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Direct Sales Assn. Of NV Comments On FTC Proposed Telemarketing Sales Rule

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A Community Relations Non-Profit Organization

March 21, 1995

Office of the Secretary
FTC, Room 159 600 Pennsylvania Ave., N.W.
Washington, D.C. 20580

Re: Proposed Telemarketing Sales Rule
FTC File No. R411001

Dear Secretary:

This submission is filed on behalf of the Direct Sales Association of Nevada, an organization representing telemarketing sellers, established in 1988 and located in Las Vegas, Nevada. (see exhibit A)

The DSA of Nevada's specific objections to the proposed rules are incorporated into exhibit B. In examining the objections we also request the FTC consider the following:

Throughout the states, in attempting to pass various regulatory schemes, ambitious bureaucrats have only succeeded in saddling legitimate telemarketers with increased costs and paperwork while real crooks disregard these same statutes. Likewise, the proposed regulations will only serve as a guideline for those very same illegitimate or unethical operators to circumvent and invent new ways of noncompliance. (see exhibit C)

Politicians in a hurry to champion consumer rights play into sensational media hype and have only helped to create an atmosphere where legitimate telemarketers are unfairly prejudiced. (see exhibit D)

Consumer advocate groups attack telemarketers based not on legal authority nor on the basis of an individual company's business practices, but rather their attacks are centered around notions of sympathy and paternalistic, personal value judgements. (see exhibit K)

"Recovery services" continue to proliferate by fraudulently claiming to be acting on behalf of law enforcement. The single greatest complaint factor involving legitimate telemarketers is directly attributable to these fraudulent "recovery services." (see exhibit E)

Even consumers themselves now routinely make disingenuous claims against sellers. (see exhibit F)

The cataloging of all consumer claims as a "complaint" is inherently misleading and unfair to a legitimate telemarketer. (see exhibit G)

The fundamental element that separates this country from all others is free choice. The rise of state lotteries, gaming, and national sweepstakes promotions can only be attributed to consumer demand and acceptance. (see exhibit H)

We find it amazing that a government which finds its citizens competent enough to vote, competent enough to figure out how to pay their taxes, and competent enough to participate in the greatest, free enterprise market on earth, somehow finds those very same citizens to be bewildered when the telephone rings. our government was not designed to be paternal in form. As a self-governing people, each citizen is provided so much liberty as allowable without impairing the equal rights of his fellows. With the utmost amount of personal liberty given to him, each person is treated as one of responsible judgement, not as a child, and left free to work out his destiny as his impulse, education, training, judgement and environment direct him. (see exhibit I)

The question before this rulemaking body is what is the most effective and efficient manner of protecting the consumer from unscrupulous operators? The FTC has proposed a myriad of regulations which, in our opinion, will only serve to drive legitimate activity - activity which has been successful in the marketplace for years - out of business. (see exhibit J)

Even if the FTC can see nothing 'of any possible value to society in the telemarketer's sales programs, they are as much entitled to the protection of free speech as the best of music or literature. When the marketplace tires of them they will make their exit. Consumer protection advocates cannot hurry them off by characterizing the "give away" programs as fraudulent, if, as a matter of law, they are not. It is the consumer, and not the FTC, who should be the ultimate judge of the telemarketer.

The simplest solution that we can think of would be for the telemarketing seller to be required to include with the delivered product or service an unconditional moneyback guarantee. The customer then has an absolute right, for a specified period of time, to return the goods or services for a full refund. An unconditional money-back guarantee holds the telemarketer accountable to the marketplace ensuring that the seller accurately accesses the needs and desires of the customer. An unconditional money-back guarantee minimizes bureaucracy and establishes a definable standard for all. Perhaps most importantly, an unconditional moneyback guarantee could solve the constitutional problems and burdensome requirements found at Section 310.4 (a) (7), Section 310.4 (b) (1), Section 310.4 (d) (3) and (4), and Section 310.4 (e) (1).

Respectfully submitted,

Allen Knievel


Section 310.3 (a)

This proposed rule is too harsh on the seller. Conceivably, a seller could face a $10,000.00 fine for a single violation by a rogue or inexperienced salesperson.

Common Sense - Legitimate telemarketers already know the importance of salespeople properly representing their offers and structure appropriate training and supervision.

Alternative - Fine only repeat violators.

Section 310.4 (d) (3) (ii) and 310.4 (d) (4)

Advertisers have the right to create value - value as defined by the consumer.

The FTC's assumption is that the disclosure of a verifiable retail value should be a material consideration in the consumer's decision to purchase. The FTC's assumption is fatally flawed. If consumers truly cared about verifiable retail values all they need do is ask.

Furthermore, in an incentive gift promotion, a premium is something given to the consumer ' for free. The promoter should have the option of giving something free to whomever they choose, in whatever situation they choose, without having to disclose the verifiable retail value.

Common Sense - Consumers who are truly interested in the verifiable retail value of an item need only ask. Telemarketers who do not tailor their sales programs to the expectations of the marketplace will quickly fail.

Problems - Every gift offered over the telephone, in every enterprise in the United States, barring the specific exempted situations, will be affected by this rule. Direct mail marketers do not disclose the verifiable retail values of premiums and telemarketers should not be singled out for censorship.

Requiring verifiable retail value disclosures will lead to an entire new industry dedicated to supplying premium and prize items with grossly inaccurate verifiable retail values which will only increase customer confusion.

Some telemarketers offer the consumer a premium selection from among as many as forty different items. oral disclosure of the verifiable retail value of all the possible items is simply not practical.

Alternatives - Require telemarketers to offer customers a money-back guarantee. If a telemarketer declares a value when referring to a premium (or prize) require the telemarketer to disclose a verifiable retail value (as defined in these proposed rules).

Section 310.4 (a) (7)

If a seller complies with the provision to distribute prizes once every 18 months then this rule would prohibit soliciting a previous purchaser until the end of the 18 month period. Some telemarketers offer consumers a choice of premiums or prizes and on occasion consumers do not exercise their selection option. Some customers are simply interested in only the product or service offered. Some telemarketers offer "S and H green stamp" style promotions where cumulative purchases entitle consumers to different levels of premium selections.

Common Sense - If consumers were dissatisfied with their first order they are not going to purchase again anyway. This rule will just create a situation where more companies trade names. Many-consumers are simply not interested in premiums or prizes in the same way that they are not interested in coupons, rebates, etc. Their sole interest is to avail themselves of the product or service offered.

Alternative - Unconditional money-back guarantee would allow

market forces to correct unscrupulous telemarketers,

Section 310.4 (e) (1)

This rule would require a seller to first obtain a written acknowledgement concerning a chance promotion from a prospect before requesting or accepting payment. This would necessitate mailing the acknowledgement to all prospects before soliciting them. Can you imagine the great burden of costs in mailing, tracking, and follow up just to get the signed written disclosure back? Furthermore, even if a person was predisposed to the sales promotion, great numbers of those would fall out simply because of inattention or inconvenience of mailing the disclosure back to the seller. From the customer's perspective telemarketing provides a convenient purchasing option. The written acknowledgement rule would negatively impact the customer by delaying a desired product or service.

If consumers want to know the rules of a promotion before purchasing all they need to do is ask.

This is censorship based on who the speaker is and not what the speaker is saying. Other marketers advertise chance promotions via radio and television, disclose far less than is required by these rules, and do not have to obtain written acknowledgements.

Common Sense Impractical. Information needed by the consumer is required to be disclosed orally throughout the many other rules of this act.

Alternative An unconditional money-back guarantee would eliminate the need for this rule. For consumers who ask, require telemarketers to provide written disclosures.

Section 310.3 (a) (1) (i)

This section would adversely affect travel programs that are to be used by the consumer in the future when the cost of the travel booking is unknowable.

Common Sense Not practical as this rule would unnecessarily hinder a highly desirable incentive from being used in the marketplace.

Alternative Require disclosure of costs only if knowable and only if the consumer asks.

Section 310.4 (a) (2)

This rule is a restraint of trade. Also, the FTC would be unnecessarily restricting the courier's business. Furthermore, fraudulent telemarketers would simply ignore this rule or circumvent the rule by sending people out a self-addressed, stamped envelope.

Additionally, this particular restriction would make it more difficult for a legitimate telemarketer to operate his/her business effectively, efficiently, and profitably. Legitimate telemarketers find their customers value the added security that bonded couriers provide. The customer has a receipt for his/her package, a toll-free customer service number and tracking number to locate a package and/or confirm delivery, and, in many cases, insurance for a package.

Common Sense Easy rule for illegal operators to circumvent. Consumers and sellers should be free to contract the tendering of payment anyway they see fit.

Alternative Telemarketers whose customers schedule their own pick ups should be exempt from this rule.

Section 310.3 (a) (4)

All contracts other than real estate in this country are enforceable whether they are written or oral. If a customer gives you oral authorization to electronically withdraw a certain amount of money from his or her checking account that is in fact an oral contract. If an unscrupulous telemarketer withdraws more than the authorized amount from the customer's checking account that is a criminal act, subject to criminal prosecution.

Any new business, whether it be a telemarketer or a retail business, has a relatively difficult time obtaining credit card merchant accounts from banks. To punish or to discriminate against a legitimate telemarketer because of time in business or lack of financial ability is unfair.

This particular restriction would make it more difficult for a legitimate telemarketer to operate his/her business effectively, efficiently, and profitably. Legitimate telemarketers find that their customers enjoy the convenience of check drafts. They do not have to write a check, obtain a money order or cashier's check from the bank, or arrange for delivery of their check to the company. Using check drafts is an efficient way for both the customer and the company to conduct business. Legitimate telemarketers already institute a thorough system of solicitation and verification to insure that an unauthorized order is not processed and a customer's account is not debited for an order he/she does not want. After a sales representative has received an order from a customer, a verification representative calls the customer back and, following a prepared verification presentation, confirms all the material terms of the transaction with the customer. This system enables the company to discern whether a customer is confused about his/her transaction and, if so, cancel the sale. Legitimate telemarketers have instituted control systems which prevent unauthorized orders from being processed. Requiring a legitimate telemarketer to interrupt its efficient and cost- effective processing system to await a signed authorization is unnecessary - the company has already received the customer's verbal authorization during the verification call which is, in many instances, tape recorded for future reference.

Common Sense If consumers didn't authorize check debiting or electronic transfers they would not give out their bank account numbers to telemarketers.

Alternative An unconditional money-back guarantee would allow market forces to correct unscrupulous telemarketers. Require record keeping of voice authorizations.

Section 310.4 (a) (4)

Exempting attorneys and private investigators will only lead to the recovery services typing up simpleton agreements that unscrupulous attorneys and p.i.s would have no trouble getting the victim to sign. "Mail order" p.i.s would appear overnight.

Common Sense This would encourage victims to use attorneys and p.i.s further depleting their finances and giving them a false sense of security.

Alternative Attorneys and private investigators should not be exempt.

Section 310.4 (b) (1)

This rule is a restraint of trade and violates the first amendment.

A telemarketer who purchases thousands of names each week would be economically burdened, if it were even possible, to wash the list of duplicates.

This rule would actually encourage the trading of names within the industry.

Legitimate telemarketers are currently complying with the FCC's no call rule.

Common Sense Legitimate telemarketers would not risk offending a prospective customer by repeatedly bothering them. Crooks will never follow this rule.

Alternative Eliminate (i), keep (ii)

Section 310.3 (b) (1) and Section 310.3 (b) (2)

This is unconstitutional, a violation of due process. Under the due process clause government regulation must be sufficiently clear so that ordinary people can understand what conduct is being prohibited and so that the regulation does not encourage arbitrary or discriminatory enforcement.

Common Sense - This is a blatant attempt to scare suppliers away from doing business with telemarketers.

Section 310.4 (c)

Many telemarketing firms, because of time zone differences, must make telephone calls before 8:00 a.m. and/or after 9:00 p.m. Additionally, many telemarketing firms operate on such thin profit margins, with the phone lines being such a major expense, that their only competitive edge is dependent on being able to call during off-peak billing hours.

The court has also stated that if there are numerous and obvious less- burdensome alternatives to the restriction on commercial speech, that is certainly a relevant consideration in determining whether the "fit" between ends and means is reasonable. Wouldn't a reasonable "fit", regarding bothersome phone calls, simply be for the telemarketer to comply with the FCC's no call rule?

Common Sense - Legitimate telemarketers would not risk offending a prospective customer by repeatedly bothering them. Crooks will never follow this rule. All the consumer has to do with an unwanted phone call is hang up the phone. With today's busy lifestyles and so many people working varied hours often the only time to reach a customer is between 7:00 and 8:00 a.m.

Alternative - 7a.m. - 10 p.m.

Section 310.7

This provision will lead to conflicting and selective interpretations of these rules. The FTC will be burdened in cooperating with State Attorney Generals filing actions for political and/or media visibility.

Common Sense The states already have their own deceptive trade practice acts to deal with fraudulent telemarketers.

Alternative Require states to conduct investigations that are procedurally objective and allow the telemarketer their constitutional right of due process. (see exhibit G)

Additional Comments:

Exemptions should be provided for companies offering unconditional money- back guarantees, companies in business for a long period of time (5 - 10 years) under the same name, and an exemption should be provided for calls to previous customers. Misrepresentation or excessive puffery is unlikely during solicitations to former customers because of the familiarity factor.

Companies that have been in business for any length of time simply cannot change their method of operation in 30 days. Businesses have contracts and commitments made far into the future to which they are legally obligated. This 30 day requirement would also disrupt existing customer relationships. 180 - 360 days is more reasonable.

In regard to Section F, the FTC findings are incorrect that the proposed regulations will not have a significant impact on a substantial number of small entities. The FTC should be required to provide a regulatory flexibility analysis.

Many of the restrictions in the proposed rules could be challenged on the grounds that they are unconstitutional under the First Amendment and do not directly advance governmental interests in stopping telemarketing fraud. It will be argued that these rules, practically applied, operate to completely ban telemarketers from engaging in protected commercial speech similar to the mind-set evidenced by exhibit "J." Under the test established by the Supreme Court in Central Gas and Electric Corp. vs. Public Serv. Comm'n, telemarketers could challenge the FTC rules by arguing the rules do not "directly advance" the governmental goal of preventing fraud. Much like the state's laws that have been passed in recent years, the FTC rules will have little effect in halting fraudulent telemarketing while seriously burdening the legitimate industry. Therefore, the government's goals have not been directly advanced.

Alternatively, it can be argued, also under Central Hudson, that the restrictions are more extensive than necessary to serve the government's goals. The rules are overbroad and fail to meet the Central Hudson and City of Cincinnati vs. Discovery Network, Inc., test because truthful and nonmisleading expression will be snared along with fraudulent or deceptive commercial speech. The FTC will not be able to prove that the restrictions are crafted narrowly enough to serve a substantial state interest.

Moreover, the Supreme Court has stated recently in Edenfield vs. Fame that direct solicitation "may have considerable value" because such "solicitation allows direct and spontaneous communication between buyer and seller." "The commercial marketplace, like other spheres of our social and cultural life, provides a forum where ideas and information flourish. Some of the ideas and information are vital, some of slight worth. But the general rule is that the speaker and the audience, not the government, assess the value of the information presented." The court- also-indicated that direct commercial communications are less suspect because the consumer has the chance to ask questions and raise problems with the solicitor.


It is in a climate of distrust and confusion that legitimate telemarketers have constantly been forced to justify their activities to law enforcement and regulatory agencies. Unfortunately, the effort to create or develop understanding has all too often fallen on deaf ears.

Convinced that the majority of entrepreneurial telemarketing companies are "illegitimate", it has often been difficult if not impossible for some law enforcement personnel to even begin to understand that an entrepreneurial telemarketing company can constitute a legitimate telemarketing enterprise. The result is a classic case of guilt by association. Entrepreneurial telemarketing companies are all stereotypically categorized as "illegitimate", regardless of the merits of their individual promotions and regardless of whether or not the promotions used by the company are in fact "legal" or "illegal".

Despite objective evidence of customer satisfaction, certain law enforcement personnel continue to insist that consumers cannot possibly be satisfied with their purchases. Unfortunately, such law enforcement personnel routinely base their conclusions not on empirical evidence or on any reliable evidence, but rather on their own personal value judgments.

They argue that the merchandise sold by telemarketers is overpriced and that few consumers would knowingly pay for such overpriced merchandise. Consequently, they conclude that such consumers must have somehow been defrauded. The first question that must be asked with regard to the issue of price, is when is a price too high? Is it too high when a consumer pays $3.00 for a $0.19 box of popcorn at a movie theater? Is it too high when a replacement tire at an isolated service station costs $150.00 for a $30.00 tire? Is it too high when a credit card company charges 18% interest? When exactly is a price too high?

More importantly, who is going to make that decision and how is that decision going to be applied evenly to all merchants? Is it the proper role of law enforcement to attempt to regulate the cost of goods sold? What about the courts? Should judges decide how much one party can or should charge another party for non-essential goods or services? The law of unconscionable pricing has answered both of these questions with a resounding "no".

The fact is that people have different tastes, needs, desires and expectations. Simply because certain law enforcement officials may not see the value in purchasing 500 custom engraved pens for $499.00, does not in any way establish that other individuals with different needs, desires, and expectations, would feel the same way. one person may have a use for such merchandise while another may not. Some people may value the money-back guarantee or the home delivery while others might have no interest in these benefits. Still others may be inspired to purchase due to the promotional offering surrounding the sale, just as purchasers from Publisher's Clearing House are inspired to do so. The point is, these issues are a matter of personal preference. They are a matter of "free choice".

The origin of "free choice" and the sanctity of "freedom to contract" dates back to English common law. This principal was reaffirmed by the United States Supreme Court when it stated:

The public is entitled to get what it chooses, though the choice may be dictated by caprice or by fashion or perhaps by ignorance. FTC v. Algoma Lumber Co., 291 U.S. 67, 78 (1934).

The reason for this widespread recognition of "free choice" and "freedom to contract" is due in part to the fact that this country could not have a functional and dynamic system of commerce if the parties could not rely on the courts to enforce their agreements. A second and perhaps even more important reason is the value that we all place on our ability to choose freely.

As David L. Shapiro, William Nelson Cromwell Professor of law, Harvard Law School, noted:

The idea that A, without consulting B, may decide what is in B's best interest, and may even coerce B into compliance with that decision, was described only recently as an almost "un-American" rationale for any type of government activity. Court Legislatures and Paternalism, 74 Va. L. Rev. 519 (1988).

Professor Shapiro went on to state:

Indeed, it might be possible, on grounds of "incapacity" and "real will", to argue that an entire class, or an entire society, is the victim of false consciousness and must be helped in spite of itself. The threshold doctrines of justiciability, and especially of standing, reflect the notion that if people are unwilling to press their own grievances, others should generally not be allowed to do it for them. Id., at 520. See also, C. Wright, The Law of Federal Courts 13, at 71-73 (4th ed. 1983).

Professor Shapiro concluded by saying:

: ' ' the very ability to choose - which necessarily implies the ability to make poor choices by some objective standard - is critical to the growth of our diverse intellectual, emotional, and volitional capacities. Indeed, given the range of possible choices and preferences, an individual is likely to have a better idea than anyone else of how a particular choice fits his circumstances and goals. It has never been shown that, as a general matter, A can do a better job of choosing for B than B can do for himself, especially when A is a state agency or official that has limited knowledge of B's life plans, or when A's actions relate to a group of B's sharing only one or a few characteristics. . . Id, at 546.

Another equally important question is, who requires the special assistance of the government in determining what they should buy? Do the poor, the uneducated or the unemployed need this special assistance? What about members of historically disadvantaged racial or ethnic groups? Perhaps women or the elderly need this special assistance. Paternalism involves treating all of these people as less than competent. The perils of this course are both obvious and great.

Does the fact that someone is poor or uneducated mean that they do not know their own self interest? Do ethnic and racial minorities need special assistance from the state in deciding what to buy and what not to buy? More importantly, why is it that a state, with its limited knowledge of these people, their lives, their hopes and their plans, in a better position to decide what is good for them than they are themselves? Clearly, it is difficult if not impossible to assert that the people who fall into any or all of these classes are not in general competent. How then can paternalistic efforts to make decisions for these people, or to relieve these people of their contractual obligations be justified? If these people are unwilling to press their own grievances, isn't Professor Shapiro correct when he states that "others should not be allowed to do it for them"?

More importantly, is it truly in the long term interests of these groups that they be relieved from their contractual obligations? What impact might this course of conduct have on the ability of these groups to obtain necessary goods or services in the future? What happens when sellers become less willing to sell to these groups? Will treating these people as less than competent ultimately threaten their ability to gain access to certain essential goods and services? The dangers seem obvious.

Another concern raised by law enforcement and regulatory agencies is that telemarketing companies "prey on the elderly". Please understand that legitimate telemarketers do not "prey on the elderly". In fact, just the opposite is true. Legitimate telemarketers avoid people like this whenever possible. Purchasers, whether elderly or unsophisticated or compulsive, who are unwilling or unable to exercise good judgment or self restraint, create law enforcement and regulatory problems not only for telemarketing companies but for all retailers. Legitimate telemarketers neither want nor need to prey on, or profit from, these individuals.

For years the DSA of Nevada has been asking law enforcement and regulatory personnel to consider all of the evidence prior to arriving at any conclusions, to recognize that there are two sides to every dispute and to resist imposing their personal value judgments on private contracting parties. The DSA has repeatedly made the details of its member's promotions available to state and federal law enforcement personnel. In addition, the DSA's members have specifically and repeatedly invited such personnel, to provide any legal authority which would support the position that the promotion is deceptive, misleading and/or in any way illegal. Despite repeated requests, no law enforcement officer or agency has ever provided any case law or statutory authority which establishes the promotions as inherently deceptive, misleading and/or illegal. Instead, such officials have relied on their personal value judgments, and/or the biased and often hearsay testimony of financially interested parties to make accusations that are consistently void of any legal and/or empirical support.

When legitimate telemarketers attempt to question and/or raise legitimate objections and/or defenses to these accusations, the typical responses have been for law enforcement personnel to take the offensive, willing to proceed with litigation in the absence of objective evidence - coercing the telemarketer into submission. In effect, creating law by consent decree.

Why do certain law enforcement personnel continue to act as modern day vigilantes? One explanation is that certain law enforcement personnel, based on their own personal value judgments, believe that consumers should not be spending significant amounts of money on non-essential merchandise. In addition, such law enforcement personnel may honestly believe that many of these consumers have actually been defrauded by illegitimate telemarketing companies and feel sympathetic toward these individuals. Finally, due to excessive work loads, media hype and political pressure, and the fact that most illegitimate telemarketing companies quickly disappear, there is often the perception that whatever action is going to be taken needs to be taken rapidly.

Unfortunately, these factors combine to create a "shoot first and ask questions later" mentality. All too often, civil investigative demands are issued and/or complaints are filed without proper investigation and without reflection. An overriding concern for consumers who are believed to be victims of some telemarketers, results in the aggressive prosecution of virtually all telemarketers. Apparently, the ends are thought to justify the means.

What concerns legitimate telemarketers is that such actions are rarely, if ever, based on a known or established violation of law. Rather they are based, for the most part, on guilt by association or on what has popularly become known as "psychofacts" (see, The Triumph of the Psycho- Fact", Newsweek, May 9, 1994, pg. 73, exhibit "F"). Tragically, the result of such an approach toward consumer advocacy is that agencies and officers who's sworn duty it is to uphold the law, routinely demonstrate an utter disrespect for its most fundamental guarantees.

The law requires telemarketers to sell truthfully. It does not require them to sell that which state agencies and/or state officers, based solely on their own personal value judgments, consider to be "worthwhile".


Despite repeated opportunities to do so, the vast majority of legitimate telemarketer's customers voice little if any dissatisfaction with their purchases yet government officials continue to press forward under the pretext of widespread consumer dissatisfaction. Why? The reason seems obvious.

Government officials, based on their own personal value judgments, object to the bargains being made. They disagree with the choices being made by consumers and their private sense of values, along with political, bureaucratic and media pressure,, compels them to intervene. This is true despite the fact that no violation of law has been found to exist.

What these governmental officials fail and/or refuse to understand, is that we live in a society of laws. A society in which the personal value judgments of those who are sworn to uphold the law, cannot and should not be controlling. Either the promotions administered by telemarketers are illegal, in which case the telemarketer's promotions should be discontinued, or the promotions are legal, in which case telemarketers should be allowed to proceed in a free market guided only by the rule of law and their own sense of values.

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