Last week, the Federal Trade Commission (FTC) released new amendments to the Telemarketing Sales Rule (TSR) that the FTC first proposed in July 2013 and that will go into effect in 2016. As expected, the new amendments make a number of substantial changes, including a ban on the use four types of payment methods in telemarketing. It also clarifies certain issues relating to the FTC’s Do Not Call enforcement policies and their application to business-to-business calls, demonstrating the existence of an “established business relationship,” and the sharing of the cost of Do Not Call (DNC) Registry fees.
Telemarketing Ban on Certain Payment Methods
The ban covers the use in telemarketing of remotely created checks (“RCCs”) and remotely created payment orders (“RCPOs”), which would include any payment order, instruction, or check (whether electronic, paper, or imaged) that is remotely created by the payee and deposited into the check clearing system. The ban also covers the use of cash reload mechanisms and cash-to-cash money transfers in telemarketing transactions. As described by the FTC, cash reload mechanisms act as a virtual deposit slip for consumers to load funds onto a general-purpose reloadable debit card without a bank intermediary. In cash-to-cash money transfers a consumer brings cash or currency to a provider that transfers the value to another person, who picks up the cash in person.
In its notice of proposed rulemaking, the FTC stated that all four of these payment methods were used almost exclusively by perpetrators of telemarketing fraud. None of these four payment methods are subject to the same types of statutory, regulatory, and payment card industry consumer protections, such as error resolution and liability limits, that protect credit or debit card users.
Thus, the FTC concluded use of these four payment methods in telemarketing constituted an “abusive practice.” In making this determination, the FTC applied the unfairness analysis set out in Section 5(n) of the FTC Act. That test asks whether a practice causes or is likely to cause substantial injury to consumers that is neither reasonably avoidable by consumers nor outweighed by countervailing benefits to consumers or competition.
It should be noted that the payment method ban applies only to telemarketing transactions involving a plan, program, or campaign to induce the purchase of goods or services subject to the TSR. As such, the use of these payment methods in other transactions conducted over the telephone – such as last-minute payments of credit card bills, insurance premiums, collection of debts, and mortgages – would not be prohibited.
Other Amendments and Clarifications
In addition to the select payment method ban, the final rule expands the prohibition against advanced fees for loss recovery services, which are currently limited to recovery services for losses sustained in prior telemarketing transactions, to include recovery of losses in any previous transaction, not just telemarketing.
The amendments also clarify five existing TSR provisions to make the Commission’s enforcement policy more transparent, three of which pertain to the TSR’s DNC requirements. The FTC clarified that:
- Any recording made to memorialize a customer’s express verifiable authorization (required for telemarketing transactions if payment is not made by credit or debit card) must include an accurate description of the goods or services.
- The telemarketing exemption for calls to businesses covers only calls inducing a sale or contribution from the business, and not calls inducing sales or contributions from individuals employed by the business. According to the FTC, this clarification “should further deter telemarketers from attempting to circumvent the [DNC] Registry by soliciting employees at their places of business to make personal charitable contributions or to purchase goods or services for their individual use.”
- It is the seller/telemarketer who bears the burden of demonstrating that the seller has an existing business relationship with a customer whose number is listed on the DNC Registry.
- It remains unlawful to deny or interfere in any way with a consumer’s right to be placed on an entity-specific do-not-call list, and the FTC has now added examples of the types of burdens that the FTC finds impermissible, including harassing consumers, requiring consumers to first listen to a sales pitch, assessing a charge for honoring the request, and other such practices. Additionally, the FTC specified that a failure to obtain the information needed to place a consumer on a seller’s entity-specific do-not-call list disqualifies the seller from relying on the safe harbor for isolated or inadvertent violations.
- The TSR’s prohibition against sellers sharing the cost of registry fees is absolute. In other words, no person may participate in any arrangement to share the cost of accessing the National DNC Registry, including arrangements where a telemarketing call center might divide the costs among various clients.
The TSR may be enforced by the FTC, Consumer Financial Protection Bureau, state attorneys general, or other appropriate state officials, as well as private persons who meet stringent jurisdictional requirements.
* * * * * *
The amended TSR requirements will go into effect 60 days from the date of publication in the Federal Register, except for the prohibitions against accepting novel payment methods, which will go into effect 180 days from publication.