federal register - protecting america's consumers · federal register/vol. 60, no....

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30405

ThursdayJune 8, 1995

Part III

Federal TradeCommission16 CFR Part 310Telemarketing Sales Rule; Proposed Rule

30406 Federal Register / Vol. 60, No. 110 / Thursday, June 8, 1995 / Proposed Rules

1 15 U.S.C. 6101–08.

2 60 FR 8313–33.3 A list of the commenters, and the acronyms

which will be used to identify each commenter inthis notice, is appended to Section A of this notice.

4 The selected participants were: AARP, ATA,ATFA, APAC, ANA, DMA, DSA—Nev., DSA, EMA,ISA, ICTA, MPA, Monex, NAAG, NACAA, NAPA,NCL, NRF, PMAA, and USPS.

5 References to the conference transcript are citedas ‘‘Tr.’’ followed by the appropriate pagedesignation. References to comments are cited as‘‘[acronym of commenter] at [page number].’’

6 The FTC gopher server address isCONSUMER.FTC.GOV 2416. For World Wide Webaccess, the URL is GOPHER://CONSUMER.FTC.GOV:2416.

7 H. R. Rep. No. 20, 103rd Cong., 1st Sess. 8; S.Rep. No. 80, 103rd Cong., 1st Sess. 9 (hereinafterreferred to as ‘‘House Report’’ and ‘‘Senate Report,’’respectively).

FEDERAL TRADE COMMISSION

16 CFR Part 310

Telemarketing Sales Rule

AGENCY: Federal Trade Commission.ACTION: Revised notice of proposedrulemaking.

SUMMARY: In this document, the FederalTrade Commission (‘‘FTC’’ or‘‘Commission’’) issues a revised noticeof proposed rulemaking to implementthe Telemarketing and Consumer Fraudand Abuse Prevention Act(‘‘Telemarketing Act’’ or ‘‘the Act’’).Section 3 of that Act directs the FTC toprescribe rules, within 365 days ofenactment of the Act, prohibitingdeceptive telemarketing acts or practicesand other abusive telemarketing acts orpractices.DATES: Written comments must besubmitted on or before June 30, 1995.Due to the time constraints of thisrulemaking proceeding, the Commissiondoes not contemplate any extensions ofthis comment period or any additionalperiods for written comment or rebuttalcomment.ADDRESSES: Six paper copies of eachwritten comment should be submittedto the Office of the Secretary, Room 159,Federal Trade Commission,Washington, D.C. 20580. To encourageprompt and efficient review anddissemination of the comments to thepublic, all comments also should besubmitted, if possible, in electronicform, on either a 51⁄4 or a 31⁄2 inchcomputer disk, with a label on the diskstating the name of the commenter andthe name and version of the wordprocessing program used to create thedocument. (Programs based on DOS arepreferred. Files from other operatingsystems should be submitted in ASCIItext format to be accepted.) Individualsfiling comments need not submitmultiple copies of comments inelectronic form. Submissions should becaptioned: ‘‘Proposed TelemarketingSales Rule,’’ FTC File No. R411001.FOR FURTHER INFORMATION CONTACT:Judith M. Nixon, (202) 326–3173, orDavid M. Torok, (202) 326–3140,Division of Marketing Practices, Bureauof Consumer Protection, Federal TradeCommission, Washington, D.C. 20580.

SUPPLEMENTARY INFORMATION:

Section A. BackgroundOn August 16, 1994, the President

signed into law the Telemarketing Act,1which directs the Commission toprescribe rules, within 365 days of

enactment of the Act, prohibitingdeceptive and abusive telemarketingacts or practices. The Commissionpublished a notice of proposedrulemaking (‘‘NPR’’) in the FederalRegister on February 14, 1995.2

In response to the NPR, theCommission received over 300comments from industry, lawenforcement and consumerrepresentatives, as well as fromindividual consumers and businesses.3In general, consumers commented thatthe initially proposed Rule did not gofar enough to stop unwantedtelemarketing calls. Law enforcementofficials uniformly praised theCommission’s proposal for its thoroughand useful treatment of the variousmeans employed by fraudulenttelemarketers to get consumers’ moneythrough deception or abuse. Finally,most industry representatives generallymaintained that the initially proposedRule unnecessarily burdened legitimatebusinesses, adding needless coststhrough overbroad proposals that failedto aim specifically at deceptive andabusive telemarketing practices.

Between April 18 and 20, 1995, staffof the Commission conducted a publicworkshop conference in Chicago,Illinois. Twenty associations orindividual businesses, each with anaffected interest and ability to representothers with similar interests, wereselected to engage in a roundtablediscussion.4 Howard Bellman served asthe conference facilitator. Participantsdiscussed various aspects of the initiallyproposed Rule, addressed each other’scomments and questions, andresponded to questions fromCommission staff members. Theconference was open to the public, andmore than 150 observers attended. Oralcomments from members of the publicwere invited each day, and 37individuals spoke during the course ofthe three-day conference. The entireproceeding was transcribed, and thetranscript was placed on the publicrecord.5

On May 3, 1995, Commission staffbriefed all the Commissioners, in anopen meeting, about the rulemakingprocess, the issues raised in the writtencomments and the public workshop,

and stated possible approaches toaddress the issues commenters raised.The briefing was transcribed and thetranscript was placed on the publicrecord. The entire public record to date,including the comments, the conferencetranscript, and the Commission openbriefing transcript is available on CD–ROM and has been placed on theInternet.6

Based on the Act’s legislative history,the written comments received, and theinformation learned at the workshopconference, the Commission hasdecided to modify its regulatoryapproach in this revised proposed Rule.The Commission believes thismodification is necessary to effectuateappropriately Congress’ directive thatthe FTC in its rulemaking ‘‘developcriteria of behavior’’ and ‘‘issue a * * *rule [that is] flexible enough toencompass the changing nature of[deceptive] activity, while at the sametime providing telemarketers withguidance as to the general nature of theprohibited conduct.’’ 7 TheCommission’s revised approachaddresses many commenters’ concernsthat the initially proposed Rule cast toobroad a net and imposed unnecessaryburdens on the legitimate telemarketingindustry without adequately focussingon deceptive and abusive telemarketingpractices. Additionally, the revisedproposed Rule addresses lawenforcement concerns that the Ruleneeds to provide enough enforcementflexibility to reach deceptive andabusive telemarketing acts or practicescurrently unknown. The Commissionbelieves additional public comment ona revised proposal will assist inproducing a final Rule that mosteffectively prohibits deceptive andabusive telemarketing practices, whilenot unduly burdening legitimatebusinesses.

Section B of this notice discusses, ona section-by-section basis, theCommission’s revised proposed Rule.

Appendix

List of Commenters and Acronyms

Acronym and Commenter

ADS ADS TeleservicesADVANTA Advanta Corp.ALIC Allstate Life Insurance Co.AMCI Allstate Motor Club., Inc.A-MARK A-Mark Precious Metals, Inc.AAF American Advertising Federation

30407Federal Register / Vol. 60, No. 110 / Thursday, June 8, 1995 / Proposed Rules

AAAA American Association ofAdvertising Agencies, Inc.

AARP American Association of RetiredPersons

ABA American Bankers AssociationACRA American Car Rental AssociationACA American Cemetery AssociationADC American Distributing CompanyAMEX American Express CompanyAFSA American Financial Services

AssociationAIG American Impact GroupAPN American Publishers Network, Inc.ARDA American Resort Development

AssociationASAE American Society of Association

ExecutivesASTA American Society of Travel AgentsATA American Telemarketing AssociationATFA American Telephone Fundraisers

AssociationAWMI American West Marketing, Inc.—

Barry EngelsAWMI American West Marketing, Inc.—

Sandra SawyerAMERINET AmeriNet, Inc.ANDREWS Andrews Satellite & Home

TheaterANN ARBOR Ann Arbor NewsAPAC APAC TeleServicesABI Archbold Buckeye, Inc.AMOC Arizona Mail Order Company, Inc.ARA Arizona Retailers AssociationA&H Arter & HaddenACB Associated Credit Bureaus, Inc.AAP Association of American PublishersAITS Association of Independent

Television Stations, Inc.ANA Association of National AdvertisersATLANTA Atlanta Journal & Atlanta

ConstitutionAT&T AT&T Corp.AUTOSCRIBE AutoScribe CorporationBAGGS Baggs, AndrewBAGWELL Bagwell, Linda L.BOB Bank of BostonBAY CITY Bay City TimesBELLEVILLE Belleville News-DemocratBMCA Beneficial Management Corporation

of AmericaBNC Birmingham News CompanyBRADLEY Bradley, MJPBRANTLEY Brantley, LamarBREWSTER Brewster, The Honorable Bill

K.BFC Brown Forman CorporationBPIA Business Products Industry

AssociationSAMPLER Business Sampler Advertising,

Inc.BSA Business Software AllianceCAPITAL Capital PressCAPUTO Caputo, Harriet Q.CCA Career College AssociationCME Center for Media EducationCHASE Chase Manhattan Bank (USA)CHEMICAL Chemical BankCHERNIKOFF Chernikoff, J.D.CDI Circulation Development, IncCITICORP Citicorp/CitibankCOALITION ‘‘Coalition’’—various

companiesCPA Colorado Press AssociationCHC Columbia House CompanyCOMCAST Comcast Corporation/Jones

Intercable

CA Commercial AppealCBA Consumer Bankers AssociationCFA Consumer Federation of AmericaCONWAY Conway National BankCORNELL Cornell GroupCMOR Council for Marketing and Opinion

ResearchCOX Cox Newspapers, Inc.CRILLY Crilly, Thomas W.CUCI CUC InternationalDCR Daily Court ReviewDAILY NEWS Daily NewsDMBE Department of Marketing and

Business Environment, FloridaInternational University

DMI DialAmerica Marketing, Inc.DMT&H Dickinson, Mackaman, Tyler &

Hagan, P.C.DW&Z Dierman, Wortley & Zola, Inc.DSA-NEV. Direct Sales Association of

NevadaDSI Direct Sales International (2 copies of

letter, 1 of comment)DMA Direct Marketing AssociationDMSI Direct Marketing Services, Inc.DSA Direct Selling AssociationDIVERSIFIED Diversified Marketing

Service, Inc.DONREY Donrey Media GroupDOUBLEDAY Doubleday Book & MusicDOW JONES Dow Jones & Co., Inc.OREGONIAN East OregonianBAUER Eddie Bauer, Inc.EDMUND Edmund Scientific CompanyEMA Electronic Messaging AssociationEMMONS Emmons, Ethel B.EQUIFAX Equifax Credit Information

Services, Inc.EHRLICH Ehrlich, The Honorable Robert L.,

Jr.ERIE Erie Construction Mid-West, Inc.ERNST Ernst, MichaelF&W F&W PublicationsFedEx Federal ExpressFRB Federal Reserve BanksFRB–SF Federal Reserve Bank of San

FranciscoFINGERHUT The Fingerhut CompaniesFLINT Flint JournalFORNEY Forney Messenger Inc.FRANKLIN Franklin MintGABRIEL Gabriel, Mrs. Harry J., Jr.GANNET Gannett Co., Inc.GE GE AppliancesGA OCA Georgia Office of Consumer

AffairsGRA Georgia Retail AssociationGIBSON Gibson, Stewart & JeanGGP Gift Gallery PromotionsGCM Good Cents MarketingGREENE Greene, RussGRIDER Grider, FeliciaGROLIER Grolier TeleMarketing, Inc.GHA Group Health Association of AmericaGUTHY Guthy-RenkerHHDM Harte-Hanks Direct MarketingHHMS Harte-Hanks Marketing ServicesHAWES Hawes Center, Inc.HEAD Head, W.L.HEARST Hearst MagazinesHNM&T Hearst New Media & TechnologyHELMS Helms, The Honorable JesseHERRERA Herrera, BarbaraHERTZ Hertz CorporationHSN Home Shopping NetworkHOUSEHOLD Household Bank

HFC Household Finance Corp.HII Household International, Inc.H&H Howe & Hutton, Ltd.—March 14

commentH&H Howe & Hutton, Ltd.—March 30

commentHUDSON Hudson City Savings BankHUNTINGTON Huntington National BankHUNTSVILLE Huntsville Times/Huntsville

NewsIDAG Idaho Attorney GeneralIMSP IMS PromotionsIRC Indiana Retail Council, Inc.ICTA Industry Council for Tangible AssetsIMC InfoCision Management CorporationINFOMALL Infomall TV NetworkIMSI Infomercial Monitoring Service, Inc.INSP Inspirational NetworkISA Interactive Services AssociationIBM International Business Machines

CorporationIFI International Fabricare InstituteIFA International Franchise AssociationIMS International Magazine Service of

Northern CaliforniaIRL International Readers League of

IndianapolisIH Investment HotlinesIA DOJ Iowa Department of JusticeITI ITI Marketing Services, Inc.PENNEY J.C. Penney Company, Inc.JACKSON Jackson Citizen PatriotRIVERS Joan Rivers Products, Inc.JOHNSTON Johnston, GloriaKALAMAZOO Kalamazoo GazetteKAPLAN Kaplan, JulesKIKENDALL Kikendall, Thomas J.KLEID Kleid CompanyKNIGHT Knight RidderKNOXVILLE Knoxville News Sentinel

Co.—MashburnKNOXVILLE Knoxville News Sentinel

Co.—StevensLANDMARK Landmark Community

Newspapers, Inc.LARK Lark In The MorningLAURENZA Laurenza, JosephLCS LCS Direct Marketing ServiceLEIBACHER Leibacher, Philip J. (2 copies)LENOX Lenox, Inc.LA TIMES The Los Angeles TimesLOWE’S Lowe’s StudioMPA Magazine Publishers of AmericaMSSC Magazine Subscription Sales

CoalitionMRG Marketing Response Group & Laser

Co., Inc.MARKETLINK MarketlinkMARTIN Martin DirectMASTERCARD Mastercard Int’l, Inc. & Visa

USA, Inc.MBNA MBNA America Bank, N.A.MCI MCI Telecommunications CorporationMCKNIGHT McKnight Management

CompanyMELLON Mellon Bank CorporationMELTON Melton, Carol A.MM Merchant MastersMS Merchant SamplerMGCB Merchants Gift Check BookMGC Merchants Golden ChecksMP Merchants PromotionsM–I Messenger-InquirerMRA Michigan Retailers AssociationMILLS Mills, SusanMS PRESS The Mississippi Press


8 The Telemarketing Act states that ‘‘no activitywhich is outside the jurisdiction of the [FTC] Actshall be affected by this Act.’’ 15 U.S.C. 6105(a).

9 15 U.S.C. 45(a)(2).

10 Section 18(f)(3) of the FTC Act, 15 U.S.C.57(f)(3), describes ‘‘savings associations as definedin section 3 of the Federal Deposit Insurance Act,’’12 U.S.C. 1811 et seq.

11 Section 18(f)(4) of the FTC Act, 15 U.S.C.57(f)(4), describes ‘‘Federal credit unions undersections 120 and 206 of the Federal Credit UnionAct (12 U.S.C. 1766 and 1786).’’

MOPA Missouri Press AssociationMORA Missouri Retailers AssociationMOBILE Mobile MediaMPR Mobile Press RegisterMONEX MONEXWARD Montgomery WardMMC Moore Medical CorporationMORSE Morse, Larry E.MBAA Mortgage Bankers Association of

AmericaMPG MPG NewspapersMTD MTD ServicesMURRAY Murray Ledger & TimesMUSKEGON Muskegon ChronicleMUTUAL Mutual of Omaha CompaniesNAAG National Association of Attorneys

GeneralNACAA National Association of Consumer

Agency AdministratorsNAR National Association of RealtorsNAPA National Automated Payment

AssociationNAMA National Automatic Merchandising

AssociationNBR National Bank of the RedwoodsNCTA National Cable Television

Association, Inc.NCL National Consumers LeagueNCMC National Credit Management

CorporationNFIB National Federation of Independent

BusinessNFN National Federation of NonprofitsNFA National Futures AssociationNNA National Newspaper AssociationNPS National Promotional ServicesNRF National Retail FederationNSF National Science FoundationNB NationsBankNIE Nationwide Insurance EnterpriseNPC Neighborhood Periodical ClubNETWORK Network DirectNHI New Hampton, Inc.NYSCPB New York State Consumer

Protection BoardNYTC New York Times CompanyNEWS News Publishing CompanyNAA Newspaper Association of AmericaNIMA NIMA InternationalNORDSTROM NordstromNARDA North American Retail Dealers

AssociationNASAA North American Securities

Administrators AssociationNYNEX NYNEXOHIO Ohio Health Care Products, Inc.OLAN Olan Mills, Inc.GLOBE Old GlobeOPC Oregonian Publishing CompanyORKIN Orkin Lawn CareORKIN Orkin MaidORKIN Orkin Pest Control—March 23

commentORKIN Orkin Pest Control—March 30

commentORKIN Orkin PlantscapingPACESETTER Pacesetter CorporationPTG Pacific Telesis GroupPATRIOT Patriot NewsPEPPERTREE Peppertree Resorts, Ltd.PLP Personal Legal PlansPETERSON,P Peterson, Phyllis G.PETERSON,R Peterson, Rosie MariePPI Phone Programs Inc.PLAIN Plain DealerPlantscaping (see Orkin)

PCI Private Citizen, Inc. (initial letter &comment)

Private Citizen (addendum)PCH Programmers Clearing HousePMAA Promotional Marketing Association

of America & Incentive FederationPRUDENTIAL Prudential Home MortgagePCH Publishers Clearing HousePDW Publishers Discount Warehouse—

Barclay FisherPDW Publishers Discount Warehouse—

Gina LewisPDW Publishers Discount Warehouse—J.B.

OwenPDW Publishers Discount Warehouse—

David RainsPDW Publishers Discount Warehouse—

Jimmy RiggleP&C Pullman & ComleyQUICKCARD QuickCard SystemsQVC QVC, Inc.RDA Reader’s Digest Association, Inc.SEARCHLIGHT Record Searchlight—

KjellinSEARCHLIGHT Record Searchlight—

DawsonREGAL COMM Regal Communications

CorporationREGAL GROUP Regal GroupREICHWEIN Reichwein, KayRPOA Resort Property Owners AssociationRPI Resource Publications, Inc.RICE Rice, Rodger D. and Barbara L.RICH Rich, David G.RITCHIE Ritchie SwimwearRMH RMH TelemarketingRODRIGUEZ Rodriguez, AnnROLLINS Rollins Inc. (2 copies)RPS Rollins Protective ServicesWEBER Ron Weber and AssociatesROTENBERG Rotenberg, MarionSSI SafeCard Services, Inc.SAGINAW Saginaw NewsSFNA San Francisco Newspaper AgencySEARS Sears Merchandise GroupSIASSR Securities Industry AssociationSCIC Service Contract Industry Council

(SCIC)SHI Shop at HomeSHULMAN Shulman, BettySIGNATURE The Signature GroupS&S Simpson & Simpson, P.C.SMITH Smith, R.SDRA South Dakota Retailers AssociationSBTC Southwestern Bell Telephone

CompanySPIEGEL Spiegel, Inc.SPRINT Sprint CorporationSTAR Star-LedgerSIA Staten Island AdvanceSMSI Strategic Marketing Specialists, Inc.STUART Stuart NewsS&W Sullivan & WorcesterSUN Sun NewspapersSSE Superstar Satellite EntertainmentSUTTON Sutton MarketingSYRACUSE Syracuse NewspapersTALK800 Talk800TMGI Telatron Marketing Group, Inc.TELENATIONAL Telenational MarketingTCPS Telephone Check Payment SystemsTPA Tennessee Press Association, Inc.TEZANOS Tezanos, MaritzaTCI Thomas Cook, Inc.TIEDT Tiedt, Thomas N.TIMEWARNER Time Warner

T–I Times-IndependentTP Times PicayuneTITUS Titus, The Honorable Dina (2 letters)TMG TMG (Television Marketing Group)TMW TMW MarketingTMO Total Marketing Outbound, Inc.TUPPERWARE Tupperware Worldwide (2

copies)TVMARKET TV Marketplace, Inc.UCI United Color, Inc.UPS United Parcel Service, Inc.USTA United States Telephone AssociationUMI Universal Media Inc.USD University of San Diego, Center for

Public Interest LawUSCE U.S. Coin ExchangeU.S. Coin Exchange (addendum)USPS U.S. Postal ServiceUSWI US West, Inc.VIACOM Viacom InternationalVINCENT Vincent, Chorey, Taylor & FeilVIRGINIA Virginia State Corporation

CommissionWACHOVIA

Wachovia CorporationWASHINGTON The Washington PostWAUGH Waugh, John C.WTO West Telemarketing OutboundWU Western UnionWESTVACO Westvaco, Corp.WILLIAMS Williams Television TimeWTC Wilmington Trust CompanyWILSON Wilson Daily TimesWINCHESTER Winchester SunWINDSOR Windsor VineyardsWINONA Winona PostWFNNB World Financial Network National

BankYOUNGBERG Youngberg, Arthur D.

Section B. Discussion of the RevisedProposed Rule

Section 310.1 Scope of the Regulations

Section 310.1 of the revised proposedRule makes clear that this Rule does notapply to any activity excluded from theCommission’s jurisdiction.8 Thus,pursuant to the following jurisdictionallimitations set forth in Section 5(a)(2) ofthe Federal Trade Commission Act[’’FTC Act’’],9 this Rule does not applyto:Banks, savings and loan institutionsdescribed in section 18(f)(3),[10] Federalcredit unions described in section 18(f)(4),[11]

common carriers subject to the Acts toregulate commerce, air carriers and foreignair carriers subject to the Federal AviationAct of 1958, and persons, partnerships, orcorporations insofar as they are subject to thePackers and Stockyards Act, 1921, as


12 See 15 U.S.C. 44.13 See Section 2 of the McCarran-Ferguson Act, 15

U.S.C. 1012(b).14 The term ‘‘franchise’’ is defined in the FTC’s

‘‘Franchise Rule,’’ 16 CFR 436.2(a).15 60 FR 8328.

16 60 FR 17656 (April 7, 1995).17 See generally MasterCard; NAAG; USPS; NCL.18 See, e.g., MasterCard at 5.19 See generally House Report at 2; Senate Report

at 2, 10.

20 15 U.S.C. 1603(e).21 15 U.S.C. 1603(k).22 See MasterCard at 6.23 Initially proposed Rule Sections 310.2 (m) and

(n), respectively.

amended, except as provided in Section406(b) of said Act.

In addition, this Rule does not applyto any entity that is not ‘‘organized tocarry on business for its own profit orthat of its members.’’ 12 Finally, thisRule does not apply to any entityengaged in the business of insurance tothe extent that such business isregulated by State law.13

Section 310.2 DefinitionsThe revised proposed Rule amends,

adds, or deletes certain definitions. Thefollowing definitions were deleted:‘‘business venture,’’ ‘‘goods or services,’’‘‘premium,’’ and ‘‘verifiable retail salesprice.’’ The Commission amended thedefinitions of: ‘‘credit card,’’ ‘‘creditcard sales draft,’’ ‘‘credit card system,’’‘‘investment opportunity,’’ ‘‘merchant,’’‘‘merchant agreement,’’ ‘‘prize,’’ ‘‘prizepromotion,’’ ‘‘seller,’’ ‘‘telemarketer,’’‘‘telemarketing, and ‘‘telephonesolicitation.’’ A definition for the term‘‘credit’’ was added. Each of thesechanges, as well as a discussion of thedefinition of the term ‘‘material,’’ arediscussed below.

1. Business venture. Section 310.2(a)of the initially proposed Rule definedthe term ‘‘business venture’’ as any‘‘business arrangement, howeverdenominated, including * * * ‘afranchise’ as * * * defined in theCommission’s Franchise Rule * * *’’ 14

which consists of the payment of anyconsideration for: ‘‘(1) the right ormeans to offer, sell, or distribute goodsor services (whether or not identified bya trademark, trade name, advertising, orother commercial symbol); and (2) thepromise of more than nominalassistance * * * in connection with orincidental to the establishment,maintenance, or operation of a newbusiness or the entry by an existingbusiness into a new line or type ofbusiness.’’ 15 This definition came intoplay in Section 310.3(a)(3) of theinitially proposed Rule, whichprohibited sellers or telemarketers frommisrepresenting important informationin connection with the offer, offer forsale or sale of any business venture. Inaddition, the initially proposed rule, atSection 310.4(a)(8), prohibited certainabusive practices concerning the use ofshills in the sale of business ventures.

The Commission’s Franchise Rulecontains requirements and prohibitionsthat apply to franchises and businessopportunities. Subsequent to the

publication of the NPR in thisproceeding, the Commission issued arequest for comments on the FranchiseRule as part of its periodic regulatoryreview of Commission trade regulationrules and guides.16 The Commissionbelieves it is more appropriate toconsider within the framework of thatreview process whether any newregulatory action is needed to addressthe sale of business ventures. Followingthis approach, the Commission ensuresthat any new regulatory requirement orprohibition applicable to franchises orbusiness ventures will be codified inone regulation—the Franchise Rule—not spread out over two separate Rules.Accordingly, the definition of ‘‘businessventure,’’ as well as the Sections of theinitially proposed Rule prohibitingmisrepresentations and abusivepractices described above, have beendeleted from the revised proposed Rule.

2. Credit-related definitions. Theinitially proposed Rule defined variouscredit-related terms that are usedprimarily in Section 310.3(c) relating tocredit card laundering. These termsinclude ‘‘acquirer,’’ ‘‘cardholder,’’‘‘credit card,’’ ‘‘credit card sales draft,’’‘‘credit card system,’’ ‘‘merchant,’’ and‘‘merchant agreement.’’ Very fewcommenters expressed concern aboutthe foregoing proposed definitions, butsome did suggest minor technicalchanges to reflect more accurately thecredit card industry’s terminology andpractices.17 Based on those comments,the Commission proposes the followingchanges.

The Commission proposes addingunder Section 310.2(e) a definition ofthe term ‘‘credit’’ to mean ‘‘the rightgranted by a creditor to a debtor to deferpayment of debt or to incur debt anddefer its payment.’’ This definition hasbeen added to clarify the scope ofSection 310.3(c) relating to credit cardlaundering. It was apparent from severalcomments that clarification wasnecessary. Some commenters wanted toinclude all electronic payment systemsunder credit card laundering.18 Basedon the plain language of the statute andits legislative history,19 however,Congress clearly meant to prohibitcredit card laundering predicated uponthe definition of ‘‘credit’’ usedthroughout the consumer credit statutes,and did not contemplate coverage of allelectronic payment systems. Therefore,the proposed definition of ‘‘credit’’tracks the statutory definition of

‘‘credit’’ under the Truth in Lending Act[‘‘TILA’’],20 conforming the scope ofSection 310.3(c) to that intended byCongress.

Based on comments similar to thosethat prompted the addition of thedefinition of the term ‘‘credit,’’ theCommission has modified the term‘‘credit card’’ in Section 310.2(f) to makeit consistent with the term as defined inthe TILA, thereby explicitly limitingSection 310.3(c) to credit cardlaundering. The revised definition of‘‘credit card’’ states: ‘‘Credit card meansany card, plate, coupon book, or othercredit device existing for the purpose ofobtaining money, property, labor, orservices on credit.’’ The reviseddefinition is identical to the statutorydefinition of ‘‘credit card’’ contained inthe TILA.21

The Commission has revised Section310.2(g) defining the term ‘‘credit cardsales draft’’ to drop any reference tospecific forms of records. The reviseddefinition states: ‘‘Credit card sales draftmeans any record or evidence of a creditcard transaction.’’ This revision isdesigned to be flexible enough toanticipate future technological changesin how credit card transactions arehandled. The modification is notintended to contract the range ofrecordkeeping formats that would beacceptable under the Rule.

The Commission also has modifiedthe definition of the term ‘‘credit cardsystem’’ in Section 310.2(h) to addressconcerns Visa and MasterCard raisedthat the initially proposed definitioncould be construed to cover any systemput in place, including a system put inplace by a deceptive telemarketer.22 Visaand MasterCard suggested language thatwould preclude such an outcome byclarifying the intention to include onlya credit card system to process creditcard transactions involving credit cardsissued or licensed by the credit cardsystem operator. The Commissionagrees with the observations andsuggested language advanced by Visaand MasterCard. The revised proposeddefinition states: ‘‘Credit card systemmeans any method or procedure used toprocess credit card transactionsinvolving credit cards issued or licensedby the operator of that system.’’

In Sections 310.2 (l) and (m),23 theCommission has revised the definitionsof ‘‘merchant’’ and ‘‘merchantagreement.’’ In the initially proposedRule, these definitions used the phrase


24 See MasterCard at 6.25 See, e.g., IFI at 1–2; ATFA at 8–12.26 Initially proposed Rule Section 310.2(j).27 Initially proposed Rule Section 310.2(k).28 As noted in the NPR, Sections 3(d) and (e) of

the Telemarketing Act, 15 U.S.C. 6102(d) and (e),exclude from Rule coverage any of the followingpersons: a broker, dealer, transfer agent, municipalsecurities dealer, municipal securities broker,government securities broker, government securitiesdealer [as those terms are defined in Section 3(a)of the Securities and Exchange Act of 1934, 15U.S.C. 78c(a)], an investment adviser [as that termis defined in Section 202(a)(11) of the InvestmentAdvisers Act of 1940, 15 U.S.C. 80b-2(a)(11)], aninvestment company [as that term is defined inSection 3(a) of the Investment Company Act of1940, 15 U.S.C. 80a-3(a)], any individual associatedwith those persons, or any persons described inSection 6(f)(1) of the Commodity Exchange Act, 7U.S.C. 8, 9, 15, 13b, 9a.

29 E.g., ICTA at 28–30; Monex at 6; A-Mark at2–4.

30 See generally TMW; Monex. In the initiallyproposed Rule, the definition of ‘‘material’’ wasnumbered Section 310.2(l).

31 The initially proposed Rule defined ‘‘prize’’ as‘‘anything offered, or purportedly offered, to aperson at no cost and with no obligation topurchase goods or services and given, orpurportedly given, by chance.’’ Initially proposedRule Section 310.2(q).

32 NAAG at 9. See also IA DOJ at 20.33 USPS at 3.34 Initially proposed Rule Section 310.2(r).

‘‘honor or accept, transmit or processcredit cards in payment for goods orservices.’’ Visa’s and MasterCard’scomments pointed out that, according toprevailing industry usages, a merchant‘‘honors or accepts’’ a credit card forpayment, but does not ‘‘transmit orprocess’’ credit cards. By the sametoken, a merchant ‘‘transmits orprocesses’’ credit card payments, butdoes not ‘‘honor or accept’’ credit cardpayments.24 Therefore, the language ofthese definitions has been redrafted toreflect more precisely these distinctions.

3. Goods or services. Manycommenters expressed confusion overthe scope of the definition of the term‘‘goods or services.’’ 25 The Commissioninitially included a definition of ‘‘goodsor services’’ 26 intending to clarify thatall tangible and intangible goods andservices are covered under the initiallyproposed Rule, including leases,licenses, memberships, and certaincharitable solicitations. Based on theconfusion that this attempt at‘‘clarification’’ engendered, theCommission has deleted the definitionof ‘‘goods or services’’ from the revisedproposed Rule. That deletion does notreflect any intention to contract thescope of coverage of the Rule; nor doesit mean that any of the foregoing goodsor services and similar intangible goodsor services are not covered under theRule.

4. Investment opportunity. Theinitially proposed Rule defined the term‘‘investment opportunity’’ 27 to include‘‘anything, tangible or intangible,excluding a business venture, that isoffered, offered for sale, sold, or traded(1) to be held, wholly or in part, forpurposes of profit or income; or (2)based wholly or in part onrepresentations, either express orimplied, about past, present or futureincome, profit, or appreciation.’’ 28 Anumber of commenters suggested thatthis definition should be based solely on

the objective test set forth in the secondpart of the definition; namely, therepresentations made by the seller.29 Inthis way, sellers will be given clearnotice that their products are covered bythe Rule. These commenters believedthat the first part of the definition, basedon the customer’s subjective intent inmaking a purchase, should beeliminated. The Commission agreeswith this suggestion, and the revisedproposed definition is now based solelyon the express or impliedrepresentations about income, profit orappreciation.

The initially proposed definition alsoexpressly stated that the term‘‘investment opportunity’’ includes, butis not limited to, ‘‘any businessarrangement where persons acquire, orpurportedly acquire, government-issuedlicenses or interests in one or morebusinesses derived from the possessionof such licenses.’’ Upon furtherconsideration, the Commission believesthis clause is unnecessary becausegovernment-issued licenses or interestsderived from such licenses areindisputably within the jurisdiction ofthe Commission. The Commissiontherefore has deleted the foregoingextraneous clause from the revisedproposed Rule, but has addedclarification that the definition of theterm, ‘‘investment opportunity’’ doesnot include ‘‘sales of franchises subjectto the Commission’s [Franchise Rule](cite omitted).’’

5. Material. Some commentersexpressed uncertainty as to whatspecifically is meant by the term‘‘material,’’ as used in Section310.2(k).30 The Commission intends thisterm and its definition to comport withthe Commission’s Deception Statementand established Commission precedent.Cliffdale Associates, 103 FTC 110(1984); Thompson Medical Co., 104 FTC648 (1984), aff’d, 791 F.2d 189 (D.C. Cir.1986), cert. denied, 107 S.Ct. 1289(1987); and the Commission’s DeceptionStatement attached as an appendix toCliffdale Associates. The Commissionbelieves that further explanation of theterm in the Rule is unnecessary giventhe comprehensible guidance in thecited case law and policy statement.

6. Premium. The Commission, in itsrevised proposed Rule, has deleted theinitially proposed Rule provisionsrelating to premiums. The Commissionbelieves that those deletions obviate theneed to define this term. The deletion of

the definition of the term ‘‘premium’’and its associated provisions are notintended to be construed to eliminatefrom the Rule’s coverage themisrepresentation of a premium’s valuein a telemarketing transaction.

7. Prize and prize promotion. Somemodifications have been made to theinitially proposed definition of the term‘‘prize.’’ 31 NAAG suggested in itscomment that the reference to ‘‘noobligation to purchase’’ should bedeleted from the definition.32 NAAGpointed out that many fraudulenttelemarketers seek to create theimpression that consumers mustpurchase something in order to receivea prize, even though the promotiontechnically does not include such arequirement. In such cases, it may bedifficult for law enforcement authoritiesto prove that there was ‘‘no obligationto purchase,’’ making inapplicable thedefinition of ‘‘prize’’ and the protectionsthe revised proposed Rule wouldprovide for consumers with respect toprize promotions. The Commissionbelieves this is a valid concern and,because the limiting language about anobligation to purchase is not necessaryto accomplish the definition’s purpose,has deleted the language from thedefinition.

Another concern addressed in therevised proposed Rule involves theelement of chance in the definition of‘‘prize.’’ USPS noted that a typicaldeceptive prize scheme will involve asolicitation listing four or five items,with the consumer being told, withoutspecificity, that he or she is guaranteedto receive one of them.33 Because aconsumer is ‘‘guaranteed’’ to receive oneof the stated items, it could be construedthat there is no element of ‘‘chance’’involved in the offer and the itemtherefore is not a ‘‘prize.’’ TheCommission believes this concernshould be addressed and has thereforeclarified the term ‘‘chance’’ included inthe revised proposed definition of‘‘prize.’’ The revised definition of theterm ‘‘prize’’ states that ‘‘chance existsif a person is guaranteed to receive anitem and, at the time of the offer orpurported offer, the telemarketer doesnot identify the specific item that theperson will receive.’’

The initially proposed Rule defined‘‘prize promotion’’ 34 to include


35 NAAG at 10.36 Initially proposed Rule Section 310.2(s).37 Tr. at 666.38 Id.39 Initially proposed Rule Section 310.2(u).

40 Revised Section 310.2(i) defines ‘‘customer’’ as‘‘any person who is or may be required to pay forgoods or services offered through telemarketing.’’

41 Initially proposed Rule Section 310.2(v).

42 15 U.S.C. 6106(4).43 The Commission, however, does not adopt the

view that the definition of ‘‘telemarketing’’ in theinitially proposed Rule went beyond theTelemarketing Act. In enacting the TelemarketingAct, Congress clearly intended to cover purchasesof tangible as well as intangible goods or services,including leases and licenses. House Report at 11;Senate Report at 8. In any ‘‘purchase’’ there is anexchange of consideration, in other words a‘‘payment.’’ Because deceptive telemarketers couldconstrue the term ‘‘purchase’’ to apply only to theacquisition of a ‘‘tangible’’ good or service, theCommission substituted the term ‘‘payment’’ for‘‘purchase.’’ The Commission intended to clarifythat sales of intangible goods or services wereincluded in the term ‘‘telemarketing,’’ as they stillare under the revised proposed Rule.

44 Such media remain subject to the Commission’sjurisdiction under the FTC Act, 15 U.S.C. 41 et seq.See, e.g., FTC v. Corzine, dba Chase Consulting No.CIV-S–94–1146–DFL JFM (E.D. Cal. Dec. 1994).

45 See, e.g., DSA at 6; NRF at 20–21.46 House Report at 2; Senate Report at 7–8.47 E.g., DMA at 17–18; MPA at 8–9.

traditional sweepstakes or other gamesof chance, as well as any oral or writtenrepresentation that a person has won,has been selected to receive, or may beeligible to receive a prize or purportedprize. The currently proposed definitionhas been revised slightly, (Section310.2(q) of the revised proposed Rule),to make clear that the representationsabout winning may be either express orimplied. This addresses a concern,raised by NAAG,35 that fraudulenttelemarketers often artfully craft theirsales pitches to avoid expressrepresentations while delivering animplied message that a consumer haswon a prize.

8. Seller and telemarketer. Anotherdefinition that elicited comments wasthe term ‘‘seller.’’ 36 Many commentersexpressed the view that the definitionneeded clarification as to whatconstitutes a ‘‘seller’’ under the Rule,particularly with respect to itsapplication to diversified companies ordivisions within one parentorganization. For example, as itexplained during the workshopconference, ANA represents manymembers that have divisions of largediversified companies, such as Orkin.37

ANA explained that in addition to pestand termite control that people arefamiliar with, Orkin also offers anumber of other services unrelated topests and termites.38

After careful consideration, theCommission believes that the definitionof the term ‘‘seller’’ is clear. TheCommission intends that this definitionencompass distinct corporate divisionsas separate ‘‘sellers.’’ The determinationas to whether distinct divisions of asingle corporate organization will betreated as separate sellers will dependon such factors as: (1) Whether thereexists substantial diversity between theoperational structure of the division andother divisions or the corporateorganization and (2) whether the natureor type of goods or services offered bythe division are substantially differentfrom those offered by other divisions orthe corporate organization.

The term ‘‘telemarketer,’’ included inrevised Section 310.2(t),39 also elicitednumerous requests for clarification. TheCommission believes that the definitionis clear. The Commission intends thatthe definition of the term ‘‘telemarketer’’apply to persons making a telephonecall to, or receiving a telephone call

from, a customer 40 in connection withor about the purchase of goods orservices. It does not include personsmaking or receiving customer servicecalls or similar tangential telephonecontacts unless a sales offer is made andaccepted during such calls. To provideindustry with further guidance as to theintended scope of the term‘‘telemarketer,’’ the Commission hassubstituted the phrase ‘‘telephone callsto’’ in place of ‘‘telephoniccommunication.’’

Commenters also raised concernsabout whether sellers and telemarketersshould be held jointly liable under theRule for the actions of the other. TheCommission finds nothing in the statuteor legislative history to support the viewthat it is the intent of Congress toimpose joint and several liabilitybetween a seller and a telemarketer. Nordoes the Commission intend such aresult. However, the revised proposedRule’s provisions state that a seller or atelemarketer can be held liable forviolating various parts of the Rule ifeither engages in the prohibited acts orpractices. Additionally, liability can beimposed on a seller or telemarketer forassisting and facilitating a Ruleviolation if either meets the standard setforth in Section 310.3(b). Therefore,although the Rule does not impose jointand several liability, a seller ortelemarketer can be held liable if eitherengages directly, or substantially assistsor facilitates the other, in any violationof this Rule.

9. Telemarketing. The definition of‘‘telemarketing,’’ in Section 310.2(u),41

engendered more comments by far thanany other definition. Based on thecomments submitted by lawenforcement and industryrepresentatives, the Commissionproposes a revised definition of‘‘telemarketing.’’ The revised definitionstates:Telemarketing means a plan, program, orcampaign which is conducted to induce thepurchase of goods or services by use of oneor more telephones and which involves morethan one interstate telephone call. The termdoes not include the solicitation of salesthrough the mailing of a catalog which:contains a written description or illustrationof the goods or services offered for sale;includes the business address of the seller;includes multiple pages of written materialor illustrations; and has been issued not lessfrequently than once a year, when the personmaking the solicitation does not solicitcustomers by telephone but only receivescalls initiated by customers in response to

the catalog and during those calls takesorders only without further solicitation. Forpurposes of the previous sentence, the term‘‘further solicitation’’ does not includeproviding the customer with informationabout, or attempting to sell, any other itemincluded in the same catalog whichprompted the customer’s call or in asubstantially similar catalog.

The revised definition of‘‘telemarketing’’ follows more closelythe statutory definition set forth byCongress in the Telemarketing Act.42

The Commission has carefullyconsidered suggestions that the initiallyproposed definition exceeded theCommission’s statutory authority andhas determined that closer adherence tothe statutory language is the moreappropriate approach.43 This changealso limits the definition of‘‘telemarketing’’ to telephone calls andexcludes from coverage other‘‘telephonic mediums.’’ Afterconsidering many comments thatobjected to the Rule’s coverage of on-line services, the Commissionacknowledges that it does not have thenecessary information available to it tosupport coverage of on-line servicesunder the Rule.44

The revised definition of‘‘telemarketing’’ also eliminates specificlanguage relating to coverage of inboundcalls. Many commenters expressedconcern that inclusion of such callswent beyond the Commission’sstatutory authority.45 As will bediscussed further in the discussion ofSection 310.6, given the abundant,unambiguous legislative history on thispoint,46 and the omission from thestatute of any indication that inboundcalls are not within its ambit, theCommission rejects this view. Othercommenters 47 stated that includinginbound calls in the proposed definitioncaused confusion about the applicability


48 See, e.g., APAC at 9; NRF at 23–25; MPA at 10.49 E.g., NRF at 24.50 See, e.g., WFNNB at 1.

51 60 FR at 8315.52 See, e.g., MPA at 19; NRF at 35.53 Initially proposed Rule Section 310.2(x).54 See NIMA at 11; ACAR at 12; TR. at 292

(Monex), 296–97 (PMAA), 303–05 (ICTA)55 See PMAA at 80; OPC at 2–3; ADS at 1; MORA

at 1.

of the proposed general advertisingexemption contained in Section 310.6 ofthe initially proposed Rule. Because thedefinition of ‘‘telemarketing’’encompasses coverage of inbound callsunder the Rule, it is no longer necessaryto include such calls explicitly withinthe revised definition of‘‘telemarketing.’’ Furthermore, theinbound call exemption has beenclarified in Section 310.6 to eliminatethe confusion expressed in thecomments. The revised proposed Rule’scoverage, however, extends to inboundcalls.

Many industry comments addressedthe term ‘‘further solicitation’’ used inthe part of the ‘‘telemarketing’’definition that exempts from coveragesolicitation of sales through the mailingof a catalog.48 Numerous industrycommenters suggested that reputablecatalog companies have substantiallysimilar catalogs in the public domainthat mirror each other but may also betargeted to a particular season, activity,or product. For example, a mail orderclothing seller may have summer andspring catalogs that include many of thesame products, but they are differentcatalogs nevertheless. Commenterssuggested that offering a caller goods orproducts contained in a catalogsubstantially similar to the catalog thatgenerated the call should not triggerRule coverage for a catalog seller.49

Counterbalancing this point is theCommission’s concern that exemptionsfrom coverage be narrowly drawn todiscourage exploitation of a perceivedloophole by unscrupuloustelemarketers. The revised proposedRule therefore is modified toaccommodate legitimate industry’spractice of regularly mailing seasonaland similar catalogs, at the same timelimiting the exemption to those catalogsthat are ‘‘substantially similar’’ to thecatalog that generated the customer’scall.

Several commenters also expresseduncertainty as to whether‘‘telemarketing’’ included calls toschedule appointments for subsequentface-to-face sales presentations and callsto inform persons about upcoming storesales or promotions.50 The Commissionbelieves that the definition clearlyreflects the intention to cover thosetelephone calls that result in the sale ofgoods or services over the telephonewithout any opportunity by thecustomer to examine the goods orservices. Obviously, a face-to-face salespresentation provides such an

opportunity and the notification ofupcoming sales or promotions inviting acustomer to come into a store or otherin-person setting does not culminate ina telephone sale.

10. Telephone solicitation. Theinitially proposed Rule included adefinition of the term ‘‘telephonesolicitation.’’ As noted in the NPR, thedefinition was ‘‘intended to includeonly outbound sales calls, i.e.,telephone calls that are initiated by atelemarketer to a customer to inducepayment for goods or services.’’ 51 Basedon the comments received about otherSections of the initially proposed Rulethat used the term ‘‘telephonesolicitation,’’ the intended coverage ofonly outbound sales calls was notclear.52 In order to clarify this point, therevised proposed Rule now defines theterm ‘‘outbound telephone call’’ inSection 310.2(n) to mean ‘‘a telephonecall initiated by a telemarketer to inducethe purchase of goods or services,’’ anduses it in every instance where theinitially proposed Rule used the term‘‘telephone solicitation.’’

11. Verifiable retail sales price. Theinitially proposed Rule defined the term‘‘verifiable retail sales price.’’ 53 TheCommission has deleted all referencesto ‘‘verifiable retail sales price’’ in therevised proposed Rule. The Commissiondoes not believe including a definitionof ‘‘verifiable retail sales price’’ isnecessary in this revised proposed Rule.Where appropriate, the Commission hasused the term ‘‘value’’ in the Rule. TheCommission intends that anyrepresented value have a reasonablebasis in fact.

Section 310.3 Deceptive TelemarketingActs or Practices

1. Prohibited Deceptive TelemarketingActs or Practices. Revised Section310.3(a) continues to require affirmativedisclosures and prohibitsmisrepresenting material information.As in the initial version of the proposedRule, Section 310.3(a)(1) requiresaffirmative disclosures of generalcategories of material information. Manyindustry commenters, however,expressed concern about the uncertainscope of the affirmative disclosureobligation embodied in Section310.3(a)(1).54 The Commission hascarefully considered these concerns andrevised the proposed Rule accordingly.Specifically, the initially proposed rulerequired disclosure of ‘‘the total costs,

terms, and material restrictions,limitations, or conditions of receivingany goods or services.’’ Revised Section310.3(a)(1) now requires disclosure of‘‘the total costs * * * [and] all materialrestrictions, limitations, or conditions topurchase, receive or use any goods orservices that are the subject of the salesoffer.’’ This revision is intended tonarrow and clarify the scope of thedisclosure obligation. The initiallyproposed rule also specified that thedisclosures required by Section310.3(a)(1) be made ‘‘before payment isrequested * * * and in the samemanner and form as the paymentrequest.’’ In response to strong industryurging for greater flexibility in themanner and timing of essentialdisclosures,55 the revised proposed rulespecifies only that the disclosures bemade ‘‘before a customer pays’’ and thatthey be made ‘‘in a clear andconspicuous manner.’’ Thesedisclosures may be made either orally orin writing. The determining factor forwhen a customer pays, regardless ofwhether by cash, check, credit card,demand draft, or otherwise, is when acustomer sends funds by any means orprovides credit card or bank accountinformation to the seller or telemarketerto purchase goods or services.Additionally, Section 310.3(a)(1) nolonger requires an affirmative disclosureof a seller’s refund, cancellation,exchange, or repurchase policies, unlessthe seller or telemarketer chooses tomake representations relating to suchpolicies a part of the sales offer. If aseller or telemarketer chooses to makesuch policies a part of the sales offer,then the seller or telemarketer mustdisclose all the material aspects of theterms and conditions of such policies,orally or in writing, before a customerpays for the goods or services offered.Finally, a seller or telemarketer mustdisclose that no purchase is necessary towin if a prize promotion is offered inconjunction with a sales offer of goodsor services.

Section 310.3(a)(2) continues toprohibit misrepresentations of severalcategories of material information. Theinformation deemed material underSection 310.3(a)(2) is based onestablished case law and theCommission’s deception policystatement. The Commission, however,has determined to drop the lengthyenumeration of specific prohibitedmisrepresentations contained inSections 310.3(a)(2)(viii)-(xxiv) of theinitially proposed Rule. These specificprohibited misrepresentations, each of


56 15 U.S.C. 53(b).57 See, e.g., AARP at 10.58 See, e.g., USPS at 4.59 See, e.g., APAC at 2; ATA at 5; DMA at 19;

Monex at 8–9.

60 Almost 32% of the 141 telemarketing casesbrought by the Commission since 1991 related todeceptive prize promotions.

61 See Senate Report at 8.62 See Senate Report at 8.

which was based on allegations incomplaints filed in recent years by theCommission under Section 13(b) of theFTC Act,56 are no longer necessarybecause they are subsumed in thegeneral prohibitions againstmisrepresentations set forth in Section310.3(a)(2) of the revised proposed Rule.No inference should be drawn that thesedeletions in any way alter theCommission’s view that themisrepresentations enumerated initiallyin proposed Sections 310.3(a)(2)(viii)-(xxiv) would violate the FTC Act as wellas the revised proposed Rule. TheCommission believes that this moreconcise regulatory approach effectuatesCongress’ legislative intent andaddresses the concerns of manycommenters, consumer groups,57 lawenforcement,58 and industry 59 alike,who asserted that a general standard ofdeception was necessary either inaddition to or instead of the enumeratedacts or practices.

Sections 310.3(a)(2)(i)-(ii) prohibitmisrepresenting information required tobe disclosed under Section 310.3(a)(1).The scope of Sections 310.3(a)(2)(i)-(ii)has been delineated more precisely thantheir counterparts in the initiallyproposed Rule Sections 310.3(a)(2)(i)-(iii). Revised Sections 310.3(a)(2)(i)-(ii)now include the limiting phrases ‘‘topurchase, receive, or use’’ and ‘‘that arethe subject of a sales offer.’’ The sameclarifying phrases have been added torevised Section 310.3(a)(2)(iii), whichspecifies that misrepresenting ‘‘anymaterial aspect of the performance,efficacy, nature, or centralcharacteristics of goods or services thatare the subject of the sales offer’’violates this Rule. Commission case lawand policy are clear that suchinformation is material to a person’schoice of or conduct regarding thepurchase of goods or services. Similarly,representations as to a seller’s refund,cancellation, exchange, or repurchasepolicies are material to a person’spurchase decision. Section310.3(a)(2)(iv) (identical to Section310.3(a)(2)(v) of the initially proposedRule) therefore prohibitsmisrepresenting the latter category ofinformation.

Section 310.3(a)(2)(v) of the revisedproposed Rule prohibitsmisrepresenting ‘‘any material aspect ofa prize promotion, including but notlimited to the odds of winning, thenature or value of a prize, or that

payment is required to receive a prize.’’The Commission has enumeratedspecific examples of material aspects ofa prize promotion based onmisrepresentations that the Commissionhas alleged in complaints filed underSection 13(b) of the FTC Act. TheCommission believes that treating prizepromotions as a separate generalcategory is warranted given the greatnumber of deceptive prize promotionsand the distinct characteristicsassociated with such promotions.60

Moreover, the legislative history clearlyshows that Congress specificallyintended that the Rule cover prizes orawards.61 Because there are certainaspects of a prize promotion that couldbe construed to be outside the scope ofprovisions narrowly limited to ‘‘thesubject of a sales offer,’’ the Commissionbelieves that it is necessary to includerevised Section 310.3(a)(2)(v). Theprohibitions against prize promotionmisrepresentations under Section310.3(a)(2)(v) are in addition to theother prohibitions set forth in Section310.3(a)(2).

Similarly, Section 310.3(a)(2)(vi)prohibits misrepresenting materialaspects of an investment opportunity.The legislative history reflects Congress’recognition that deceptive investmentopportunities account for a considerablepercentage of deceptive telemarketing.62

Moreover, since 1991, deceptiveinvestment scams account forapproximately 43% of the Commission’stelemarketing cases. The amount at riskfor a consumer is generally far greater ininvestment scams than in deceptiveschemes involving other types ofconsumer goods or services. Thus,investment opportunities are an area ofheightened concern for consumers andthe Commission. The revised proposedrule includes Section 310.3(a)(2)(vi),prohibiting misrepresentation ofspecified aspects of investmentopportunities. This provision isincluded to obviate any possibleconstruction that might excludeinvestment opportunities from the scopeof Sections 310.3(a)(2)(i)-(iii). Thesegeneral initial provisions are designedto embrace a limitless range of goods orservices but are narrowly drawn toprohibit misrepresentations centered onpurchase, receipt or use, or upon‘‘performance, efficacy, nature, orcentral characteristics,’’ which areunlike investment-specific attributessuch as risk, liquidity, earnings

potential, or profitability. Theprohibitions on misrepresentationsunder Section 310.3(a)(2)(vi) are inaddition to, not in lieu of, otherprovisions under Section 310.3(a)(2).

Finally, the Commission has includedSection 310.3(a)(2)(vii) that prohibitsmisrepresenting ‘‘a seller’s ortelemarketer’s affiliation with, orendorsement by, any government orthird-party organization.’’ TheCommission believes that this Section isnecessary based on its own experiencein law enforcement actions againstdeceptive telemarketers as well as theinformation state law enforcementagencies provided. Based on theCommission’s enforcement experience,deceptive telemarketers bolster theircredibility by misrepresenting that theyare endorsed by or affiliated withcharitable, police, civic, or similarorganizations. A separate category isrequired because these types ofmisrepresentations, again, could beconstrued as outside the apparent scopeof Sections 310.3(a)(2)(i)-(iii). However,Section 310.3(a)(2)(vii) is in addition to,not in lieu of, other provisions underSection 310.3(a)(2).

The Commission has deleted Section310.3(a)(3) relating to business ventures.The Commission, as stated in Section310.2, believes it is more appropriate toconsider business ventures in thecontext of the Commission’s recently-initiated Franchise Rule review. Thisshould not be construed to mean,however, that if a business venture issold through telemarketing and does notmeet the coverage requirements underthe Franchise Rule as currently in effect,it is exempt under this Rule. Such a‘‘business venture’’ will still be deemedto be covered under this Rule as a goodor service and be subject to the Rule’sdisclosure requirements andprohibitions.

Revised Section 310.3(a)(3) generallyprohibits ‘‘making a false or misleadingstatement to induce any person to payfor goods or services.’’ This generalprovision subsumes Sections 310.3(a)(4)and (5) of the initially proposed Rule.Former Section 310.3(a)(4) requiredwritten authorization before taking anyfunds from a consumer’s checking,savings, or similar account. FormerSection 310.3(a)(5) required expressauthorization before ‘‘obtaining anyamount of money from a person throughany means.’’ The revised Section,through more economical means,reflects how deceptive sellers andtelemarketers gain access to consumers’money through false and misleadingstatements regardless of the paymentsystem used. While addressing thosedeceptive practices, revised Section


63 Several commenters and workshop participantsprovided information tending to refute theproposition that demand drafts are characteristicsolely of deceptive telemarketers. See, e.g., NAPA;Autoscribe; Olan.

64 See generally NCL at 8; USPS at 7–8.65 See, e.g., WFNNB at 2; MPA at 11–13; ATA at

6; DMA at 22–24; NRF at 29; Monex at 11–13.66 See generally PMAA; ADS; LCS; DMA; ISA.67 See e.g., Tr. at 372–73 (Monex); 382–85 (DMA).68 Under these cases, the knowledge requirement

is well-established and can be fulfilled by showingeither actual knowledge, reckless indifference to thetruth or falsity of the representation, or anawareness of a high probability of fraud coupledwith an intentional avoidance of the truth. E.g., FTCv. American Standard Credit Systems, Inc., CV 93–2623 LGB (JRx) (C.D. Cal. Aug. 15, 1994); FTC v.Amy Travel Serv., 875 F.2d 564, 573–74 (7th Cir.),cert. denied, 493 U.S. 954 (1989); FTC v. Kitco ofNevada, Inc., 612 F. Supp. 1282, 1292 (D. Minn1985); FTC v. International Diamond Corp., 1983–2 Trade Cas. (CCH)

65,725 at 69,707 (N.D. Cal. 1983). This knowledgestandard has not imposed any unduly onerousproblems of proof on the Commission in its Section13(b) telemarketing fraud cases and has notimpeded the Commission’s ability to obtainrestitution from individual defendants. 69 See generally DMA; PMAA.

70 E.g., DMA at 24; NRF at 30.71 See MasterCard at 10–11.

310.3(a)(3) also avoids undulyburdening legitimate industry’snondeceptive use of various paymentsystems.63

2. Assisting and Facilitating. Section310.3(b) received substantial attentionfrom commenters. Law enforcement andconsumer groups generally werefavorable but some suggested includinga more general prohibition againstassisting and facilitating.64 Industrycomments raised concerns that theknowledge standard in the initiallyproposed Rule was too vague or harshand that the liability for assisting andfacilitating should attach only where theassistance or support is directly linkedand material to the Rule violation.65

Some industry commenters suggestedthat the Rule include exemptions forcertain practices and that this Sectionnot impose any affirmative duties onthird parties.66 All commenters raisedvalid and important issues that theCommission has considered.

To address concerns that the ‘‘knewor should have known’’ standardinitially proposed may have swept toobroadly and exposed those only casuallyassociated with deceptive telemarketingto liability as assistors or facilitators, theCommission now proposes the ‘‘actualknowledge or conscious avoidance’’standard advanced by a number ofparticipants in the public workshop.67

This standard is similar to theknowledge standard applicable inactions under Section 13(b) of the FTCAct governing individual liability to payrestitution to consumers for injuryresulting from law violations of acorporation controlled by theindividual 68—a type of vicariousliability somewhat analogous to assistor

and facilitator liability. The Commissionintends that this revision delineate thescope of assistor and facilitator liabilitymore clearly and more narrowly thandid the ‘‘know or should have known’’standard.

The Commission also believes itappropriate to specify that there besome connection between thesubstantial assistance provided to adeceptive telemarketer and resultingviolations of core provisions of therevised proposed Rule. Revisedproposed Section 310.3(b) thereforerequires that there be substantialassistance related to the commission orfurtherance of a core rule violation. Theprovision now reads as follows:It is a deceptive telemarketing act or practiceand a violation of this Rule for a person toprovide substantial assistance or support toany seller or telemarketer when that personknows or consciously avoids knowing thatthe seller or telemarketer is engaged in anyact or practice that violates §§ 310.3 (a) or (c)or 310.4 of this Rule and such substantialassistance is related to the commission orfurtherance of that act or practice.

Section 310.3(b)(2) of the initiallyproposed Rule set forth five specificexamples of conduct deemed to meetthe ‘‘substantial assistance’’ prong of thetwo-prong test for ‘‘assisting andfacilitating’’ set forth in Section310.3(b)(1), which, when coupled withknowledge required by the secondprong, would constitute a violation ofthis Rule. The prevailing view amongindustry commenters was that this listof examples would be interpreted ascondemning a range of commercialactivities that, in and of themselves, arenot injurious to consumers orunlawful.69 The resulting chilling effectcould result in unnecessary costs toindustry, which, of course, wouldultimately be borne by consumers. Thisdetrimental effect, combined with thepotential for the Section to be construedas limiting the scope of assisting andfacilitating to only the listed activities,and thus hindering effective lawenforcement efforts, outweighed anybenefits such intended guidance couldlikely provide. The Commission haseliminated examples from theprohibition, but still considers the actsor practices enumerated in formerSection 310.3(b)(2) to be illustrative ofthose that provide substantial assistanceto Rule violators when coupled withknowledge and a relationship to aspecified Rule violation. Acts ofsubstantial assistance that could meetthe Section 310.3(b) liability standardinclude: providing lists of contacts to aseller or telemarketer that identify

persons over the age of 55, persons whohave bad credit histories, or personswho have been victimized previously bydeceptive telemarketing or direct sales;providing any certificate or couponwhich may later be exchanged fortravel-related services; providing anyscript, advertising, brochure,promotional material, or directmarketing piece used in telemarketing;or providing an appraisal or valuation ofa good or service sold throughtelemarketing when such an appraisal orvaluation has no reasonable basis in factor cannot be substantiated at the time itis rendered.

3. Credit Card Laundering. TheCommission received very fewcomments that offered changes or thatwere critical of Section 310.3(c), whichpertains to credit card laundering.Comments that did address this Sectionsuggested that agents, licensees, andindependent contractors andsubcontractors be included under thedefinition of ‘‘merchant.’’ 70 Visa andMasterCard stated that they believedthis Section to be ‘‘well designed toattack a critical link in telemarketingfraud,’’ but proposed adding languagethat would not prohibit access to thecredit card system if the credit cardsystem permits such access throughmeans other than a written merchantagreement.71

The Commission believes that thedistinction between ‘‘launderers’’ andothers who exploit the credit cardsystem, and ‘‘merchants’’ and otherswho make legitimate use of suchsystems, rests on whether the operatorof the system has given permission forsuch access. For example, somemerchants have the permission of theircredit card system operator to permitlessees to deposit their salestransactions through the merchant’saccount. On the other hand, thehallmark of prohibited laundering isproviding access to a merchant accountto an entity not authorized by thesystem operator to have such access.Based on the foregoing, the Commissiondoes not believe it is wise to broadenthe definition of ‘‘merchant.’’ Anunderlying purpose of this Section is todelineate clearly, in accordance withlegitimate industry standards, thosepersons who are deemed to properlyhave access to the credit card system.However, the comments of Visa andMasterCard point out a way that theprovision can be modified to allow forsituations where a credit card systemexpressly permits access to theapplicable system, other than through a


72 NCL requested in its comments pertaining tocredit card laundering that the Commissionconsider protections relating to the use of ‘‘creditcard checks’’ and ‘‘credit card cash advances.’’ SeeNCL at 31. NCL expressed concern that credit cardprotections contemplated in Section 310.3(c) andthe Fair Credit Billing Act [‘‘FCBA’’], 15 U.S.C.1666, do not extend to those alternative creditmethods. There is no indication in the legislativehistory or the Telemarketing Act that Congressintended to include under credit card launderingthe alternative credit methods NCL describes.Moreover, the Commission does not have theauthority under the Act to expand or affect thescope of the FCBA. The Commission believes,however, that transactions effected through the useof the alternative credit methods NCL described areadequately protected under the FCBA disputeprocedures. Id.

73 IA DOJ at 13; AARP at 14.74 ADC at 1; ARDA at 21.

75 NCL at 32–33. Accord, USPS at 11.76 See, e.g., House Report at 8.77 Section 806(2) of the FDCPA, 15 U.S.C.

1692d(2).78 Initially proposed Rule Section 310.4(a)(2).79 See, e.g., NAAG at 23–24; USPS at 11–12; CFA

at 3; AARP at 14–15.80 IA DOJ at 6.81 NCL at 33–35.82 See, e.g., Monex at 13–14; A-Mark at 10.83 DMA at 25; PMAA at 84; DMSI at 5; MRG at

4; UPS at 2.84 CDI at 1; CA at 3; Cox at 11; Gannet at 6; NAA

at 15; Washington at 17.

85 AWMI at 1; GGP at 2; GCM at 1; MGC at 1; MPat 1.

86 Comcast at 5, n.5.87 Revised proposed Rule Section 310.4(a)(2).88 NAAG at 24; CFA at 3; USD at 4; NCL at 37;

USPS at 12. ABA ‘‘commends’’ the Commission forthis provision. ABA at 9.

89 NCL at 38.90 NYSCPB at 8.

written merchant agreement. Becausesuch a modification will give rise to noforeseeable problems of proof to lawenforcement efforts, the Commissionconcludes that this modification isappropriate.72 The Commissiontherefore has determined that themodifications needed to Section310.3(c) are to add language to thepreamble to state that ‘‘except whereexpressly permitted by the applicablecredit card system * * *’’ and to addsimilar language to the end of Section310.3(c)(3).

Section 310.4 Abusive TelemarketingActs or Practices

1. Abusive Conduct Generally. Section310.4(a) of the initially proposed Ruleset forth eight different prohibitedabusive telemarketing acts or practices.The revised proposed Rule deletes fourof those provisions, and amends theother four prohibited practices. Each ofthese practices will be discussed inturn.

(a) Threats, intimidation, or the use ofprofane or obscene language. Theinitially proposed Rule prohibitedthreats or intimidation in Section310.4(a)(1). The Commission believessuch acts are clearly abusive intelemarketing transactions, and thisprohibition remains in the revisedproposed Rule. Commenters noted thatthreats are a means of perpetrating afraud on vulnerable victims, and thatmany older people can be particularlyvulnerable to threats and intimidation.73

Other commenters expressed the viewthat the terms ‘‘threats’’ and‘‘intimidation’’ are vague and need to bedefined.74 The Commission does notbelieve further definition of these termsis necessary in the text of the Rule; asdrafted, this Section clearlycontemplates that all threats be covered,including those particularly stressed byNCL—threats of bodily injury andfinancial ruin and threats to ruin credit.It also prohibits intimidation—acts

which put undue pressure on aconsumer or which call into question aperson’s intelligence, honesty,reliability, or concern for family.Repeated calls to an individual who hasdeclined to accept an offer may also bean act of intimidation.75

The Commission has also addedunder this Section a prohibition againstthe use of profane or obscene language.The legislative history of theTelemarketing Act indicates that theCommission should considerprohibiting such abusive practices, andshould ‘‘draw upon its experience inenforcing standards established underthe Fair Debt Collection Practices Act[‘‘FDCPA’’], 15 U.S.C. 1692, in definingthese terms.’’ 76 The FDCPA includes aspecific prohibition on the use ofprofane or obscene language,77 and theCommission believes such a prohibitionis equally appropriate in this Rule.

(b) Courier pickups. The initiallyproposed Rule prohibited any seller ortelemarketer from providing for ordirecting a courier to pick up paymentfrom a customer.78 Law enforcementand consumer representatives generallyapplauded this provision.79 IA DOJnoted: ‘‘A critical component of afraudulent telemarketing scheme isgetting the victim’s money before thevictim has the opportunity toreconsider, or before a third party, suchas a relative, banker, or law enforcementauthority becomes involved.’’ 80 Inaddition, NCL stated that over 45% ofall telemarketing complaints it receivesinvolve shipment by private courier,and almost all of these shipmentscontain personal checks. According toNCL, a personal check sent via a privatecourier is the single most popularmethod of removing money from thepockets of victims.81

On the other hand, many industryrepresentatives opposed thisprovision.82 Commenters noted variousways this prohibition would harmlegitimate businesses, including:prohibiting C.O.D. transactions; 83

preventing newspaper carriers frommaking door-to-door collections on theirpaper routes; 84 eliminating the

merchant coupon book industry; 85 andprecluding cable operators and othersfrom using couriers to pick up paymentsfrom customers who are in arrears andwho wish to avoid disconnection oftheir service.86

After reviewing these comments, theCommission agrees that a ban on the useof courier pickups of consumerpayments is unworkable. There isnothing inherently deceptive or abusiveabout the use of couriers by legitimatebusiness, and the comments show thatmany legitimate businesses use them.While fraudulent telemarketers oftenuse couriers to obtain quickly the spoilsof their deceit, such telemarketersengage in other acts or practices thatclearly are deceptive or abusive, andthat are prohibited by this Rule. Thus,the prohibition of courier use isunnecessary, and it has been deletedfrom the revised proposed Rule.

(c) Credit repair services. Section310.4(a)(3) of the initially proposed Ruleprohibited any seller or telemarketerfrom requesting or receiving payment ofany fee or consideration for goods orservices represented to improve aperson’s credit history, credit record, orcredit rating until the contract for theservices had expired and the promisedresults had been achieved.87 A numberof commenters strongly supported thisprohibition as a necessary limitation onthe telemarketing of deceptive creditrepair services.88 The Commissionagrees, and is retaining this provision inthe revised proposed Rule, with thefollowing two amendments suggested bycommenters.

First, NCL suggested, and theCommission agrees, that the prohibitionon advance payments should extend toservices that promise to removederogatory information from aconsumer’s credit record, in addition tothose services that simply promise toimprove a person’s credit history, recordor rating.89 Second, the revisedproposed Rule will not permit, asdocumentation that the promised resultshave been achieved, records from theoriginal furnisher or provider of thederogatory information to the consumerreporting agency. As noted by NYSCPB,the original furnisher of suchinformation cannot control the actionsof the consumer reporting agencies.90


91 ATA at 7; CUCI at 7; DMA at 25; Spiegel at 4.92 ABA at 8; Citicorp at 8–9; MasterCard at 11.93 See 15 U.S.C. 45(a)(2); revised proposed Rule

Section 310.1.94 Initially proposed Rule Section 310.4(a)(4);

revised proposed Rule Section 310.4(a)(3).95 See, e.g., IA DOJ at 13–15; USPS at 13; NAAG

at 24. In fact, NACAA believes there should be anoutright prohibition against contacting anyconsumer to offer these services. NACAA at 4.

96 Chase at 4; Chemical at 6; MasterCard at 11.

97 Washington at 17.98 AARP at 15–16. Fraudulent recovery rooms

may use checks, not backed by sufficient funds forthem to be paid by the out-of-town banks on whichthey are drawn, to show consumer victims that themoney has been ‘‘recovered.’’

99 NAAG at 24; DSA-Nev., Tab B at 8; NCL at 39–40. Both DSA-Nev. and NCL also believed thatlicensed attorneys should not be exempt from thisSection of the Rule. The Commission does not wishto hinder legitimate activities by licensed attorneysto recover funds lost by consumers throughfraudulent telemarketing, and thus does not believethis prohibition should be applied to their services.

100 Revised proposed Rule Section 310.4(a)(4).101 DMA at 25.102 Prudential noted that this Section could cover

a bank’s offer to a consumer of pre-approved loans.The Commission believes that revised Section 310.1will address Prudential’s concerns by clarifying thatbanks are excluded from coverage of the Rulebecause they are outside of the Commission’sjurisdiction under the FTC Act, 15 U.S.C. 45(a)(2).

Thus, for a variety of reasons, aconsumer’s credit report may not bechanged, even though the originalfurnisher has documentation requestingsuch a change to occur. TheCommission, therefore, has revised theinitially proposed Rule to require theexamination of a consumer’s creditreport, to determine if the services havebeen provided, before the seller ortelemarketer may request or receivepayment from the customer.

A number of commenters suggestedamending this Section to clarify that itdoes not apply to credit monitoringservices.91 The Commission did notintend to limit the actions of suchlegitimate services, and does not believethis Section would prohibit suchservices.

Other commenters stated that thisprovision may inadvertently prohibitthe telemarketing of secured creditcards, harming consumers who use suchcards to develop a satisfactory creditrecord.92 In fact, these commenterssuggested an exemption to thisprovision for the telemarketing ofsecured credit cards by depositoryinstitutions. The Commission does notbelieve such an exemption is necessary,because banks, savings and loans, andFederal credit unions are outside of thejurisdiction of the FTC, and aretherefore not covered by the Rule.93

(d) Recovery room services. The nextabusive practice prohibited by theinitially proposed Rule involvedrecovery room scams.94 In theseoperations, a fraudulent telemarketerwill call a consumer who has lostmoney in a previous scam and makefalse promises that the telemarketer canrecover that money, in exchange for afee paid in advance. After the fee ispaid, the promised services are neverprovided. As law enforcementcommenters noted, the recovery schemeis especially abusive, targetingparticularly vulnerable victims,including the elderly.95

A number of financial institutionsrequested clarification that this Sectiondoes not apply to legitimate debtcollection activities.96 In addition,another commenter opined that thisSection, as proposed, could impair theability of newspapers to accept

classified ads for lost and found items.97

The Commission believes that changingthe phrase ‘‘induce payment’’ to‘‘induce purchase’’ in the definition of‘‘telemarketing’’ clarifies that debtcollection practices are not the types oftelemarketing practices at issue in thisRule. Furthermore, the Commission isrevising this Section to make itapplicable only to recovery services thatpromise the return of money or otheritems of value paid for or promised tothe consumer in a previoustelemarketing transaction. Thus, thisSection will not apply to attempts torecover money or items lost outside oftelemarketing.

The initially proposed Ruleprohibited sellers or telemarketers fromrequesting or receiving payment of anyfee for recovery services until three daysafter the recovered money or other itemis delivered to the consumer. AARPnoted that the three-day period may beinsufficient to protect consumers, andasked that the Rule allow the minimumtime necessary for out-of-state checks toclear.98 The Commission agrees, and haslengthened the time period that mustelapse before providers of such servicescan request payment from consumers toseven business days after delivery of therecovered money or other item of value.

Finally, the initially proposed Ruleprovided an exemption from thisSection for licensed attorneys orlicensed private investigators pursuantto a written agreement with theconsumer. Some commenters believedthat private investigators should not beexempt, because such an exemptionwould only lead to fraudulent recoveryservices signing up with unscrupulousprivate investigators as a method ofevading this prohibition.99 TheCommission agrees, and has removedthe exemption for private investigators.

(e) Advance fee loans. Section310.4(a)(5) of the initially proposed Ruleprohibited any seller or telemarketerfrom requesting or receiving payment ofany fee or consideration in advance ofobtaining a loan or any credit servicewhen the seller or telemarketer hasguaranteed or represented a highlikelihood of success in obtaining or

arranging a loan or credit service for aperson.100 DMA urged that theCommission clarify that this Sectiondoes not apply to services, such asmonitoring or counseling, that are notrepresented to improve a person’s credithistory.101 The Commission did notintend for such services to be covered,and is changing the phrase ‘‘creditservice,’’ used in the initially proposedRule, to ‘‘extension of credit.’’ In thismanner, the application of thisprohibition only to loans or otherextensions of credit will be clearer.102

(f) Prize distribution. The nextprohibited abusive practice included inthe initially proposed Rule concernedthe distribution of prizes during a prizepromotion. Section 310.4(a)(6) of theinitially proposed Rule required anyseller or telemarketer conducting suchpromotions to distribute all prizes orpurported prizes offered within 18months of the initial offer to any person.The Commission believes that thispractice is adequately covered by theprohibition against misrepresenting anymaterial aspect of a prize promotion inSection 310.3(a)(2)(v) of the revisedproposed Rule. Because the practicesincluded in this Section of the initiallyproposed Rule are addressed by otherprohibitions, it has been deleted fromthe revised proposed Rule.

(g) Reloading. Section 310.4(a)(7) ofthe initially proposed Rule prohibitedany seller or telemarketer from offeringor selling goods or services through atelephone solicitation to a person whopreviously has paid the same seller forgoods or services, until all terms andconditions of the initial transaction havebeen fulfilled, including but not limitedto the distribution of all prizes orpremiums offered in conjunction withthe initial transaction.

This provision of the initiallyproposed Rule elicited nearlyunanimous negative comments fromindustry representatives. TheCommission learned from thesecomments that many legitimatebusinesses call their customers beforefull satisfaction has been made on aprior transaction. Indeed, cultivatingestablished customers in this way isregarded as one of the most effectiveselling techniques by legitimate sellers.Commenters noted that the Section asproposed would preclude a seller or


103 ATA at 7–8; ANA at 14; DMA at 27–28; MPAat 14–15; Cox at 9–10; DMSI at 6; Hearst at 2; MSSCat 20; NAA at 13–14; AMCI at 2 (motor clubmemberships); CUCI at 8; ASAE at 15–16(association memberships); GE at 4–6; IBM at 19–22 (computer leases); NCTA at 11–12 (cableservices); Viacom at 10–11.

104 ANA at 15; DMA at 27; NRF at 31; AmEx at1–2.

105 ATA at 8; APAC at 6; DMA at 28; DSA at 15;MPA at 16–18; NRF at 33; PMAA at 75–77; CUCIat 8; Fingerhut at 25; ADS at 1; AmEx at 1–2; AT&Tat 20; NCL at 45–46; APAC at 6; AMCI at 1; IBMat 23; ANA at 17.

106 See, e.g., ANA at 17; Franklin at 1; Olan at 13.The FCC’s rules, established pursuant to the TCPA,47 U.S.C. 227, are codified at 47 CFR 64.1200. Therevised proposed Rule includes similar ‘‘do notcall’’ protections at Section 310.4(b)(1)(ii),discussed infra.

107 47 U.S.C. 227.108 15 U.S.C. 1692d(5).109 See, e.g., House Report at 8. Moreover,

commenters suggested that such a provision wouldbe approprate. See, e.g., NAA at 20; Cox at 10(abusive conduct involves multiple calls over ashort period of time, such as five calls in a day, orten calls in a week).

110 See 47 U.S.C. 227; 47 CFR 64.1200(e).111 15 U.S.C. 6102(a)(3)(A).

112 See, e.g., NRF at 33; Pacesetter at 4.113 See, e.g., IBM at 24; SBTC at 10–11.114 NRF at 35; PMAA at 83; MSSC at 21. Other

commenters suggested that the term ‘‘administrativeerror’’ was too broad, and that a clear definitionshould be provided. NACAA at 5; NAAG at 27; USDat 5. The Commission believes that any error shouldbe excused here, as long as the seller ortelemarketer is complying in good faith with theother requirements of the safe harbor.

115 15 U.S.C. 6102(a)(3)(B).

telemarketer from calling customers torenew subscriptions, warranties, servicecontracts, and a host of other ongoingservices prior to their expiration.103

Commenters also noted that thisprohibition would be particularlyburdensome for large, diversifiedcompanies with multiple divisions,sales offices and product lines.104

Given the fact there is nothing aboutthis practice, in and of itself, that isinherently injurious to consumers, andgiven the widespread use of thispractice by legitimate telemarketers, theCommission has dropped from therevised proposed Rule any attempt torestrict this practice. Reloading is aproblem when there is deception in thesales offer. Because such deception isprohibited by the revised proposed Ruleunder Section 310.3(a), a separateprohibition of ‘‘reloading’’ isunnecessary. Accordingly, it has beendeleted from the revised proposed Rule.

(h) The Use of Shills. Section310.4(a)(8) of the initially proposed Ruleprohibited identifying a person as areference for a business venture unless:(1) Such person actually purchased thebusiness venture; (2) such personoperated that business venture for atleast six months, or the seller ortelemarketer disclosed the length oftime the person operated such businessventure; and (3) such person did notreceive consideration for any statementsmade to prospective business venturepurchasers. As stated in the discussionof Section 310.2 of the definition of‘‘business venture,’’ the Commissionbelieves that consideration of such aprohibition is more appropriatelyincluded as part of its regulatory reviewof the Franchise Rule.

2. Pattern of Calls. Section310.4(b)(1)(i) of the proposed Ruleprohibited a seller or telemarketer frommaking a sales call to a person’sresidence more than once within anythree month period. Many commentersstated that this was an unreasonable andarbitrary prohibition that was difficultto comply with, and that should beeliminated.105 In addition, commentersnoted that consumers already have theprotections of the Telephone Consumer

Protection Act [‘‘TCPA’’] rules, whichrequire telemarketers to establish andmaintain a ‘‘do not call’’ list ofconsumers who do not wish to becontacted by that seller.106 Given thefact that calls more frequent than onceper month are not, in and of themselves,injurious to consumers, and given theconsumer protections afforded by the‘‘do not call’’ requirements of theTCPA 107 and this Rule, the Commissionagrees that this provision is unnecessaryand has therefore deleted it.

In its place, the Commission proposesin revised Rule Section 310.4(b)(i) toprohibit any seller or telemarketer tocause any telephone to ring, or engageany person in telephone conversation,repeatedly or continuously with intentto annoy, abuse, or harass any person atthe called number. Such a prohibition isincluded in the FDCPA, 108and thelegislative history of the TelemarketingAct states that the Commission shouldconsider the FDCPA in establishingprohibited abusive acts or practices.109

Section 310.4(b)(1)(ii) of the initiallyproposed Rule set forth the prohibitionon calling a person’s residence whenthat person previously has stated that heor she does not wish to receive such acall made by or on behalf of the sellerwhose goods or services are beingoffered. The Commission continues tobelieve that such a limitation, which isfully consistent with andcomplementary to similar provisionsunder the TCPA,110 will effectivelyimplement the Telemarketing Act’sdirective to include in this Rule ‘‘arequirement that telemarketers may notundertake a pattern of unsolicitedtelephone calls which the reasonableconsumer would consider coercive orabusive of such consumer’s right toprivacy.’’ 111 This Section did not elicitmany comments; the only change madeto this Section responds to thecomments suggesting that theprohibition should apply to a particularperson or telephone number, not to aresidence (as the initially proposedversion of this provision stated),because a residence may have more than

one person who is a customer of aparticular seller.112 The revisedproposed Rule states that theprohibition applies to calls made to aperson, rather than a person’s residence.

Section 310.4(b)(2) of the initiallyproposed Rule provided a limited safeharbor against liability for violating the‘‘do not call’’ prohibitions included inSection 310.4(b)(1)(ii). This Sectionstated that a seller or telemarketer willnot be liable for such violations once inany calendar year per person called if:(1) It has established and implementedwritten procedures to comply with the‘‘do not call provisions’’; (2) it hastrained its personnel in thoseprocedures; (3) the seller, or thetelemarketer acting on behalf of theseller, has maintained and recorded listsof persons who may not be contacted;and (4) any subsequent call is the resultof administrative error.

Two changes have been made to thisSection. First, some commenterssuggested that the safe harbor shouldnot be limited to a certain number ofviolations per consumer or per year.113

These commenters maintained that ifthe other enumerated steps are taken bya telemarketer in a reasonable manner,and a call is made erroneously, a Ruleviolation should not be found. TheCommission agrees, and has deleted thislimitation to the safe harbor. Second,the safe harbor will apply if thesubsequent call is the result of any error,not just an administrative error. Thisresponds to concerns raised thatunintentional or accidental calls shouldalso be covered by the safe harbor.114

3. Calling Time Restrictions. Theinitially proposed Rule prohibited anytelemarketer from calling a person’sresidence, without the prior consent ofthe person, at any time other thanbetween 8:00 a.m. and 9:00 p.m. localtime at the called person’s location. TheCommission included this provision inthe initially proposed Rule in responseto the Telemarketing Act’s directive thatthe Rule should include ‘‘restrictions onthe hours of the day and night whenunsolicited telephone calls can be madeto consumers.’’ 115 While somecommenters suggested different time


116 DSA-Nev Tab B at 11 (7 a.m. to 10 p.m.);Monex at 15 (no restrictions for the precious metalsmarket); NACAA at 5 and GA OCA at 2 (5:00 p.m.to 9:00 p.m. to protect vulnerable older consumers);NAAG at 27 (no calls before noon on Sunday).

117 See 47 CFR 64.1200(e)(1).118 Certain commenters suggested that the safe

harbor provisions of Section 310.4(b)(2) shouldapply to the calling time restrictions as well as the‘‘do not call’’ requirements. See, e.g., NRF at 35;ARDA at 31. The Commission believes that thecalling time restrictions do not present theadministrative compliance difficulties that the ‘‘donot call’’ restrictions impose, and therefore does notbelieve a safe harbor is necessary here.

119 15 U.S.C. 6102(a)(3)(C).120 ATA at 9; ANA at 21; NRF at 36; DMA at 30;

Chemical at 7; CUCI at 9; Gannet at 4; Olan at 16.121 See, e.g., NRF at 36.122 See, e.g., ADS at 2.123 Ann Arbor at 2 (with numerous other

newspapers submitting a substantially similarcomment).

124 See, e.g., Citicorp at 8; Time Warner at 37–38.Not all industry representatives agreed. Onetelemarketer stated that requiring the disclosures atthe beginning is very reasonable. ‘‘Rather thanimpeding business, disclosure of the informationproposed by the Commission adds credibility to thelegitimacy of the caller and increases consumerconfidence [and] responsiveness to itstelemarketing calls.’’ TMGI at 2, 4.

125 The Senate Report stated that the ‘‘prompt’’disclosure requirement was added to theTelemarketing Act to address concerns raised by themarket research industry (those who conductsurveys and public opinion polls without sellinggoods or services) that telemarketing calls shouldnot be made under the guise of being calls solelyfor survey research or similar purposes. See SenateReport at 4.

126 See, e.g., ANA at 21; Cox at 7–8; APAC at 6;ADS at 2.

127 The definition of ‘‘goods or services’’ inSection 310.2(j) of the initially proposed Ruleincluded a statement that the term included ‘‘anycharitable service promoted in conjunction with anoffer of a prize, chance to win a prize, or theopportunity to purchase any other goods orservices.’’

128 See Tr. at 188–93 (ATFA).129 See generally ATFA; NFN.130 See American Medical Ass’n v. FTC, 94 F.T.C.

701, 982–93, aff’d, 638 F.2d 443, 448 (2d Cir. 1980),aff’d mem. by equally divided court, 455 U.S. 676(1982).

131 This jurisdictional limitation, however, doesnot prevent the Commission from suing a for-profitcompany that engages in deceptive practices tosolicit charitable contributions from consumers. Tothis end, the Commission has recently sued severalallegedly deceptive ‘‘telefunders’’—companies thatsolicit charitable contributions by telephone—which allegedly misrepresented the use to whichdonations would be directed and allegedlymisrepresented the value of certain prizes. See FTC

restrictions,116 the FCC has establishedthese calling time hours in itsregulations implementing the TCPA,117

and the Commission has been presentedwith no compelling reasons to changethem. Accordingly, no substantivechanges to Section 310.4(c) areproposed.118

4. Required Oral Disclosures.(a) All outbound telephone calls. The

Telemarketing Act requires theCommission to include in this Rule thefollowing:A requirement that any person engaged intelemarketing for the sale of goods or servicesshall promptly and clearly disclose to theperson receiving the call that the purpose ofthe call is to sell goods or services and makeother such disclosures as the Commissiondeems appropriate.119

The initially proposed Rule, at Section310.4(d)(1)(i), implemented thislegislative directive by requiring alloutbound telephone calls (or telephonesolicitations, as they previously werecalled), to begin with the disclosure ofthe caller’s true first and last name, theseller’s name, and a statement that thepurpose of the call is to sell goods orservices. The divergence between thestatutory language and that of theinitially proposed Rule elicitedsignificant comment.

Many industry representativesobjected to these disclosures beingrequired ‘‘at the beginning,’’ rather than‘‘promptly and clearly.’’ 120 According tothese commenters, requiring disclosuresat the beginning disturbs the normalflow of a telephone call,121 allows notime for a seller to establish, orreestablish, a relationship with theconsumer,122 infringes on the seller’sability to design and implementeffective telemarketing salespresentations,123 and is in effect a ‘‘killmessage’’ that will result in most

consumers hanging up when they hearthe required disclosures.124

After considering these comments, theCommission has determined thatrequiring these disclosures ‘‘at thebeginning’’ may be too rigid a standardfor achieving the statutory purpose ofproviding important information toconsumers while permitting the use ofthe telephone in making sales.125 Therevised proposed Rule adheres to thestatutory requirement that thedisclosures be prompt and clear. Byadhering more closely to the statutorylanguage, the Commission intends topermit some flexibility in the seller’stelemarketing presentation. Forexample, a prompt disclosure would notpreclude the seller or telemarketer fromestablishing some initial rapport withthe customer before stating the purposeof the call. However, in ‘‘multiplepurpose calls,’’ where one purpose is tosell goods or services, the sales purposemust be disclosed promptly.

The requirement that all outboundtelephone calls include the disclosure ofthe caller’s true first and last name alsoelicited significant comment.Commenters noted that ‘‘desk names’’are commonly used in the industry toprotect the safety and privacy ofemployees, and to protect againstpotential prejudice or harassment.126

Upon reconsideration, the Commissionhas determined that disclosure of theseller’s identity is sufficient. Therefore,disclosure of the caller’s identity neednot be included in this Rule.

In addition to the disclosure of theidentity of the seller and the fact thatthe purpose of the call is to sell goodsor services, Section 310.4(d) of therevised proposed Rule now requires theprompt and clear disclosure of thenature of the goods and services that arethe subject of the call. The Commissionrevised the language of Section 310.4(d)to more accurately reflect language fromSection 3(a)(3)(C) of the TelemarketingAct setting forth those additionaldisclosures.

Section 310.4(d)(1)(ii) of the initiallyproposed Rule required a number ofdisclosures in any telephone solicitationthat included a charitable solicitation.127

Upon careful review of the comments, itis clear that separate treatment of suchcharitable solicitations is unnecessary.As ATFA suggested at the workshop,the sale of goods or services thatincludes a representation that a portionof the money paid for such goods orservices will go to charity could betreated under the Rule as a sale of goodsor services, rather than a charitablesolicitation.128 As a result, such a salewould be covered under the Rulewithout having to expressly covercharitable solicitations or donations.Because the initially proposed Ruleattempted to encompass these specifictypes of sales, and given that such saleswill be covered under the Rule’sdefinition of ‘‘telemarketing,’’ theCommission has decided to deleteSection 310.4(d)(1)(ii) from the revisedproposed rule.

Additionally, many commentsindicated that former Section310.4(d)(1)(ii) engendered a great deal ofconfusion on the part of nonprofitentities as to their coverage under theRule. In including former Section310.4(d)(1)(ii), the Commission did notintend to regulate nonprofit entities.129

The Commission is mindful of thelimitations on its jurisdiction in thisarea. Specifically, Section 4 of the FTCAct gives the Commission jurisdictionover corporations that are operated fortheir own profit or that of their membersand over the business aspects of theactivities of organizations serving bothnonprofit and for-profit purposes.130

Federal courts have construed this tobar the Commission from suing anybona fide nonprofit organization underthe FTC Act, thereby removing mostcharitable organizations from the scopeof the FTC’s authority.131 Section 6(a) of


v. The Baylis Co., No. 94–0017–S-LMB (D. Idaho1994); FTC v. NCH, Inc., No. CV-S–94–00138–LDG(LRL) (D. Nev. 1994); FTC v. International CharityConsultants, No. CV-S–94–00195–DWH (LRL) (D.Nev. 1994); FTC v. Heritage Publishing, No. LR-C–94–416 (E.D. Ark. 1994). In addition, theCommission may sue a sham charity that is actuallya for-profit enterprise. FTC v. Voices for Freedom,No. 91–1542–A (E.D. Va. July 13, 1992) (consentdecree entered).

132 15 U.S.C. 6105(a).133 Section 310.4(d)(2) of the initially proposed

Rule.134 ATA at 9; MPA at 20–21; ARDA at 33; NAA

at 19; Spiegel at 5; ALIC at 3; MSSC at 22.135 AT&T at 22–23; MCI at 12; PCH at 4; SBTC at

13.136 Initially proposed Rule Section 310.4(d)(3).137 See generally PMAA, DMA; IMSP.

138 See, e.g., MPA at 21–22.139 NAAG at 28–29.140 See e.g., 18 U.S.C. 1301. Additionally, PMAA,

stated during the workshop that such a requirementwould not be overly burdensome and wouldaccurately distinguish deceptive prize promotionsfrom legitimate prize promotions. Tr. at 608–10(PMAA).

141 Initially proposed Rule Section 310.4(d)(4).

142 See, e.g., MPA at 22–23; NAA at 19–20;MasterCard at 13–14; MBNA at 1.

143 Initially proposed Rule Section 310.4(e)(1).144 See, e.g., DMA at 33; MPA at 23–24; NRF at

38; PMAA at 49–51; CUCI at 10; IBM at 26; ITI at8–10; Spiegel at 5–6; ADS at 3; SDRA at 1. In fact,one commenter noted that 73 percent of prizewinners do not return an affidavit permitting thedistribution of prizes to them. DW&Z at 2.

145 Initially proposed Rule Section 310.4(e)(2).

the Telemarketing Act states that ‘‘noactivity which is outside the jurisdictionof [the FTC Act] shall be affected by thisAct.’’ 132 Accordingly, as explicitlystated in Section 310.1 of the revisedproposed rule, the jurisdictionallimitations of Section 4 of the FTC Act,including those regarding nonprofitorganizations, will apply to theTelemarketing Sales Rule.

(b) Verification calls. The initiallyproposed Rule stated that if a callerverifies a telemarketing sale, that callermust repeat certain disclosures.133 Manycommenters argued forcefully that thisSection was unnecessary and undulyburdensome, requiring duplicativedisclosures that would add to the costof the call and annoy potentialcustomers.134 In addition, commentersstated that this disclosure woulddiscourage firms from makingverification calls, due to increasedcosts.135 After considering thesecomments, the Commission hasdetermined that requiring duplicativeverification disclosures is unnecessaryand would unfairly burden legitimatetelemarketers. It has therefore deletedthis Section from the revised proposedRule.

(c) Outbound telephone calls thatinclude a prize promotion. The initiallyproposed Rule required the followingthree additional oral disclosures for anytelemarketing that includes a prizepromotion: (1) The fact that no purchaseor payment is necessary to win; (2) theverifiable retail sales price of each prizeoffered, or a statement that the retailsales price of the prize offered is lessthan $20.00; and (3) the odds of winningeach prize offered.136

The comments elicited by theserequirements stressed the unnecessarycosts that would result from duplicativedisclosure requirements.137 TheCommission wishes to avoid imposingunnecessary requirements for oraldisclosures that increase both the lengthand the cost of calls without a very clear

consumer benefit.138 Because the benefitto be derived from repeated disclosuresof the same information is questionable,the Commission has narrowed theamount of information that must bedisclosed orally. Oral disclosures nowencompass only information thatpromises a clear-cut consumer benefitand that is not outweighed by the costsit imposes on legitimate industry. Therevised proposed Rule requires atelemarketer making an outboundtelephone call which includes a prizepromotion to disclose clearly, inaddition to the other disclosuresrequired under revised proposed RuleSection 310.4(d), the fact that nopurchase is necessary to win.

The Commission believes that thisdisclosure is so critical to consumerprotection in a prize promotion that itshould be stated during an outboundtelephone call. In addition, theCommission, in response to concernsraised by NAAG, has specified in therevised proposed Rule that thisdisclosure must be made before theprize is described to the personcalled.139 Such a disclosure will clearlyinform consumers that a true, legitimate‘‘prize’’ awarded in a game of chancedoes not require any purchase.140 Thisdisclosure will help dispel the falseinformation provided during fraudulentprize promotions that a consumer mustpurchase some item in order to win the‘‘fabulous’’ prize offered. In order tomake this ‘‘no purchase necessary’’disclosure meaningful, the revisedproposed Rule also requires thetelemarketer to disclose the no-purchaseentry method for the prize promotion, ifrequested by the person called.

(d) Outbound telephone calls thatinclude a premium. The initiallyproposed Rule required anytelemarketing that includes an offer of apremium to make the additionaldisclosure of the verifiable retail salesprice of such premium or comparableitem, or a statement that the retail salesprice of the premium is less than$20.00.141 A number of commentersstated that this Section should beeliminated. They claimed that manypremiums offered by legitimatetelemarketers generally are not availablefor retail sale, and attempting todetermine a retail sales price may bedifficult and costly. They also predicted

that this added cost may result in theelimination of premiums being offered,to the detriment of consumers.142

The Commission is persuaded bythese arguments; in and of itself, non-disclosure of the value of an offeredpremium is not likely to be injurious toconsumers, and imposition of thepotential costs associated with such adisclosure requirement is not justified.The prohibition againstmisrepresentations in Section 310.3 issufficient to protect consumers againstfalse and misleading claims about thevalue of a premium.

5. Other Required Disclosures. Theinitially proposed Rule prohibited anyseller or telemarketer conducting a prizepromotion from requesting or acceptingany payment from a person without firstproviding that person with a writtendisclosure, in duplicate, and receivingfrom that person a writtenacknowledgement that the person hasread the disclosure.143 Numerouscommenters stated that such a writtenacknowledgement requirement wouldeffectively ban prize promotions intelemarketing sales by increasing costsand negating the efficiency of thosesales.144 The Commission is persuadedthat such an outcome would limitconsumers’ choices and would beinconsistent with Commission policy.Prize promotions in telemarketing, inand of themselves, are not deceptive, donot cause injury to consumers, and may,in fact, provide consumer benefits. TheCommission has determined that theserequirements would likely producenominal consumer benefits that wouldbe outweighed by the potentialdetrimental effects, and has thereforedropped them from the revisedproposed Rule.

The initially proposed Rule alsoimposed written disclosurerequirements on investmentopportunities very similar to those forprize promotions. Specifically, anyseller or telemarketer selling aninvestment opportunity was prohibitedfrom requesting or accepting anypayment from a person without firstproviding that person with a writtendisclosure, in duplicate, and receivingfrom that person a writtenacknowledgement that the person hadread the disclosure.145 Industry


146 See, e.g., A-Mark at 2, 11–12; AFSA at 7–8.147 See, e.g., Monex at 16–17.148 Approximately 60 percent of all telemarketing

complaints received by NCL involve prize offers,while investment opportunities account for thegreatest dollar volume of losses reported. NCL at49–51.

149 Initially proposed Rule Section 310.4(f).150 APAC at 7; DMA at 34; MSSC at 24–25;

Spiegel at 6; Monex at 19; NRF at 38–39.151 AARP at 22; NACAA at 5 (apply it to state

orders as well); GA OCA at 2.

152 See, e.g., DMA at 35; ANA at 24; IBM at 27;Olan at 14; NRF at 40; MSSC at 25; Ann Arbor at2.

153 Section 3(a)(3) of the Telemarketing Actauthorizes the Commission to includerecordkeeping requirements in the Rule. 15 U.S.C.6102(a)(3).

154 See, e.g., RPI at 1; BSA at 14.155 See, e.g., NCL at 54; USPS at 24; AARP at 23;

NAAG at 36; CFA at 6.156 See, e.g., NAAG at 36–37; CFA at 6.

157 See, e.g., ANA at 24; NRF at 40; Olan at 14;NCL at 54; IBM at 27–28; USPS at 24.

158 See, e.g., DMA at 35; Tr. at 761, 767, and 769.159 See, e.g., ATA at 9–10; NRF at 40; Olan at 14;

SCIC at 6; IBM at 27.160 See ARDA at 36–37.

representatives again stated that asigned acknowledgement fromconsumers is unjustifiably burdensomein advance of all investmenttransactions.146 They also stated that thedelay caused by this requirement isunfair to both the customer and theseller in certain volatile markets.147

After reviewing the comments in thisarea, and upon further reflection, theCommission, for reasons similar to thosethat prompted deletion of the writtenprize promotion disclosures, has deletedrequirements for additional writtendisclosures for telemarketing investmentopportunities. While the Commission ismindful that both prize promotions andinvestment opportunities are a majorarea of telemarketing fraud,148 the costsimposed on legitimate industry by thesemandatory disclosures is not justified.In addition, the prohibitions onmisrepresentations, as well as thedisclosures required before a customerpays for goods or services, included inSection 310.3 are sufficient to prohibitthe deceptive conduct found in thetelemarketing of prize promotions andinvestment opportunities.

6. Distribution of Lists. The initiallyproposed Rule prohibited any personwho is subject to any federal court orderresolving a case in which the complaintalleged a violation of certain provisionsof the Rule, and in which the court didnot dismiss or strike all such allegationsfrom the case, from selling, renting,publishing, or distributing any list ofcustomer contacts from that person.149

Industry commenters stated that theoriginal proposal was too great a penaltyfor Rule violations, would precludesettlements of law enforcement actions,and should be eliminated.150 On theother hand, law enforcement andconsumer representatives commentedthat the proposed provision does not gofar enough, and should extend to allrule violations and to FTC enforcementactions.151

After considering the comments, theCommission believes that such aprohibition is better left to thediscretion of law enforcement agenciesto seek, and the courts to order, inindividual law enforcement actions.This Section therefore has been deletedfrom the revised proposed Rule.

Section 310.5 RecordkeepingRequirements

The initially proposed Rule requiredany seller or telemarketer to keepcertain records relating to telemarketingactivities for a period of 24 months fromthe date the record is produced.

Many industry commenters statedthat the 24-month retention period wasburdensome and suggested that theperiod be shortened.152 Others suggestedthat the recordkeeping provision bedropped altogether because Congressdid not mandate that records be kept,153

and because fraudulent telemarketerswill most likely ignore therequirements. Those commenterssuggested that recordkeepingrequirements would only burdenlegitimate business.154 On the otherhand, law enforcement and consumerrepresentatives commented that therecordkeeping provisions would beextremely helpful in preservingevidence of compliance, in identifyingcustomers who may have been injured,and in identifying persons who mighthave been involved in any deceptive orabusive telemarketing practices.155 Infact, several commenters suggested thatthe record retention period belengthened to 36 months, which wouldparallel the IRS retentionrequirements.156

After careful consideration of thecomments, the Commission has decidedto keep a recordkeeping requirement inthe revised proposed Rule. Without therequired records, it would be difficult toensure that sellers and telemarketers arecomplying with the requirements of therevised proposed Rule, or identifypersons who are involved in thepractices, or identify customers whomay have been injured.

The Commission also has decided toleave the record retention period at 24months in the revised proposed Rule. Arecord retention period shorter than atwo-year period would be inadequatefor the Commission and the States tocomplete investigations ofnoncompliance. Consumers whocomplain to an agency about allegeddeceptive or abusive telemarketingpractices often do not do soimmediately. Therefore, there mayalready be a substantial ‘‘lag time’’

between the time the alleged violationsoccur and the time the Commissionlearns of the alleged violations. A two-year record retention period allows theCommission and State law enforcementagencies to gather information needed topursue enforcement actions and toidentify those persons who have mostrecently suffered injury from the allegeddeceptive or abusive telemarketingpractices.

The Commission is mindful, however,of the burden on business inmaintaining these records. Therefore,the revised proposed Rule incorporatesmany of the suggestions from industryon how to minimize the recordkeepingburden.

First, the revised proposed Rulespecifies that the records may be kept‘‘in any form.’’ This language addressesthe suggestions from many commentersthat the burden could be reduced if thesellers and telemarketers could keep therequired records in electronic storage.157

Second, the revised proposed Rulespecifies that sellers and telemarketersneed to retain only substantiallydifferent advertising, brochures,telemarketing scripts, and promotionalmaterials. Several commenters proposedthis change in order to reduce the paperburden of maintaining large quantitiesof virtually identical documents.158

Third, the revised proposed Ruleincorporates the suggestions of manycommenters by requiring sellers andtelemarketers to maintain a record onlyof the last known address of prizerecipients, customers, and of currentand former employees.159

Fourth, the revised proposed Rule setsa de minimis amount of $25 for recordretention on prizes, as was suggested byat least one commenter.160 Sellers andtelemarketers will not have to maintainrecords on prize recipients and prizesawarded for prizes that have a value lessthan $25.00.

Fifth, the revised proposed Rule addsthe requirement that sellers andtelemarketers maintain a record of anyfictitious name used by any current orformer employee directly involved intelemarketing sales. This requirementwould prevent deceptive telemarketersfrom hiding behind a fictitious identityand would aid law enforcementagencies in identifying possibledefendants.

Some commenters requestedclarification of certain recordkeeping


161 See, e.g., Wachovia at 3; ARDA at 37; IBM at27.

162 See, e.g., DMA at 35–36; ARDA at 37.163 See, e.g., NB at 5; Citicorp at 9; ARDA at 37.164 See, e.g., Comcast at 6.

165 See, e.g., MPA at 25; DSA at 21; OPC at 4.166 See, e.g., NRF at 41; ARDA at 37–38.

167 See, e.g., NCL at 54–55; NAAG at 37. See alsoTr. at 254–256, 704, and 725.

168 Tr. at 82–84.169 See, e.g., NRF at 9; Time Warner at 4–7; DMA

at 10–12. See also Tr. at 79–81, 702–703, and 710–711.

170 See, e.g., MPA at 8–10; MSSC at 9–10; Olanat 19–20; ANA at 10; ACRA at 6–7.

171 See, e.g., NRF at 20–21; ICTA at 31–35; TimeWarner at 28.

requirements in order to reduce theburden on business. For example,several parties read the recordkeepingrequirements to require them tomaintain records of all customercontacts, regardless of whether thecustomer actually made a purchase.161

They recommended that businessesonly be required to maintain recordsrelating to customers who actually madea purchase of goods or services. TheCommission did not add clarifyinglanguage addressing this concernbecause it believes that the plainlanguage in Section 310.5(a)(3) of therevised proposed Rule is sufficientlyclear that only records relating to actualsales need be maintained. That Sectionspecifically requires information to bemaintained regarding the salestransaction: the identity of the goods orservices purchased, the fulfillment, andthe amount paid by the customer.

Other commenters asked that, inconnection with the requirement tomaintain employee records, the revisedproposed Rule more clearly define whois ‘‘directly involved in telephone sales’’in order to minimize the burden ofmaintaining records on employees whomight be only tangentially involved intelemarketing activities.162 In addition,some commenters asked that theCommission clarify that records onformer employees be kept only on thosepersons who are employees on or afterthe effective date of the final Rule.163

The revised proposed Rule does notadd clarifying language addressing theseconcerns. The Commission believes thatthe Rule is sufficiently clear about thetypes of telemarketing activities thatwould be subject to the Rule’sprovisions as to minimize the numberand type of employees on whom recordsmust be maintained. In addition, theCommission intends that any Rulerequirements, including recordkeepingrequirements, will commence with theeffective date of the final Rule.Therefore, any records relating toemployees and former employees wouldbe required only for those persons whoare or become employees or formeremployees on or after the effective dateof the Rule.

The revised proposed Ruleincorporates suggestions from somecommenters to clarify that the seller andtelemarketer need not duplicate thoserecords that are already maintained inthe ordinary course of business.164

Additionally, Section 310.5(c) of the

revised Rule permits a seller andtelemarketer to allocate betweenthemselves, by written agreement,responsibility for complying with therecordkeeping requirements. Therevised proposed Rule further clarifies aseller’s and a telemarketer’srecordkeeping responsibilities. Underrevised Section 310.5(d), absent awritten agreement described in Section310.5(c), a seller is responsible forcomplying with Sections 310.5(a) (1)–(3)and a telemarketer is responsible forcomplying with Section 310.5(a)(4).Revised Section 310.5(d) allows sellersand telemarketers to keep the requiredrecords in any manner, format, or placeas they keep such records in theordinary course of business.

Several commenters expressedconcern that sellers and telemarketersmay not have access to all of theinformation required to be maintained,and requested that the Rule set outwhich parties should haveresponsibility for maintaining certaintypes of records.165 After consideringthese comments, the Commission hasdetermined that the language in Section310.5(b) is already sufficiently clear toconvey that the parties may enter intoa written agreement allocatingresponsibility for maintaining records.Thus, there is nothing in Section310.5(b) that would prohibit the partiesfrom maintaining only those records towhich they would normally haveaccess, as long as each of the requiredtypes of information is maintained by atleast one of the parties. Indeed, severalcommenters supported this Section,noting that it strikes a reasonablebalance between maintaining necessarydocumentation and avoiding overlyburdensome requirements, as well asnoting that it is consistent with thecontractual nature of the relationshipbetween sellers and telemarketers.166

Finally, the Commission has deletedformer Section 310.5(a)(5) that requiredthat ‘‘any written notices, disclosures,and acknowledgements required to beprovided or received under this Rule’’be kept. The Commission deleted thisSection because the revised proposedRule no longer requires specific writtendisclosures and acknowledgements.

Section 310.6 ExemptionsSection 310.6 of the initially proposed

Rule exempts certain acts or practicesfrom the Rule’s provisions. This Sectionprompted considerable comment.

Law enforcement and consumergroups cautioned against anyexemptions because of the additional

burden of proof exemptions place onlaw enforcement and because of thepotential danger that deceptivetelemarketers will seize upon anyperceived loophole to avoid coverageunder the Rule.167 At the workshopconference, DSA-Nev. explainedNevada’s negative experience withlegislative exemptions. DSA-Nev. statedthat Nevada’s telemarketing legislationexempted charitable solicitations.Shortly after its enactment, Nevada sawfraudulent telemarketers rushing toswitch their operations to fraudulent‘‘telefunding’’ in order to take advantageof that exemption.168

The business community, however,suggested that the Commissionformulate exemptions that specificallydifferentiate between deceptive andlegitimate telemarketing because of thebroad coverage of the initially proposedRule.169 Industry suggested that theCommission take one or both of thefollowing courses: (1) narrow thedefinition of ‘‘telemarketing’’ to includeonly outbound telephone calls; 170 or (2)if the Commission decides to continueincluding inbound telephone calls, setforth additional exemptions that wouldallow the legitimate telemarketingindustry to operate without therestraints of additional regulation.171

After careful consideration, theCommission has decided that narrowly-tailored exemptions are necessary toavoid unduly burdening legitimatebusinesses and sales transactions thatCongress specifically intended not tocover under the Rule. Section 310.6enumerates these exemptions. TheCommission determined the advisabilityof each exemption after considering thefollowing factors: (1) Whether theconduct or business in question alreadyis regulated extensively by Federal orState law; (2) whether Congressintended that a certain type oftelemarketing activity be exempt underthe Rule; (3) whether, based on theCommission’s enforcement experience,the conduct or business lends itselfeasily to deception or abuse; and (4)whether requiring businesses to complywith the Rule would be undulyburdensome when weighed against thelikelihood that deceptive sellers ortelemarketers would use an exemptionto circumvent the Rule’s coverage.


172 See, e.g., IFA at 4; Time Warner at 44–45; CHCat 7; ISA at 20–27; PMAA at 34–38.

173 ‘‘Trade Regulation Rule Pursuant to theTelephone Disclosure and Dispute Resolution Actof 1992,’’ 16 CFR Part 308.

174 ‘‘Disclosure Requirements and ProhibitionsConcerning Franchising and Business OpportunityVentures,’’ 16 CFR Part 436.

175 See, e.g., BOB at 2; ANA at 14; ABA at 3; ACAat 1; Advanta at 2; MBNA at 1.

176 See, e.g., GHAA at 3; AT&T at 6–13; AmEx at3; ABA at 1; BOB at 1; ASAE at 2; SCIC at 7.

177 See, e.g., ABA at 1; Advanta at 1; Chase at 2;Citicorp at 3; NFN at 2.

178 See 15 U.S.C. 44 and 45(a)(2). For examples ofstatus exemptions, see FTC v. Green TreeAcceptance Corp., No. CA–4–86–469–K, slip op.(N.D. Tx. Sep. 30, 1987); Official Airlines Guides,Inc. v. FTC, 630 F.2d 920 (2d Cir. 1980); FTC v.Miller, 549 F.2d 452 (7th Cir. 1977); Breen AirFreight, Ltd. v. Air Cargo, Inc., 470 F.2d 767 (2d Cir.1972). For an example of an activity exemption, seeCommunity Blood Bank of Kansas City, Inc. v. FTC,405 F.2d 1011 (8th Cir. 1969).

179 See Senate Report at 14.180 House Report at 7; Senate Report at 7–8.181 See, e.g., DSA.182 See, e.g., ACRA at 6; DSA at 5; Olan at 19–

20; Viacom at 6–7; MCI at 5–6.

183 Senate Report at 8.184 See, e.g., ANA at 10–11; Viacom at 6–7; Olan

at 27; AFSA at 3–4; QVC at 13–14; DMA at 37; MPAat 9; Time Warner at 26–27.

185 See, e.g., INTV at 4; QVC at 2–3; NAA at 10–12; ANA at 10–11.

The revised proposed Ruleincorporates the suggestions ofnumerous commenters and exemptstransactions that are subject to extensiverequirements under other Commissionrules.172 Section 310.6(a) exempts pay-per-call services subject to the FTC’s900 Number Rule.173 Additionally, theCommission has clarified the definitionof ‘‘investment opportunity’’ in Section310.2(j) of the revised proposed Rule toexpressly state that the term does notinclude sales of franchises subject to theFTC’s Franchise Rule.174

Many commenters suggestedexemptions based on other FTC rules,statutes, and regulations, for example,the Negative Option Rule, 16 CFR Part425, FDCPA, 15 U.S.C. 1692, and theTILA, 15 U.S.C. 1601 et seq.).175 TheCommission believes that changing thephrase ‘‘induce payment’’ to ‘‘inducepurchase’’ in the definition of‘‘telemarketing’’ clarifies that debtcollection practices are not covered bythis Rule. With regard to credit statutessuch as the TILA and the ConsumerLeasing Act [‘‘CLA’’], 15 U.S.C. 1667,the Commission believes that therevised proposed Rule’s disclosurerequirements do not conflict or overlapwith those statutes. It is thereforeunnecessary to specifically exempttransactions subject to the TILA andCLA from the provisions of this Rule.Similarly, the Commission believes thatthe disclosure provisions of theNegative Option Rule do not conflict oroverlap with the provisions of this Ruleand therefore there is no need to exemptthose transactions.

Other commenters asked that theCommission exempt those entities thatare not subject to the FTC Act.176 Therevised proposed Rule has addedlanguage to Section 310.1 that clarifiesthe scope of the Rule in accordance withthose comments. Many of thesecommenters, however, also asked thatagents of exempt entities or of entitiesengaging in exempt activities similarlybe exempted from the Rule’sprovisions.177 The Commission rejectssuch an extension. Exemptions underthe FTC Act are either based on

‘‘status,’’ or a specific activity.178

Exempting agents is contrary to theCommission’s assertion of itsjurisdiction under established case law.This Rule will cover sellers andtelemarketers who do not fall withinthose status or activity-basedexemptions of the FTC Act. Moreover,the Commission’s decision is consistentwith Congressional intent that theTelemarketing Act neither expand norcontract the Commission’s authority.179

Section 310.6(b) of the revisedproposed Rule exempts ‘‘telephone callsin which the sale of goods or services isnot completed, and payment orauthorization of payment is notrequired, until after a face-to-face salespresentation by the seller during whichthe customer has the opportunity toexamine the goods or services offered.’’In addition to Congress’ clear intent notto cover such transactions,180 numerouscommenters explained how face-to-facesales are not the type of telemarketingtransactions that Congress wasconcerned about in passing theTelemarketing Act.181 The Commissionagrees that such face-to-face contactswhere consumers have the opportunityto examine the goods or services shouldbe exempt under the Rule. Thisexemption also applies to telephonecontacts made subsequent to a face-to-face sales presentation to the extentsuch contacts are for the sole purpose ofconsummating the sale of goods orservices that the customer had theopportunity to examine.

Section 310.6(c) of the revisedproposed Rule exempts telephone callsinitiated by a customer that are not theresult of any solicitation by the seller ortelemarketer. The Commission addedthis exemption to address manycommenters’ concerns that thedefinition of telemarketing mightinclude an inbound call from acustomer to make hotel, airline, carrental or similar reservations, to placecarry-out or restaurant delivery orders,obtain information or customertechnical support, or other incidentaluses of the telephone that were not inresponse to a direct solicitation.182 This

exemption is consistent with Congress’intent not to cover transactionsinvolving incidental use of thetelephone.183

The Commission has replaced formerSection 310.6(c) with revised Sections310.6(d) and (e). Section 310.6(c) of theinitially proposed Rule had exemptedtelephone contacts made by a person‘‘when there has been no initial salescontact directed to that particularperson, by telephone or otherwise, fromthe seller or telemarketer.’’ Manycommenters expressed confusion overwhat was meant by ‘‘initial salescontact’’ or ‘‘directed to that particularperson,’’ and requested that theCommission clarify the scope of thisexemption.184 The Commission agreesthat clarification is needed as to thescope of this exemption. Revisedproposed Sections 310.6(d) and (e) nowtreat separately calls prompted byadvertisements in any media, other thandirect mail solicitations, and callsprompted by direct mail solicitations.Revised Section 310.6(d) exempts‘‘telephone calls initiated by a customerin response to an advertisement throughany media, other than direct mailsolicitations; provided, however, thatthis exemption does not apply to callsinitiated by a customer in response to anadvertisement relating to investmentopportunities, goods or servicesdescribed in Sections 310.4(a)(2)–(3), oradvertisements that guarantee orrepresent a high likelihood of success inobtaining or arranging for extensions ofcredit, if payment of a fee is required inadvance of obtaining the extension ofcredit.’’ The revised language of Section310.5(d) addresses some commenters’concerns that calls in response totelevision commercials, infomercials,magazine and newspaperadvertisements, and other forms of massmedia advertising would be covered bythe Rule.185 The Commission does notintend that telephone contacts inresponse to general media advertising becovered under the Rule. Rather,deceptive general media advertising willcontinue to be subject to enforcementactions under the FTC Act.

On the other hand, the Commissionknows that some fraudulent sellers andtelemarketers use mass media or generaladvertising to entice their victims tocall, particularly in relation to the saleof investment opportunities, specificcredit-related programs, and recoveryrooms. Given the Commission’s


186 See, e.g., NYSCPB at 13; NACAA at 6; NAAGat 38–40; IA DOJ at 21.

187 See, e.g., DMA at 36; Olan at 27; ICTA at 57;AAAA at 6.

188 Initially proposed Rule Section 310.6(b).189 See, e.g., Viacom at 9.190 See, e.g., IBM at 28; BPIA at 4.191 See DMA at 36–37.

192 See NAAG at 41; ID AG at 2; USPS at 25.193 See, e.g., IBM at 28; BPIA at 4.194 See, e.g., CHC at 8, 12.195 See, e.g., ARDA at 39; ACRA at 9–10; MSSC

at 27; Time Warner at 44; ADC at 2; DMA at 38.196 See, e.g., Time Warner at 23–26; DMA at 38;

AmEx at 2; APAC at 1–2,6; Viacom at 6; Olan at28; ACRA at 10; ARDA at 40; NRF at 17–18.

197 See, e.g., Tr. at 705–26.

experience with these fraudulenttelemarketing schemes being marketedthrough television commercials,infomercials, magazine and newspaperadvertisements, and other forms of massmedia advertising, the Commission hasexcluded these activities from thegeneral media advertising exemption.

The revised proposed Rule no longerexcludes ‘‘prize promotions’’ from thegeneral media exemption because theCommission believes that the majorityof fraudulent prize promotions do notemploy mass media or generaladvertising. In addition, the revisedproposed Rule has dropped‘‘employment services’’ as one of theexceptions to the general mediaexemption. Although the Commissionand other law enforcement agencieshave brought actions against advancefee employment services that use massmedia advertising, many legitimateemployment services use the same typeof mass media advertising and alsorequire advance fees. The Commissionbelieves that neither the legislativehistory of the Telemarketing Act nor therulemaking record for the Rule providea sufficient basis for singling out theemployment service industry for anexception to the general mediaadvertising exemption. Deceptiveemployment opportunity advertisingwill, however, still be subject toenforcement actions under the FTC Act.

Section 310.6(e) exempts telephonecalls initiated by a customer in responseto ‘‘a direct mail solicitation that clearlyand conspicuously discloses all materialinformation listed in Section 310.3(a)(1)of this Rule for any item offered in thedirect mail solicitation; provided,however, that this exemption does notapply to calls initiated by a customer inresponse to a direct mail solicitationrelating to investment opportunities,goods or services described in Sections310.4(a)(2)–(3), or direct mailsolicitations that guarantee or representa high likelihood of success in obtainingor arranging for extensions of credit, ifpayment of a fee is required in advanceof obtaining the extension of credit.’’Some commenters suggested that theCommission include under the generalmedia exemption all direct mailsolicitations—which, in effect, wouldhave excluded all inbound calls fromcoverage under the Rule. However, theCommission’s enforcement experiencedemonstrates that deceptivetelemarketers frequently use direct mailsolicitations as an integral part of theirfraudulent schemes. Inbound callsprompted by such solicitationsfrequently result in the caller beingsubjected to the deceptive practices theTelemarketing Act is designed to

address. Therefore, the Commission hasdetermined that including all directmail solicitations within the generalmedia exemption is unworkable. TheCommission acknowledges, however,that most direct mail solicitations arenot deceptive. In particular, thelikelihood of deception is greatlydiminished when direct mailsolicitations contain all materialinformation about the offered goods orservices. Revised Section 310.6(e)therefore exempts only those direct mailsolicitations that disclose, clearly andconspicuously, all the informationspecified in Section 310.3(a)(1) asmaterial to a person’s purchasedecision. As in the general mediaexemption, revised Section 310.6(e)excludes from this exemption directmail solicitations relating to investmentopportunities, specific credit-relatedprograms, and recovery rooms becauseof the Commission’s enforcementexperience in these areas.

The Commission decided to delete the‘‘de minimis’’ exemption for incidentaltelemarketing activity contained informer Section 310.6(a). Commentsindicate that neither the lawenforcement nor the businesscommunities found such an exemptionhelpful or workable. Law enforcementagencies believed that the exemptionwould hamper quick law enforcement,while providing a loophole forfraudulent telemarketers who specializein high-price scams directed at only afew victims.186 The businesscommunity found the exemption to beso restrictive that it would be of littlesignificance.187 The Commission agreeswith those observations and believesthat revisions made elsewhere in therevised proposed Rule, includingexemptions in Section 310.6, eliminatethe need for this specific exemption.

Comments about the initiallyproposed ‘‘business-to-business’’exemption 188 fell to opposite extremes.Several industry commenters asked thatthe exemption be expanded to includeentities other than businesses.189 Othercommenters asked that the Commissionclarify the type of office suppliesexcluded from the exemption.190 Stillother industry commenters suggestedthat a ‘‘business-to-business’’ exemptionwas only defensible if provided on anacross-the-board basis, withoutexceptions.191 On the other hand, law

enforcement and consumer agenciesurged the Commission to excludeadditional goods or services from thebusiness-to-business exemption.192

Because the Commission hasextensive enforcement experiencepertaining to deceptive telemarketingdirected to businesses, it does notbelieve that an across-the-boardexemption for business-to-businesscontacts is appropriate. TheCommission does agree, however, thatclarification of the goods or services thatare excluded from this exemption isnecessary. Revised Section 310.6(f)states that only the retail sale ofnondurable office or cleaning suppliesare excluded from the exemption.193

Many commenters suggested anexemption for transactions where thecustomer is able to examine the goodsor services before paying for them butdoes not involve a face-to-face salespresentation.194 The Commission doesnot believe such an exemption isnecessary, given the changes elsewherein the revised proposed Rule, as notedabove.

Many commenters suggested anexemption based on a prior businessrelationship with the customer.195 TheCommission does not believe that suchan exemption would be workable in thecontext of telemarketing fraud. Afraudulent telemarketer need onlyobtain an initial purchase from anunsuspecting victim to claim a ‘‘priorbusiness relationship’’ exemption.

In addition, many commenterssuggested an exemption for ‘‘establishedbusinesses,’’ including businesses thatoffer basic customer protection policiessuch as a moneyback guarantee.196 TheCommission agrees with the commentsof other law enforcement agencies thatsuch broad-based ‘‘safe harbor’’provisions are not appropriate.197

Such a ‘‘safe harbor’’ or ‘‘establishedbusiness’’ exemption might have ananticompetitive effect on newbusinesses entering the market. Inaddition, the experience of lawenforcement agencies indicates thatmuch telemarketing fraud is perpetratedby so-called ‘‘established businesses.’’Furthermore, the existence of policiessuch as a moneyback guarantee is noassurance that the company is notfraudulent. Law enforcement agenciesare well aware that fraudulent


198 See 15 U.S.C. 6103 and 6104.199 See, e.g., AARP at 3; ABA at 1; BOB at 2.200 15 U.S.C. 6105(b).201 Senate Report at 14.

202 See, e.g., AARP at 25; NYSCPB at 13–14;NAAG at 41–42; NACAA at 6.

203 See Prudential at 4.204 60 FR at 8328.205 NRF at 41. See also APAC at 9; NCL at 55;

Olan at 29; NAA at 24; DMA at 40; SCIC at 71;ARDA at 41; Time Warner at 41. But see USPS at26.

206 See, e.g., DMA at 40; Olan at 29; NRF at 41;SCIC at 7; Time Warner at 41. 207 NCL at 55.

telemarketers often tout their‘‘moneyback guarantees’’ and refundpolicies as part of the sales solicitation.Unfortunately, such companies rarelyhonor those moneyback guarantees.Therefore, the Commission has decidednot to include a broad ‘‘safe harbor’’ or‘‘established business’’ exemption in therevised proposed Rule. The Commissionbelieves that changes made elsewhere inthe revised proposed Rule, includingexemptions set forth in Section 310.6,obviate the need for such an exemptionor safe harbor.

Section 310.7 Actions by States andPrivate Persons

The Telemarketing Act permitscertain State officials and privatepersons to bring civil actions in anappropriate Federal district court forviolations of this Rule.198 Section 310.7of the initially proposed Rule set forththe notice such parties must provide tothe Commission concerning thoseactions. The language regarding thenotice has not changed in the revisedproposed Rule. However, the revisedproposed Rule has added Section310.7(b), which clarifies that the Ruledoes not vest State officials or privatepersons with jurisdiction over anyperson or activity outside thejurisdiction of the FTC Act.

The Commission added this languagein response to questions from a numberof commenters regarding the scope ofthe Rule and the authority to bringactions for violations of the Rule.199

When coupled with the new language insection 310.1 on the scope of the Rule,the language in Section 310.7(b) clarifiesthat the Rule does not apply to anyperson outside the jurisdiction of theFTC Act, and that neither theCommission nor any other partyauthorized to bring suit for violations ofthe Rule may bring an action againstsuch persons.

This restriction on the scope of theRule and authority to bring actionsunder the Rule tracks Section 6(b) of theTelemarketing Act: ‘‘[N]o activity whichis outside the jurisdiction of [the FTC]Act shall be affected by this Act.’’ 200

The language also is consistent with thelegislative history of the TelemarketingAct and reflects the intent of Congress:[T]he legislation * * * does not vest theFTC, the State attorneys general, or privateparties with jurisdiction over any person overwhom the FTC does not otherwise haveauthority.201

Section 310.8 Federal Preemption

Section 310.8 of the initially proposedRule stated that nothing in the Ruleshall be construed to preempt any Statelaw that is not in direct conflict withany provision of the Rule. Severalcommenters asked that this Sectionclarify that the Rule establishes athreshold requirement that State lawscan exceed as long as they do notconflict with the Rule’s requirements.202

At least one commenter expressedconcern that they would be subject tomaking State-required disclosures thatare similar to the Rule’s requirementsbut not directly in conflict.203

The Commission does not believe anychanges are necessary to this Section.The language in this Section is clear andprovides sufficient guidance thatadditional State requirements andprohibitions would be permitted as longas they do not conflict directly with theRule. Thus, State registration,certification, or licensing requirementsfor telemarketing most likely would notbe preempted because they would notbe in direct conflict with any provisionsof this Rule.

Effective Date

The NPR asked for comments onwhether 30 days would providesufficient time to come into compliancewith the initially proposed Ruleprovisions.204 Most of the parties whocommented on the effective dateindicated that 30 days would beinsufficient given the need ‘‘to makesystem changes, establish trainingprograms [for] employees involved intelephone sales * * *, develop newrecordkeeping procedures, preparewritten disclosure andacknowledgement forms, draft andnegotiate new contracts with servicebureaus, [and] develop internalmonitoring programs.’’ 205 Most of thecommenters who believed 30 days wasinsufficient suggested a 6-month timeframe in order to achieve compliance.206

NCL noted that some of the prohibiteddeceptive and fraudulent practicescould be instituted immediately (forexample, the prohibitions againstmisrepresentations), but that industrymight need additional time to comply

with certain other requirements of theinitially proposed Rule.207

Because the revised proposed Ruleeliminates many of the disclosurerequirements that generated theforegoing compliance time predictions,the Commission proposes to set theeffective date at 30 days from the datethe final Rule is published. Thirty daysshould not unduly burden legitimateindustry because, based on informationprovided by industry, legitimate sellersand telemarketers already comply withthe revised proposed Rule. For example,legitimate industry represented that italready makes the affirmativedisclosures required under Section310.3(a)(1); it does not misrepresentmaterial information pertaining to thesale of goods or services prohibitedunder Section 310.3(a)(2); it does notknowingly provide substantialassistance or support to deceptivesellers or telemarketers prohibitedunder Section 310.3(b); and it does notengage in credit card launderingprohibited under Section 310.3(c).Further, telemarketers have beenrequired to comply with the TCPA since1992 and should already have in placeand be implementing the ‘‘do not call’’procedures required under that Act.Such procedures therefore wouldcomply with Section 310.4(b)(2) of thisRule, as well. Finally, the Commissionunderstands from the workshop thatparticipants already maintain therecords required under Section 310.5.Because the Commission does notrequire that records be kept in anyspecial form, legitimate industry is mostlikely already in compliance withSection 310.5 of the Rule. Based on theforegoing, the Commission does notbelieve that a further delayed effectivedate for the Rule is reasonable.

Section C. Invitation To Comment

Before adopting this revised proposedRule as final, consideration will begiven to any written commentssubmitted to the Secretary of theCommission on or before June 30, 1995.Comments submitted will be availablefor public inspection in accordance withthe Freedom of Information Act, 5U.S.C. 552, and Commissionregulations, on normal business daysbetween the hours of 8:30 a.m. and 5p.m. at the Public Reference Section,Room 130, Federal Trade Commission,6th Street and Pennsylvania Avenue,NW., Washington, DC 20580.


208 See generally Olan; ATFA; ANA; ABA.

Section D. Communications by OutsideParties to Commissioners or TheirAdvisors

Pursuant to Commission Rule1.26(b)(5), communications with respectto the merits of this proceeding fromany outside party to any Commissioneror Commissioner advisor during thecourse of this rulemaking shall besubject to the following treatment.Written communications, includingwritten communications from membersof Congress, shall be forwardedpromptly to the Secretary for placementon the public record. Oralcommunications, not including oralcommunications from members ofCongress, are permitted only when suchoral communications are transcribedverbatim or summarized at thediscretion of the Commissioner orCommissioner advisor to whom suchoral communications are made and arepromptly placed on the public record,together with any writtencommunications and summaries of anyoral communications relating to suchoral communications. Oralcommunications from members ofCongress shall be transcribed orsummarized at the discretion of theCommissioner or Commissioner advisorto whom such oral communications aremade and promptly placed on thepublic record, together with any writtencommunications and summaries of anyoral communications relating to suchoral communications.

Section E. Regulatory Flexibility Act

During the comment period, only afew commenters 208 asserted that theinitially proposed Rule might have asignificant economic impact on asubstantial number of small entities.However, based on the revised proposedRule’s modified regulatory approach,the provisions of the RegulatoryFlexibility Act relating to an initial andfinal regulatory analysis, 5 U.S.C. 603,604, are not applicable to this documentbecause it is believed that these revisedregulations, if promulgated, will nothave a significant economic impact ona substantial number of small entities, 5U.S.C. 605.

The Telemarketing Act requires theCommission to issue regulations, notlater than 365 days after the date ofenactment, prohibiting deceptivetelemarketing acts or practices and otherabusive telemarketing acts or practices.The Act limits the scope of theregulations to entities that engage intelemarketing through one or moreinterstate telephone calls; telemarketing

sales by local companies to localcustomers would most likely beintrastate calls and thus outside theparameters of the proposed rule. TheAct also exempts certain catalog salesoperations from the scope of theregulations. In addition, the revisedproposed rule exempts pay-per-callservices subject to the Commission’s‘‘Trade Regulation Rule Pursuant to theTelephone Disclosure and DisputeResolution Act of 1992,’’ exemptstelephone calls in which a payment isnot required until after a face-to-facesales presentation has occurred,telephone calls initiated by a customerthat are not in response to anysolicitation, and customer telephonecalls that are in response to mass mediaadvertising.

As a result of these statutory andregulatory limitations, the Commissionbelieves that many small entities willfall outside the scope of the regulations.In addition, any economic costsimposed on small entities remainingwithin the parameters of the rule are, inmany instances, specifically imposed bystatute. Where they are not, efforts havebeen made to make the revisedproposed Rule’s requirements flexible,in part to minimize any unforeseenburden on small entities, as describedelsewhere in this notice.

To ensure that no substantialeconomic impact is being overlooked,public comment is requested on theeffect of the proposed regulations on thecosts to, profitability andcompetitiveness of, and employment insmall entities. Subsequent to the receiptof public comments, it will be decidedwhether the preparation of a finalregulatory flexibility analysis iswarranted. Accordingly, based onavailable information, the Commissionhereby certifies under the RegulatoryFlexibility Act, 5 U.S.C. 605(b), that theproposed regulations will not have asignificant economic impact on asubstantial number of small entities.This notice serves as certification to thateffect for the purposes of the SmallBusiness Administration.

List of Subjects in 16 CFR Part 310Telemarketing, Trade practices.Accordingly, it is proposed that

chapter I of 16 CFR be amended byadding a new part 310 to read asfollows:

PART 310—TELEMARKETING SALESRULE

Sec.310.1 Scope of regulations in this part.310.2 Definitions.310.3 Deceptive telemarketing acts or

practices.

310.4 Abusive telemarketing acts orpractices.

310.5 Recordkeeping requirements.310.6 Exemptions.310.7 Actions by states and private persons.310.8 Federal preemption.310.9 Severability.

Authority: 15 U.S.C. 6101–6108.

§ 310.1 Scope of regulations in this part.This part implements the

Telemarketing and Consumer Fraud andAbuse Prevention Act, 15 U.S.C. 6101–6108. This part does not apply to anyactivity outside the jurisdiction of theFederal Trade Commission Act, 15U.S.C. 41, et seq.

§ 310.2 Definitions.(a) Acquirer means a business

organization, financial institution, or anagent of a business organization orfinancial institution that has authorityfrom an organization that operates orlicenses a credit card system toauthorize merchants to accept, transmit,or process payment by credit cardthrough the credit card system formoney, goods or services, or anythingelse of value.

(b) Attorney general means the chieflegal officer of a State.

(c) Cardholder means a person towhom a credit card is issued or who isauthorized to use a credit card on behalfof or in addition to the person to whomthe credit card is issued.

(d) Commission means the FederalTrade Commission.

(e) Credit means the right granted bya creditor to a debtor to defer paymentof debt or to incur debt and defer itspayment.

(f) Credit card means any card, plate,coupon book, or other credit deviceexisting for the purpose of obtainingmoney, property, labor, or services oncredit.

(g) Credit card sales draft means anyrecord or evidence of a credit cardtransaction.

(h) Credit card system means anymethod or procedure used to processcredit card transactions involving creditcards issued or licensed by the operatorof that system.

(i) Customer means any person who isor may be required to pay for goods orservices offered through telemarketing.

(j) Investment opportunity meansanything, tangible or intangible, that isoffered, offered for sale, sold, or tradedbased wholly or in part onrepresentations, either expressed orimplied, about past, present, or futureincome, profit, or appreciation. Theterm ‘‘investment opportunity’’ does notinclude sales of franchises subject to theCommission’s Rule entitled ‘‘DisclosureRequirements and Prohibitions


Concerning Franchising and BusinessOpportunity Ventures,’’ 16 CFR part436.

(k) Material means likely to affect aperson’s choice of, or conduct regarding,goods or services.

(l) Merchant means a person who isauthorized under a written contractwith an acquirer to honor or acceptcredit cards, or to transmit or process forpayment credit card payments, for thepurchase of goods or services.

(m) Merchant agreement means awritten contract between a merchantand an acquirer to honor or acceptcredit cards, or to transmit or process forpayment credit card payments, for thepurchase of goods or services.

(n) Outbound telephone call means atelephone call initiated by atelemarketer to induce the purchase ofgoods or services.

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

(p) Prize means anything offered, orpurportedly offered, and given, orpurportedly given, to a person bychance. For purposes of this definition,chance exists if a person is guaranteedto receive an item and, at the time of theoffer or purported offer, the telemarketerdoes not identify the specific item thatthe person will receive.

(q) Prize promotion means:(1) A sweepstakes or other game of

chance; or(2) An oral or written express or

implied representation that a person haswon, has been selected to receive, ormay be eligible to receive a prize orpurported prize.

(r) Seller means any person who, inconnection with a telemarketingtransaction, provides or offers toprovide goods or services to thecustomer in exchange for consideration.

(s) State means any State of theUnited States, the District of Columbia,Puerto Rico, the Northern MarianaIslands, and any territory or possessionof the United States.

(t) Telemarketer means any personwho, in connection with telemarketing,initiates or receives telephone calls to orfrom a customer.

(u) Telemarketing means a plan,program, or campaign which isconducted to induce the purchase ofgoods or services by use of one or moretelephones and which involves morethan one interstate telephone call. Theterm does not include the solicitation ofsales through the mailing of a catalogwhich: contains a written description orillustration of the goods or servicesoffered for sale; includes the businessaddress of the seller; includes multiple

pages of written material orillustrations; and has been issued notless frequently than once a year, whenthe person making the solicitation doesnot solicit customers by telephone butonly receives calls initiated bycustomers in response to the catalog andduring those calls takes orders onlywithout further solicitation. Forpurposes of the previous sentence, theterm ‘‘further solicitation’’ does notinclude providing the customer withinformation about, or attempting to sell,any other item included in the samecatalog which prompted the customer’scall or in a substantially similar catalog.

§ 310.3 Deceptive telemarketing acts orpractices.

(a) Prohibited deceptive telemarketingacts or practices. It is a deceptivetelemarketing act or practice and aviolation of this part for any seller ortelemarketer to engage in the followingconduct:

(1) Before a customer pays for goodsor services offered, failing to disclose, ina clear and conspicuous manner, thefollowing material information:

(i) The total costs to purchase, receive,or use, and the quantity of, any goodsor services that are the subject of thesales offer;

(ii) All material restrictions,limitations, or conditions to purchase,receive, or use the goods or services thatare the subject of the sales offer;

(iii) All material terms and conditionsof the seller’s refund, cancellation,exchange, or repurchase policies if arepresentation about any such policy ismade a part of the sales offer; and

(iv) That no purchase is necessary towin if a prize promotion is offered inconjunction with a sales offer of goodsor services;

(2) Misrepresenting, directly or byimplication, any of the followingmaterial information:

(i) The total costs to purchase, receive,or use, and the quantity of, any goodsor services that are the subject of a salesoffer;

(ii) Any material restriction,limitation, or condition to purchase,receive, or use goods or services that arethe subject of a sales offer;

(iii) Any material aspect of theperformance, efficacy, nature, or centralcharacteristics of goods or services thatare the subject of a sales offer;

(iv) Any material aspect of the natureor terms of the seller’s refund,cancellation, exchange, or repurchasepolicies;

(v) Any material aspect of a prizepromotion including, but not limited to,the odds of winning, the nature or valueof a prize, or that payment is requiredto receive a prize;

(vi) Any material aspect of aninvestment opportunity including, butnot limited to, risk, liquidity, earningspotential, or profitability; or

(vii) A seller’s or telemarketer’saffiliation with, or endorsement by, anygovernment or third-party organization;and

(3) Making a false or misleadingstatement to induce any person to payfor goods or services.

(b) Assisting and facilitating. It is adeceptive telemarketing act or practiceand a violation of this part for a personto provide substantial assistance orsupport to any seller or telemarketerwhen that person knows or consciouslyavoids knowing that the seller ortelemarketer is engaged in any act orpractice that violates § 310.3 (a) or (c),or § 310.4 of this part, and suchsubstantial assistance is related to thecommission or furtherance of that act orpractice.

(c) Credit card laundering. Except asexpressly permitted by the applicablecredit card system, it is a deceptivetelemarketing act or practice, and aviolation of this part, for:

(1) A merchant to present to ordeposit into, or cause another to presentto or deposit into, the credit card systemfor payment, a credit card sales draftgenerated by a telemarketing transactionthat is not the result of a telemarketingcredit card transaction between thecardholder and the merchant;

(2) Any person to employ, solicit, orotherwise cause a merchant or anemployee, representative, or agent of themerchant, to present to or deposit intothe credit card system for payment, acredit card sales draft generated by atelemarketing transaction that is not theresult of a telemarketing credit cardtransaction between the cardholder andthe merchant; or

(3) Any person to obtain access to thecredit card system through the use of abusiness relationship or an affiliationwith a merchant, when such access isnot authorized by the merchantagreement or the applicable credit cardsystem.

§ 310.4 Abusive telemarketing acts orpractices.

(a) Abusive conduct generally. It is anabusive telemarketing act or practiceand a violation of this part for any selleror telemarketer to engage in thefollowing conduct:

(1) Threats, intimidation, or the use ofprofane or obscene language;

(2) Requesting or receiving paymentof any fee or consideration for goods orservices represented to removederogatory information from, or


improve, a person’s credit history, creditrecord, or credit rating until:

(i) The time frame in which the sellerhas represented all of the goods orservices will be provided to that personhas expired; and

(ii) The seller has provided the personwith documentation in the form of aconsumer report from a consumerreporting agency demonstrating that thepromised results have been achieved,such report having been issued morethan six months after the results wereachieved. Nothing in this part should beconstrued to affect the requirement inthe Fair Credit Reporting Act, 15 U.S.C.1681, that a consumer report may onlybe obtained for a specified permissiblepurpose;

(3) Requesting or receiving paymentof any fee or consideration from aperson, for goods or servicesrepresented to recover or otherwiseassist in the return of money or anyother item of value paid for by, orpromised to, that person in a previoustelemarketing transaction, until seven(7) business days after such money orother item is delivered to that person.This provision shall not apply to goodsor services provided to a person by alicensed attorney; or

(4) Requesting or receiving paymentof any fee or consideration in advanceof obtaining a loan or other extension ofcredit when the seller or telemarketerhas guaranteed or represented a highlikelihood of success in obtaining orarranging a loan or other extension ofcredit for a person.

(b) Pattern of calls. (1) It is an abusivetelemarketing act or practice and aviolation of this part for a telemarketerto engage in, or for a seller to cause atelemarketer to engage in, the followingconduct:

(i) Causing any telephone to ring, orengaging any person in telephoneconversation, repeatedly orcontinuously with intent to annoy,abuse, or harass any person at the callednumber; or

(ii) Initiating an outbound telephonecall to a person when that personpreviously has stated that he or she doesnot wish to receive an outboundtelephone call made by or on behalf ofthe seller whose goods or services arebeing offered.

(2) A seller or telemarketer will not beliable for violating § 310.4(b)(1)(ii) if:

(i) It has established and implementedwritten procedures to comply with§ 310.4(b)(1)(ii);

(ii) It has trained its personnel in theprocedures established pursuant to§ 310.4(b)(2)(i);

(iii) The seller, or the telemarketeracting on behalf of the seller, has

maintained and recorded lists ofpersons who may not be contacted, incompliance with § 310.4(b)(1)(ii); and

(iv) Any subsequent call is the resultof error.

(c) Calling time restrictions. Withoutthe prior consent of a person, it is anabusive telemarketing act or practiceand a violation of this part for atelemarketer to engage in outboundtelephone calls to a person’s residenceat any time other than between 8:00 a.m.and 9:00 p.m. local time at the calledperson’s location.

(d) Required oral disclosures. It is anabusive telemarketing act or practiceand a violation of this part for atelemarketer in an outbound telephonecall to fail to disclose promptly and ina clear and conspicuous manner to theperson receiving the call, the followinginformation:

(1) The identity of the seller;(2) That the purpose of the call is to

sell goods or services;(3) The nature of the goods or

services; and(4) That no purchase is necessary to

win if a prize promotion is offered inconjunction with a sales offer of goodsor services. This disclosure must bemade before the prize is described to theperson called. If requested by thatperson, the telemarketer must disclosethe no-purchase entry method for theprize promotion.

§ 310.5 Recordkeeping requirements.(a) Any seller or telemarketer shall

keep, in any form, for a period of 24months from the date the record isproduced, the following records relatingto its telemarketing activities:

(1) All substantially differentadvertising, brochures, telemarketingscripts, and promotional materials;

(2) The name and last known addressof each prize recipient and the prizeawarded for prizes that have a value of$25.00 or more;

(3) The name and last known addressof each customer, the goods or servicespurchased, the date such goods orservices were shipped or provided, andthe amount paid by the customer for thegoods or services; and

(4) The name, any fictitious nameused, the last known home address andtelephone number, and the job title(s)for all current and former employeesdirectly involved in telephone sales.

(b) Failure to keep all records requiredby § 310.5(a) shall be a violation of thispart.

(c) The seller and the telemarketercalling on behalf of the seller may, bywritten agreement, allocateresponsibility between themselves forthe recordkeeping required by this

section. When a seller and telemarketerhave entered into such an agreement,the terms of that agreement shall govern,and the seller or telemarketer, as thecase may be, need not keep records thatduplicate those of the other. If theagreement is unclear as to who mustmaintain any required record(s), theseller shall be responsible for keepingsuch records.

(d) Absent a written agreementdescribed in section 310.5(c) betweenthe seller and the telemarketer, theseller shall be responsible for complyingwith § 310.5(a) (1), (2) and (3); thetelemarketer shall be responsible forcomplying with § 310.5(a)(4). The sellerand telemarketer may keep any requiredrecords in the manner, format, or placeas they keep such records in theordinary course of business.

(e) In the event of any dissolution ortermination of the seller’s ortelemarketer’s business, the principal ofthat seller or telemarketer shall maintainall records as required under thissection. In the event of any sale,assignment, succession, or other changein ownership of the seller’s ortelemarketer’s business, the successorbusiness shall maintain all recordsrequired under this section.

§ 310.6 Exemptions.The following telemarketing acts or

practices are exempt under this part:(a) Pay-per-call services subject to the

Commission’s ‘‘Trade Regulation RulePursuant to the Telephone Disclosureand Dispute Resolution Act of 1992,’’ 16CFR part 308.

(b) Telephone calls in which the saleof goods or services is not completed,and payment or authorization ofpayment is not required, until after aface-to-face sales presentation by theseller during which the customer hasthe opportunity to examine the goods orservices offered.

(c) Telephone calls initiated by acustomer that are not the result of anysolicitation by a seller or telemarketer.

(d) Telephone calls initiated by acustomer in response to anadvertisement through any media, otherthan direct mail solicitations; provided,however, that this exemption does notapply to calls initiated by a customer inresponse to an advertisement relating toinvestment opportunities, goods orservices described in § 310.4(a)(2) or (3),or advertisements that guarantee orrepresent a high likelihood of success inobtaining or arranging for extensions ofcredit, if payment of a fee is required inadvance of obtaining the extension ofcredit.

(e) Telephone calls initiated by acustomer in response to a direct mail


solicitation that clearly andconspicuously discloses all materialinformation listed in § 310.3(a)(1) of thispart for any item offered in the directmail solicitation; provided, however,that this exemption does not apply tocalls initiated by a customer in responseto a direct mail solicitation relating toinvestment opportunities, goods orservices described in § 310.4(a)(2) or (3),or direct mail solicitations thatguarantee or represent a high likelihoodof success in obtaining or arranging forextensions of credit, if payment of a feeis required in advance of obtaining theextension of credit.

(f) Telephone calls between atelemarketer and any business, exceptcalls involving the retail sale ofnondurable office or cleaning supplies.

§ 310.7 Actions by States and privatepersons.

(a) Any attorney general or otherofficer of a State authorized by the State

to bring an action under theTelemarketing and Consumer Fraud andAbuse Prevention Act, and any privateperson who brings an action under thatAct, shall serve written notice of itsaction on the Commission, if feasible,prior to its initiating an action underthis part. The notice shall be sent to theOffice of the Director, Bureau ofConsumer Protection, Federal TradeCommission, Washington, D.C. 20580,and shall include a copy of the State’sor private person’s complaint and anyother pleadings to be filed with thecourt. If prior notice is not feasible, theState or private person shall serve theCommission with the required noticeimmediately upon instituting its action.

(b) This part does not vest theattorney general of any State or anyprivate person with jurisdiction overany person or activity outside thejurisdiction of the Federal TradeCommission Act.

§ 310.8 Federal preemption.

Nothing in this part shall beconstrued to preempt any State law thatis not in direct conflict with anyprovision of this part.

§ 310.9 Severability.

The provisions of this part areseparate and severable from oneanother. If any provision is stayed ordetermined to be invalid, it is theCommission’s intention that theremaining provisions shall continue ineffect.

By direction of the Commission.

Donald S. Clark,Secretary.[FR Doc. 95–13814 Filed 6–7–95; 8:45 am]

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