Countdown to Changes in the TSR

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As you surely know by now, the Federal Trade Commission published its revision to the Telemarketing Sales Rule in the Federal Register on Jan. 29. That date begins the countdown for the effective date of the changes, ranging from 60 days to a year from publication.

The majority of the changes are to take effect 60 days from publication. Three changes differ substantially from the old version of the rule, and, depending on your business, you should begin to prepare to implement them immediately. Most of the other minor changes in the TSR also take effect 60 days from publication.

Perhaps the most important new requirement is a 3 percent call abandonment standard for outbound calls. A call is "abandoned" if a person answers it and is not connected to a live sales representative within two seconds of the person's completed greeting. The TSR implements this restriction by making any abandoned call an "abusive" practice, then providing a safe harbor if the telemarketing can meet four conditions:

o The caller abandons no more than 3 percent of calls measured a day for each campaign.

o The caller lets the call ring for at least 15 seconds or four rings before disconnecting.

o The caller plays a recorded message containing the name and telephone number of the seller for each call in which a representative is unavailable to speak with the called person.

o The caller maintains records showing compliance with these provisions. This safe harbor is implemented as an affirmative defense so the burden will be on you to prove you meet all four conditions if the FTC or other regulator alleges a violation.

My clients have told me that this provision of the TSR, even more than the national do-not-call list, has the potential to damage legitimate industry and throw thousands of people out of work. This potential damage exceeds any legitimate goal behind the restriction, which seems based mostly on conjecture rather than real studies or examples of harm to consumers.

Next, the new TSR restricts offers using pre-acquired consumer account information and "free-to-pay conversion" sales programs. Free-to-pay is defined as "an offer ... to sell ... any goods or services, a provision under which a consumer receives a product or service for free for an initial period and will incur an obligation to pay for the product or service if he or she does not take affirmative action to cancel before the end of that period." This is commonly referred to as an opt-out offer and has been used extensively by telemarketers to sell membership services.

The rule requires that campaigns using free-to-pay offers and pre-acquired consumer account information (defined as information that lets the seller charge the consumer's account without obtaining the account number directly from the consumer during that telephone call) obtain express verification for consumers' agreements to buy the goods or services in a specified manner. The telemarketer must:

o Obtain at least the last four digits of the account number to be charged from the consumer.

o Obtain express consent from the consumer to charge that account.

o Record the entire conversation and maintain this recording for at least 24 months from the date of the call.

Campaigns using pre-acquired account information that do not use free-to-pay offers must:

o Identify the account to be charged with enough specificity to let the consumer understand which account is involved.

o Obtain express agreement to charge that account using the account number already identified.

The final significant changes to be implemented 60 days from publication govern charitable solicitations for donations. These telemarketing calls previously were unregulated by the FTC, and questions remain about the FTC's jurisdiction in this area and the constitutionality of these provisions. The restrictions duplicate those found in most states' charitable-solicitation laws and bar misrepresentation or deceptions, directly or by implication, of most aspects of a solicitation call.

The remaining two significant changes in the new TSR will be implemented in the near future.

The first is the national do-not-call list. Congress approved funding for the FTC's list earlier this month, and the list is expected to begin this summer.

This provision of the TSR also creates constitutional questions. The most obvious one is how this list will interact with state lists. Despite the consumer benefit of letting consumers sign on to a list at one location, the FTC did not specifically rule that its list would supersede state lists. Instead, the FTC argues that it will work with states to coordinate one source for businesses for do-not-call information. This approach appears awkward, harmful to business and may violate state lists' provisions requiring the purchasers of the lists keep them confidential.

Finally, the TSR requires that telemarketers transmit Caller ID information for all calls they place by one year of publication in the Federal Register (i.e., Jan. 29, 2004). This is defined as the telephone number of the caller and, where available, the name of the caller. Telemarketing service bureaus are allowed to use the name of the ultimate seller of the goods or services or the name of the charitable organization for which the calls are placed and their telephone number so long as the number is answered during normal business hours.

The Direct Marketing Association and the American Teleservices Association each filed suits alleging that provisions of the TSR are unconstitutional and otherwise unenforceable. The decisions in these cases may determine how the TSR is applied and implemented. Until these suits are resolved, the FTC's comments, which were published with the text of the rule, are the best source for interpretation of any ambiguous wording. These comments are at the Federal Register Web site:


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