FTC Proposals Hurt Telemarketers

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On Jan. 22, the Federal Trade Commission proposed substantial changes to the Telemarketing Sales Rule, the regulation that itself greatly changed telemarketing. The proposed rules are intended to update the existing law to address changes in the marketplace and to incorporate newly enacted legislation.


As shown below, the proposed changes include significant restrictions on marketing practices under the guise of clarifying the existing law. Some of the more notable proposals are addressed here. Anyone involved in telemarketing, however, should review the entire proposal.


The national do-not-call list: How many lists should be maintained? The most publicized proposed rule change is the creation of a national do-not-call list to be overseen by the FTC. An ever-growing number of states have established state-specific DNC list registries similar to the Telephone Preference Service maintained by the Direct Marketing Association, which some states have wisely adopted as their own registry. The FTC's proposal would supplement the company-specific do-not-call provision required under the existing federal law by creating a national DNC registry and requiring companies to screen their names against this list.


As the proposed rule stands, the national registry would be in addition to, and not replace, the DMA and state-maintained registries. Marketers, therefore, would be required to subscribe to both a federal and numerous state listings, which may lead to confusion among consumers and businesses alike. The FTC is seeking comments from the public as to whether the national registry should pre-empt the state-specific registries, which place an onerous burden on marketers that must buy each separate state list.


The FTC has not addressed incorporating the DMA's registry as some states have done, but rather has chosen to create an additional level through which consumers and marketers must jump. At a minimum, if a national registry is to go into effect, the FTC should pre-empt the state laws that have, in essence, created a hodgepodge of inconsistent laws. Hopefully, the FTC will be persuaded to adopt a uniform national standard that will allow easy registration for consumers and fair compliance standards for marketers.


Express ban on disclosing customer payment information; significant upsell disclosure requirements. It has been debated whether the existing FTC regulations allowed a controversial marketing practice of transferring pre-acquired customer payment information (such as credit card information) from one marketer to another. In the wake of the Triad Buyers Club case and consumer complaints regarding upsells solicited on behalf of another company, the proposed regulation expressly bans the transfer of pre-acquired customer payment information to a third party. The regulation would prohibit either receiving or disclosing any consumer's billing information to/from any third party for use in telemarketing. Thus, under the proposed regulation a telemarketer cannot obtain payment information from any source other than the consumer.


The proposed rule also seeks to change the practice of upselling on behalf of a different business.


To the extent a telemarketer transfers a consumer's call to another telemarketer for the purposes of soliciting on behalf of a different entity, or conducts a sale for two entities, the proposed rule requires that the consumer receive the affirmative disclosures required under the rule as if the call was just placed, including on whose behalf of a different entity, or conducts a sale for two entities, the proposed rule requires that the consumer receive the affirmative disclosures required under the rule as if the call was just placed, including on whose behalf the agent is acting, in addition to again obtaining all payment information.


That a consumer would have to listen to all the disclosures and be required to restate all the same payment information undoubtedly would affect sales greatly.


Third-party telemarketing on behalf of exempted group. One of the more notable changes to the rule is to include telemarketing by a for-profit entity on behalf of a charitable organization or other exempt group. The existing regulation governs only the sale of goods and services. The proposed regulations expressly restrict misrepresentations with respect to charitable solicitations, including fraudulent, deceptive or abusive practices.


The FTC has clarified its position that the rule applies to any third-party telemarketer acting on behalf of an exempted entity (such as a bank). For some reason, however, the government has exempted the solicitation of political contributions from the rule on the grounds that political contributions are neither goods, services nor charitable contributions. Sure.


Caller ID and predictive dialer restrictions. The proposed rule would prohibit blocking or interfering with the caller ID transmission. Moreover, the proposed rule sets an affirmative prohibition on the use of predictive dialers that lead to any "dead air" in which there is no caller on the line when the consumer answers the telephone. This will restrict the use of predictive dialers, already a controversial telemarketing tool.


Though the FTC claims in its proposal that it seeks to strike a balance between protecting consumers and minimizing interference in the marketplace, some of the proposals would seem to go too far. Marketers that think they will be unfairly affected by the proposed rules should submit their comments to the FTC by March 29.


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