expansion goes beyond the Act where "telemarketers" and "sellers" are forbidden from offering or selling goods or services to a person who has any outstanding order with the same seller. What this could mean is that virtually any business would be unable to sell to a consumer anything if that consumer had already, whether in face-to-face visit, by phone, or by mail paid for any order which was not yet complete.

In order to give meaningful participation to the parties who were not on notice, based upon the Act, that they might be covered by the Proposed Rule, it is critical that the Commission seek an extension from Congress.

B. Deceptive Telemarketing Acts or Practices (310.3)

Section 310.3 of the Proposed Rule sets forth certain conduct which would be considered a deceptive telemarketing act or practice. The entire section should be replaced by a general prohibition on "misrepresentation of material facts" without enumeration. The proposed approach is a "front-end" regulation of legitimate businesses which will not deter swindlers or help to protect consumers, but imposes unnecessary burdens. Although the ATA advocates a complete replacement of the entire section, there are specific problems which would need to be corrected, in the event the general prohibition is not adopted.

Failure to disclose material conditions Section 310.3(a)(1) would make it a deceptive act or practice to fail to disclose material terms and conditions before payment is requested including: the total costs, terms and material restrictions, limitations or conditions of receiving goods or services; the quantity of goods and services; and the material terms and conditions of seller's refund, cancellation, exchange, or repurchase policies.

It would be inconvenient and burdensome to consumers to impose a number of detailed (and possibly irrelevant) disclosures upon a consumer who either has no interest in making a purchase at that time or who wants to consider a wide variety of purchasing options before committing. Even a consumer interested in making a purchase would be annoyed by a lengthy recitation of required disclosures. In fact, the disclosures may be more confusing coming in full form as opposed to being prompted by the natural question-answer format that occurs on a telephone conversation.

Moreover, the rote disclosure requirement would not deter telephone swindlers from defrauding consumers. The content of the disclosures should be limited to material terms of the goods or services for which the consumer is authorizing payment. Given the burden of the timing and scope of the disclosures, and the absence of a deterrent effect on deception, the following change should be made: Any required disclosures may be made before payment is authorized by the consumer rather than before payment is requested by the seller. As a result, such disclosures may be made before or after the telephone call, by phone or a different medium, so long as payment is not authorized before the disclosures are made.

Misrepresentations Covering All Telemarketing Transactions

Section 310.3(a)(2) sets forth 24 examples of what would constitute a misrepresentation of material facts and thus a deceptive act or practice. This entire section is unnecessary to protect consumers. Misrepresentations of material fact are already prohibited, and a substantial body of authority regarding what constitutes misrepresentations already exists under Section 5 of the Federal Trade Commission Act ("FTC Act"). The effect of listing the actionable categories creates confusion and could discourage legitimate businesses from disclosing any non-required information. Instead of enumerating misrepresentations, the Proposed Rule should instead simply bar intentional "misrepresentation of material facts" and rely upon existing authority under the FTC Act for what constitutes a misrepresentation.

While a blanket replacement of the entire section is appropriate, there are specific problems which would need to be corrected, should the Commission reject the blanket replacement.

Obtaining or Submitting for Payment

Section 310.3(a)(4) would make it a deceptive telemarketing act or practice to obtain or submit for payment from a person's checking, savings, share, or similar account, a check, draft, or other form of negotiable paper without that person's express written authorization. This provision is inconsistent with the Electronic Fund Transfers, Regulation E, 12 C.F.R. Part 205, ("Reg. E"), which permits oral authorization of such transactions. At a minimum, the Proposed Rule should permit the obtaining or submitting for payment from a person's checking, savings, share, or similar account, of a check, draft, or other form of negotiable paper where the person's express authorization is given.

Assisting and Facilitating Deceptive Telemarketing Acts or Practices

Section 310.3(b) would make it a deceptive telemarketing act or practice to provide "substantial assistance or support" to a telemarketer or seller when that person knows or should know the seller or telemarketer is violating the Proposed Rule. What would constitute "substantial assistance or support" is unclear.

Moreover, this provision covers the legitimate business that service bureaus engaged in. While legitimate telemarketers do their best to ensure that parties with whom they enter a business arrangement are legitimate, it would be unduly burdensome to look into and monitor every aspect of the other party's business every time the party calls on its behalf. In addition, it would be unfair to hold a telemarketer responsible for the remote actions of a third-party. The Proposed Rule should be modified to (1) clarify the meaning of "substantial assistance or support," (2) only apply where the seller or telemarketer acts "knowingly," and (3) only apply where the seller or telemarketer is directly involved in the wrongdoing.

C. Abusive Telemarketing Acts or Practices (310.4)

Section 310.4 of the Proposed Rule provides a list of abusive telemarketing practices. This entire section goes beyond the Act's authority and is unnecessary to protect consumers. The Act only instructs the Commission to create rules to protect consumers from abusive practices by creating regulations including:

(A) a requirement that telemarketers may not undertake a pattern of coercive or abusive calls;

(B) a restriction on the time of day unsolicited calls can be made; and

(C) a requirement that any person engaged in telemarketing for the sale of goods or services shall promptly and clearly make disclosures of certain material conditions.

Given the grant of enforcement powers to state attorneys general and consumers, Congress's instruction to the Commission can be satisfied by a simple prohibition on abusive telemarketing acts or practices with reference to existing regulations in the area.

Credit Services

Section 310.4(a)(3) would make it an abusive telemarketing act or practice for a seller or telemarketer to request or receive payment for services represented to improve a person's credit history, credit record, or credit rating until the term of the contract or time frame has expired and promised results have been achieved and documented. Section 310.4(a)(5) would make it an abusive telemarketing act or practice for a seller or telemarketer to request or receive payment before obtaining or arranging a loan or credit service when representing high likelihood of success. These provisions need to be clarified so that they do not prohibit credit monitoring services from assisting consumers to gain access to their credit histories and providing guidance in how to interpret the credit histories and correct errors.

Recovery room services

Section 310.4(a)(4) would make it an abusive telemarketing act or practice for a seller or telemarketer to request or receive payment before three days after money or other item of value is delivered. This prohibition exempts licensed lawyers and investigators under written agreement. The ATA is sympathetic with the purposes of this section to target the unlawful activity wherein fraudulent telemarketers make false promises to return to consumers money lost due to a fraudulent scheme. However, we are concerned that, as it is written, it would cover legitimate rebate programs provided by businesses or services provided by a licensed attorney. This provision should be amended to clarify that it does not apply to legitimate "rebate" services or to the services of a licensed attorney.


Section 310.4(a)(7) would make it an abusive telemarketing act or practice for a seller or telemarketer to offer or sell goods or services through a telephone solicitation to a person who has previously paid the same seller for goods or services, until all terms and conditions of the initial transaction have been fulfilled, including the distribution of all prizes and premiums. This could actually hurt consumers as it would preclude a seller from calling existing customers to renew subscriptions, warranties, and service contracts prior to expiration, thus allowing the services to lapse. It would burden diversified sellers who might be treated as the "same seller" when consumers order from one division in person, by phone, by mail, by computer, while it offered a service from another division of the same company.

This could lead to absurd results. One example is that publishers or affiliated service bureaus contact consumers with magazine subscriptions prior to the expiration of their subscriptions to arrange for a renewal. The Proposed Rule would prevent such notifications. Given that approximately 30- 45 percent of magazine sales are renewal sales or sales of additional magazines from the same publisher, the Proposed Rule would tremendously interfere with legitimate businesses and prevent consumers from getting full service.

Furthermore, for a service bureau which may be one of many bureaus working for a given seller, it would be unduly burdensome to cross- reference whether a consumer had previously entered a business arrangement with that seller, as that underlying business relationship could have been face-to-face, through another bureau, initiated by the consumer, contacted by mail or any other form. The entire section should be removed.

Pattern of Calls

Section 310.4(b)(1)(i) would make it an abusive telemarketing act or practice for a telemaketer to engage in, or for a seller to cause a telemarketer to engage in conduct including calling a person's residence to offer or sell, on behalf of the same seller, same or similar goods or services more than once within any three-month period, without prior consent (except attempted or verification calls). This goes beyond the Act, which gives the Commission the authority to prevent: "a pattern of unsolicited calls which the reasonable consumer would consider coercive or abusive of such consumer's privacy." The TCPA Rule already gives consumers the ability and choice to avoid receiving repeat telephone solicitation calls at home.

Practically, the restriction is unreasonable. In addition, because the Proposed Rule would restrict calls to the same "residence," it would mean, for example, that once a seller contacted one resident member who happened to be home at the time of the call, that seller would be blocked from communicating with any other person at that residence within the time-frame. This provision should be eliminated as it goes beyond the Act's mission to provide consumers with necessary protection against telemarketing deception and abuse and is wholly arbitrary.

Do Not Call

Section 310.4(b)(1)(ii) should explicitly reference the TCPA Rule so that there is no confusion regarding redundant, overlapping or inconsistent requirements.

Calling Time Restrictions

Section 310.4(c) is not necessary and should be replaced with a reference to the TCPA Rule.

Failure to Make Required Oral Disclosures

Section 310.4(d)(1)(i) would make it an abusive telemarketing act or practice for a telemarketer to fail to make a number of oral disclosures. Included is the requirement that all telephone solicitations shall begin by disclosing 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. This provision goes beyond the Act's authority. The Act requires that any person engaged in telemarketing for the sale of goods or services "promptly and clearly disclose" the purpose of the call and the nature of the goods and services. The Proposed Rule should be changed so that any required oral disclosures are made promptly and clearly. Given concerns regarding privacy and discrimination, the Proposed Rule should permit telephone service representatives to use "desk" names, provided that the seller or telemarketer is able to accurately keep track of the true identities of the telephone service representatives making a particular call.

Verification of a Sale

Section 310.4(d)(2) would make it an abusive telemarketing act or practice for a telemarketer to fail to repeat the required oral disclosures during verification of a telemarketing sale. This provision is unnecessary and unduly burdensome to telemarketers. It would cause the caller to waste time, money and would annoy consumers and also give a mechanical feel to the transaction. The provision should be changed to require that only the fact of the sale be verified, assuming that the material terms have already been disclosed.

Prize Promotions

Section 310.4(d)(3) would require "any telemarketing" which includes a prize promotion to disclose, in addition to all other disclosures, that no purchase is necessary to win, the verifiable retail sales price of each prize or the statement that such price is less than $20. This provision should be clarified so that it applies only to outbound calls by telephone, and no other media, and to provide that if the odds are not ascertainable the statement "odds depend upon the number of entries received" would be acceptable. The provision should also be revised to provide that where a retail sales price is not available, it need not be supplied.


Section 310.4(d)(4) require that "any telemarketing" which includes an offer of a premium must disclose, in addition to the disclosures under the rest of the 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. This provision should be clarified so that it only applies to outbound calls by telephone, and no other media, and to provide that where a retail sales price is not available, it need not be supplied, or an estimated value may be given.

D. Recordkeeping Requirements (310.5)

Section 310.5 would impose burdensome recordkeeping requirements upon both sellers and telemarketers. In particular, the requirement that records be kept for two years is extremely burdensome. In addition, the Proposed Rule should be clarified so that records regarding former employees need only account for the employees as of the time they left the seller's or telemarketer's employ. Given that this entire section should be restructured, it is essential that more time be given to work with the Commission in crafting a recordkeeping requirement which would be less burdensome to sellers and telemarketers, and which would take into account the varying standards for the diverse industries which would fall within this Proposed Rule.

III. Conclusion

The ATA respectfully submits that the Proposed Rule goes beyond the Act's authority, is inconsistent with the Act's purposes and would threaten legitimate businesses. We strongly recommend that the Commission seek an extension from Congress in order to give interested parties the opportunity to help the Commission in creating a new proposed rule which would give consumers the necessary protection needed from telemarketing fraud and abuse.

The ATA appreciates this opportunity to comment on the Proposed Rule, and, looks forward to testifying and participating in the Public Workshop.

Stephen Sion President

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