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New Laws Are on the Way for 2002

As what has become an unfortunately tragic year comes to an end, direct marketers need to keep in mind important new developments that can affect their business practices. Some of these developments come as a result of the recent terrorist attacks.

Highlights of some of the more interesting developments follow:

Don't call us. One of the more prevalent developments is the enactment of state do-not-call lists. These laws, which require telemarketers to run their calling lists against state-run DNC lists or the Direct Marketing Association's Telephone Preference Service, have gone from a handful of states to a near majority in the past year, with more on the way. New states include California, Colorado, Indiana, Louisiana and Texas. Regulators have been actively enforcing these laws.

“Risk-free” is risky business. In the aftermath of the Federal Trade Commission's recent $9 million settlement with Triad, the agency has announced it will focus on purported “risk-free” offers that involve some element of risk to the consumer, including shipping and handling issues and “free-trial” offers that result in the consumer being charged after the trial period expires. The new FTC chairman has announced that he will ask the commission to amend its telemarketing rules to restrict “free trial” offers, perhaps even barring telemarketers from using a consumer's credit card information to promote an offer from another company, without the consumer's consent.

Moreover, the FTC has always taken an aggressive stance on the word “free.” Marketers should keep in mind that by offering a product or service as free, there can be no markup to cover the cost of the item. Moreover, any restrictions on the “freeness” of the item must be clearly and conspicuously disclosed.

Charitable solicitation issues. As previously discussed in this column, charitable solicitations in the wake of the Sept. 11 terrorist attacks will likely garner regulators' attention. A little-noticed provision of the recently enacted USA Patriot Act of 2001 amends the Telemarketing and Consumer Fraud and Abuse Prevention Act, the law that provides the FTC the authority to create the Telemarketing Sales Rule. It extends the act's application to additional telemarketing activities, including the solicitation of charitable contributions. The FTC has advised that it is considering proposed amendments to the Telemarketing Sales Rule that will implement this new authority. State regulators will likely focus on charitable solicitations given the incredible outpouring of support by the American public.

For that matter, it is likely that marketing any product or service that is in some way connected with the events of Sept. 11 and the aftermath will likely face strict scrutiny. For example, regulators are challenging marketers of biohazard products and the like. If a company markets such a product, it should make sure that its claims are adequately substantiated and otherwise in compliance.

Healthcare discounts. As promotions that offer discounts on healthcare services, such as prescription drugs and the like, continue to proliferate, states are beginning to enact laws restricting such promotions. Illinois recently passed a law, effective Jan. 1, that requires advertising for such products to state in bold and prominent type that the discounts are not insurance. The law also requires that each healthcare provider listed in conjunction with the card have a contract with the provider of the discount service. Other states are beginning to enact similar laws.

California's “class-action” law. California's unique consumer protection act continues to mystify marketers. The law allows practically anyone to bring what is essentially a class action on behalf of all California residents alleging a violation of the state's consumer protection laws, some of which are hypertechnical.

A recent appellate decision found that a representative plaintiff need not have purchased the product or show that members of the public were deceived, relied upon the fraudulent practice or even sustained any damage. The only requirement the plaintiff must show is that the defendant's practice is unlawful, unfair, deceptive, untrue or misleading. The plaintiff's burden of proof is simply to show that members of the public are likely to be deceived by the practice. Marketers continue to pay a heavy price when sued under this law by people who did not even purchase the product.

Privacy issues. While there is some indication that the new FTC commissioner will not take up the privacy issue as much as his predecessors, the agency continues to focus on certain issues, including pretexting, privacy policies, the Fair Credit Reporting Act and the Children's Online Privacy Protection Act.

Pretexting is the practice of obtaining personal financial information through fraudulent means, such as calling a bank under the pretext of being the customer, a practice made unlawful under the recently enacted Gramm-Leach-Bliley Act. The FTC has brought actions against three information brokers and advises that it will continue to enforce this prohibition.

The FTC has also taken an aggressive stance against companies that deviate from their announced privacy policies and will likely continue to do so. The FTC has announced that it intends to aggressively enforce the Fair Credit Reporting Act, which governs the reporting of credit-related information, and to continue to enforce COPPA, which severely restricts the collection of personally identifiable information from children younger than 13.

Marketers must be vigilant to ensure that their advertising programs comply with the heightened regulatory mood.

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