FACTA Rules May Affect More Than Credit Card, Insurance Mailers

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Though it is clear that credit card and insurance companies will be directly affected by new rules for prescreened credit offers that the Federal Trade Commission issued Jan. 24, the changes also apply to any direct marketer that prescreens consumers.


The rules, which take effect Aug. 1, were issued under the Fair and Accurate Credit Transactions Act of 2003. They require that all notices be simple and easy to understand, which the FTC defines as being in plain language through the use of clear and concise sentences, paragraphs and sections. Notices must be in the same language as the solicitation, meaning that if the offer is in Spanish, the notices must be as well.


"The rules have an application beyond a credit card offer if prescreening occurs," said Jerry Cerasale, senior vice president of government affairs at the Direct Marketing Association. "In the case of deferred billing, if a cataloger prescreens consumers, the rule applies to them."


Though there are DMA members using prescreened offers, Cerasale said, it is unclear whether they will continue to do so.


The Fair Credit Reporting Act requires that companies sending prescreened solicitations include a notice to consumers containing opt-out information. FACTA amends the FCRA provision requiring the statements and gives the FTC, in consultation with the federal banking agencies, the task of imposing rules for the notices to make them easy for consumers to understand.


"The FTC's rule establishes the format, manner and type size of the prescreen notice that was already required by the Fair Credit Reporting Act," said Jeanne-Marie Burke, FTC staff attorney. "We were instructed under FACTA to make the notices simple and easy to understand, and it was our determination that having a layered approach, consisting of short and long portions, was the best way to do that."


The short notices are required to state the consumer's right to opt out of receiving prescreened solicitations; provide a toll-free number for opt-out purposes and direct consumers to the long notice. Other mandatory elements include that the short notice be in a type size larger than the main text on the page and no smaller than 12-point. It also must be on the front side of the first page of the offer, be distinct from the rest of the text through use of a border and be in a type style such as bold, italics, underlined and/or contrasting color to differentiate it from the rest of the text.


The long notice must contain more detail than the short one, but also be written in clear, easy-to-understand language. It must state information required by the FCRA and have an all-capital-letter heading that says, "PRESCREEN & OPT-OUT NOTICE." The type size cannot be smaller than the other type on the page and must be at least 8-point. Like the short notice, the long notice must be set apart from the rest of the text by type style and spacing.


Cerasale said the DMA was involved during the FTC's comment period on the proposed rules and did not oppose the concept of the short notices.


"There are some great advantages to them because the long notices in some instances became legal treatises that were not understandable, and that had some negative impact with some consumers," he said.


However, the DMA did disagree with the FTC not allowing marketers to list any reasons why consumers might not want to opt out, and he thinks consumers may be confused about the fact that they are opting out of all prescreened offers. The opt outs go to the three credit reporting agencies: Experian, Equifax and TransUnion.


"It's really interesting that this rule came out virtually at the same time that the Federal Reserve Board came out with a report that said that mass marketing of credit cards has dramatically reduced the cost of credit to the American consumer," Cerasale said.


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