New Upsell Rules Challenge Marketers
Upsells and preacquired information. The new telemarketing rules require further disclosures when upsellsare made after the marketer obtains a consumer's credit card or payment information. Under the FTC's regulations, once a marketer has the consumer's payment information prior to any attempt at upsell, the marketer now has what is designated as "preacquired account information." The definition includes any type of billing information that lets a seller or telemarketer cause a charge to be placed on any customer's account without obtaining the account number directly from the customer.
Once the marketer possesses the consumer's preacquired account information, any attempt to upsell is now considered a separate transaction, not a continuation of the original transaction. Since it is now considered a separate transaction, all of the required information needs to be disclosed, including the complete costs of the upsold item and any attendant costs for shipping and handling and taxes.
In addition, the customer must clearly understand which account will be charged, and the customer must expressly agree to be charged using this account. Debate exists as to whether the marketer must read back the account numbers or simply refer to the same credit card (i.e., MasterCard) previously used, but it is clear that the consumer must have a firm appreciation as to the specific account being charged.
Negative option upsells. The revised TSR also affects negative option programs sold via telephone. Negative option programs typically are continuity programs that continue unless the consumer cancels the order in advance. The regulations require affirmative disclosure of the periodic charge associated with the product or service to be set forth, including the amount of the shipping and handling and taxes.
If the negative option is an upsell involving preacquired payment information, the identity of the card or account to be charged must be disclosed with sufficient particularity so the consumer knows what account is being charged. The customer also must be told during the call how to cancel. Of course, the marketer must obtain the customer's acceptance of the negative option.
Marketers remain subject to the requirement that there be express, verifiable authorization to debit a checking account or phone bill in cases of a new upsell transaction involving preacquired account information, even if it is in an inbound call. Thus, marketers are required to record the authorization to charge the checking account or phone bill for the upsell when it takes place after receipt of the payment information.
<B"Free to pay" conversion upsells. Many marketers offer another upsell of a membership club, typically provided to the consumer at no cost for a trial period, that automatically converts to a paid account if the consumer does not take some affirmative act to cancel. The FTC has designated these programs "free to pay conversions." Because consumers initially get something for free, then later are charged if they do not affirmatively call to cancel, these programs tend to generate increased consumer complaints and attendant regulatory scrutiny.
When offering free to pay conversions as part of an upsell with preacquired account information, the amount of the periodic charge must be clearly disclosed, including shipping and handling and taxes, the dates and accounts to be charged and any affirmative act that the consumer must take to avoid the account being charged.
In addition, with these types of upsell, the consumer must provide at least the last four digits of the account being charged and there must be an express agreement by the customer to have that account charged using the account number specified. Moreover, the entirety of such calls must be recorded.
Given the FTC's aggressive use of the TSR in the past, marketers should expect the agency to enforce the new provisions in short order. Marketers should ensure that their scripts comply with the new regulations, particularly in the context of upsells and free to pay conversions.