An enormous amount of space in this column is dedicated to the preventive measures companies must take to avoid finding themselves the subject of enforcement actions from various governmental agencies or lawsuits from private individuals.
From a legal perspective, that is often the most important aspect of your compliance program.
However, most of these preventive measures are viewed as constraints on sales programs. This column will explore an area of the law that is designed to assist you in generating revenue rather than constrain you.
In the mid-1990s, with the growth of telemarketing a measured reality and the growth of e-commerce visible on the horizon, the Federal Reserve Board began to explore opportunities to make non-point of sale transactions easier for businesses and consumers alike. The Fed tapped Alice Rivlin to lead a commission to study future payment methods and the safeguards necessary to ensure consumer protection and consumer confidence.
At the time, one major trouble spot for commercial transactions was the limited options available to consumers who lacked a credit card. While you may not imagine that to be much of a problem, some studies suggest that as many as 40 percent of American adults either do not have a credit card that is not maxed out or simply do not have a credit card.
That has put a large segment of the buying population at a competitive disadvantage and left sellers without an answer to access a potential pool of consumers.
Several methods were established over the years to reach this segment of the marketplace. Many of you probably have used pre-authorized checks or demand drafts to allow consumers without a credit card to pay for goods or services by allowing the business to access consumers’ checking accounts. But the use of these devices proved cumbersome and slow for most consumers and businesses.
Upon obtaining a consumer’s authorization to purchase, a company would have to print out a piece of paper with the consumer’s checking account information printed on it and present that paper to the bank for payment. Obviously, PACs were not meant to keep up with today’s real-time economy. Consumers demand immediate access to products and services and, thus, businesses need immediate access to funds.
This is where the Rivlin committee stepped in.
For many years, the Fed had offered banks and businesses access to the electronic transfer of funds network known as the Automated Clearing House. The ACH network provided entirely paperless transactions at lightning speed.
However, to authorize an ACH transaction, a business was required to obtain a written signature or be “similarly authenticated” from a consumer to access his checking account. In non-point of sale transactions, such a written signature was virtually impossible to obtain. Even if you could get it, it would take too much time to be a feasible commercial method.
In 1998, Rivlin’s committee issued its final report noting that the current ACH authorization process was a major shortcoming of the ACH network.
In response to this report, the National Automated Clearing House Association, which is the industry association that governs the ACH network, sent to Rivlin a plan to make it easier for consumers to authorize ACH debit payments. This plan included developing guidelines for the term “similarly authenticated.”
Pursuant to this plan, NACHA has established a pilot program to study the effectiveness of certain methods for obtaining a “similarly authenticated” authorization in telemarketing transactions. The pilot guidelines were developed to allow consumers to authorize nonrecurring (one-time) ACH debits by methods other than in writing. As NACHA noted in its announcement of the pilot program, “[T]he pilot guidelines will allow these transactions to occur in a controlled environment with emphasis on maintaining consumer confidence in the safety of the ACH Network.”
The key to all of this is that the rules of the pilot program are based on the fundamental points of the Federal Trade Commission’s Telemarketing Sales Rule.
The rule explains the authorization that a seller or telemarketer needs to obtain before submitting for payment a check, draft or other form of negotiable paper drawn on a person’s checking, savings, share or similar account.
According to the FTC rule: “An authorization will be deemed verifiable if any of the following means are employed:
• Express written authorization by the customer;
• Express oral authorization that is tape-recorded and made available to the customer’s bank upon request, and that clearly evidences both the customer’s authorization of payment for the goods or services that are the subject of the sales offer and the customer’s receipt of six specific items of information during the tape recording; or
• Written confirmation of the transaction sent to the customer, before submitting the draft for payment, containing the same six items of information required under the tape recording option. The written confirmation method also requires a seller or telemarketer to have in place, and to disclose to the customer in the confirmation, the procedures by which the customer can obtain a refund from the seller or telemarketer in the event the written confirmation is inaccurate. …The six items of information are: (a) date of the draft(s), (b) the amount of the draft(s), (c) the payor’s name, (d) the number of draft payments (if more than one), (e) a telephone number for customer inquiry that is answered during normal business hours, and (f) the date of the customer’s oral authorization.”
The pilot program was designed to test these authorizations in three consumer scenarios, including:
• Pilot option No. 1: A consumer makes a telephone call to the company with which the consumer has an existing relationship.
• Pilot option No. 2: A company makes a telephone call to a consumer with whom the company has an existing relationship.
• Pilot option No. 3: A consumer makes a telephone call to a company with which the consumer has no prior relationship.
For more than a year, companies that have participated in the pilot program have been able to offer ACH transactions as an alternative payment method for nonrecurring telemarketing transactions by following the criteria established by the Telemarketing Sales Rule. In other words, if you can establish “express verifiable authorization” as provided for in the rule, then you have obtained an authorization that satisfies the “similarly authenticated” standard established by the Fed.
Most people involved in the program think that it has been a resounding success.
Double-digit growth in the volume of transactions sent via the ACH network is confirmation of the continued understanding and acceptance by consumers of the safety, reliability and convenience of the ACH network.
If you are looking for an easy way to expand your sales, one answer may be found by making your product or service available to an entire segment of the population that previously has been shut out.
• C. Tyler Prochnow is an attorney at Lathrop & Gage, Kansas City, MO, where he specializes in teleservices law. His e-mail address is [email protected].
