A business guide to the Federal Trade Commission (FTC) Telemarketing Sales Rule to implement the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994

In 1994, Congress passed the Telemarketing and Consumer Fraud and Abuse Prevention Act to combat telephone fraud. It serves to provide law enforcement agencies with powerful new tools and gives consumers new protections and guidance on how to differentiate between fraudulent and legitimate telemarketing. Under the Act, the Federal Trade Commission (FTC) adopted the Telemarketing Sales Rule, which went into effect December 31, 1995 and requires telemarketers to formalize their existing policies and, where necessary, create new ones to bring their operations into compliance.

Businesses not covered by the Rule
The following four types of businesses, even though they may use interstate telephone calls to sell goods or services, are not subject to the FTC's jurisdiction and, therefore, are not covered by the Rule:

• Banks, Federal Credit Unions and Federal Savings and Loans
  
  
• Common carriers, such as long distance telephone companies and airlines
  
  
• Non-Profit Organizations
  
  
• Insurance companies-to the extent that this business is regulated by state law

However, individuals or companies that contract with one of these four types of entities are covered and must comply with the Rule. For example, if you provide services to, or on behalf of, a bank or airline, or if you are profiting from services provided to a nonprofit organization, you are covered by the Rule. This does not apply to individuals and companies selling investments, who are subject to the jurisdiction of the Securities and Exchange Commission or the Commodity Futures Trading Commission.

Calls not covered by the Rule
Some types of calls are not covered by the Rule, regardless of whether the business or individual receiving the call is covered:

• Consumer calls in response to a catalog advertisement, as long as the catalog is issued at least once a year and contains a written description/illustration of the goods or services offered for sale and the business address of the seller. If, during the call, the telemarketer offers goods or services not included in the catalog or not prompted by the consumer, the sales transaction is covered by the Rule. Catalog merchandise sales are covered by the FTC's Mail and Telephone Order Merchandise Rule.
  
  
• 900 number pay-per-call telephone calls, which must comply with the FTC's 900-Number Rule.
  
  
• Calls related to the sale of franchises or business opportunities that are covered by the FTC's Franchise Rule.
  
  
• Unsolicited calls from consumers, such as hotel, airline and car rental reservations, take-out food orders, technical support, or calls to retailers that have not been prompted by an advertisement or solicitation.
  
  
• Follow-up calls after a face-to-face sales presentation. For sales made at the consumer's home or away from the seller's place of business, the FTC's Cooling Off Rule applies.
  
  
• Business-to-business calls that do not involve retail sales of non durable office or cleaning supplies, such as paper, toner and cleaning solvents.
  
  
• Consumers' calls made in response to general media advertising, such as television commercials, infomercials, home shopping programs, magazine and newspaper ads, and yellow pages or similar directory listings.
  
  
• Calls responding to direct mail advertising, if the solicitation material clearly, conspicuously and truthfully discloses cost and quantity, material restrictions, limitations or conditions, and any "no refund" policy. Calls responding to direct mail advertising related to credit repair, recovery services, advance-fee loans, investment opportunities or prize promotions are not exempt.

Proper Identification
All outbound telemarketing calls must promptly disclose, in a clear and conspicuous manner, the identity of the seller, that the purpose of the call is to sell goods/services, the nature of the goods/services being offered, and in the case of a prize promotion, that no purchase or payment is necessary to participate or win.

Calls initiated strictly to welcome new customers or to ascertain customer satisfaction do not require these four oral disclosures. Calls made by for-profit companies on behalf of non-profit entities need only disclose the name of the nonprofit organization on whose behalf they are calling, the nature of the offered goods/services and the request for a donation.

Calling Hour Restrictions
The Rule expressly forbids calls to private residences before 8:00 a.m. or after 9:00 p.m. (local time at the consumer's location). Any exceptions to this must be with the expressed consent of the called party.

Required Information to Consumers
The Rule requires telemarketers - whether making outbound calls to consumers or receiving inbound calls from consumers - to provide the following information so that the consumer can make an informed purchase decision from that particular seller before paying for the goods/services that are the subject of the sales offer:

• Cost and quantity - The Rule requires disclosure of the total cost to purchase, receive or use the offered goods/services and the total quantity of goods/services the consumer must pay for and receive. An exception to the Rule is if the telemarketer is offering a "negative option plan," such as record or book clubs that require the consumer to purchase a specific number of items over a specified time period, or a "continuity plan," where the consumer can purchase some or all of a collection over the course of the plan. Since neither the seller nor the consumer knows the quantity of products that will ultimately be purchased or the total cost, only the costs and quantity of goods/services that are part of the initial offer must be disclosed, along with the total quantity of additional goods/services the consumer must purchase over the duration of the plan and the range of costs to purchase each individual additional good/service.
  
  
• Material restrictions, limitations or conditions to purchase, receive or use the offered goods/ services - This includes such things as method of payment, deposit or advance reservation requirements, any restrictions, limitations, conditions or additional expenses that may be incurred to redeem the offer.
  
  
• "No refund" policy - Refund, cancellation, exchange or repurchase policies must be disclosed only if they are part of the sales presentation. On the other hand, if "all sales are final," the consumer must be informed of this fact before paying for the offered goods/services.
  
  
• Prize promotions - A prize is anything offered and given to a person by chance. For purposes of the Rule, chance exists if a person is guaranteed to receive an item and, at the time of the offer, the specific item the person will receive is not identified. (You can tell them they will receive one of several prizes, but not which prize.) The telemarketer must, however, promptly disclose, in a clear and conspicuous manner, the odds of winning the prize(s) and/or the factors used in calculating the odds - that no purchase is necessary to participate in the promotion or win a prize, the no-purchase/no-payment entry information, and any costs or conditions to receive or redeem any prize.

Authorization for Payment
The Rule requires a consumer's "express verifiable authorization" for use of bank account information to obtain payment through "phone checks" or "demand drafts." This can be done by advance written authorization (a fax or voided signed check will do) by a tape recording of the consumer giving authorization, or by a written confirmation of the transaction sent to the consumer before the draft is submitted for payment.

The taped authorization and written confirmation must include the date and amount of the draft(s), the name on the account from which the funds will be paid, the number of draft payments authorized, if more than one, a telephone number answered during normal business hours that the consumer can call with questions, and the date of the consumer's authorization.

Many states require advance consent of the recorded party; the taped confirmation must show that the consumer understands and acknowledges each term of the transaction and authorizes it. Written confirmations must include a refund policy in the event that the consumer disputes the authorization.

Prohibitions Under the Rule
Claims which are false or misleading are strictly prohibited. All offers must be stated clearly and honestly so that the parties know exactly what they have committed to, how much it will cost, and what they will be getting in return.

Misrepresenting any material aspect of the product, service, prize promotion or investment opportunity - or of the refund, repurchase or cancellation policy - is also prohibited. The Rule prohibits the telemarketer from misrepresenting their affiliation with, or endorsement by, any charitable, governmental, police, civic or similar third-party organization.

The Rule prohibits knowingly assisting and/or facilitating telemarketing practices that violate the Rule - or deliberately remaining ignorant of Rule violations. For example, third parties that provide names of consumers with poor credit records to credit repair services will not be protected from liability. (Credit repair services cannot request or receive payment until the time frame within which the promised service has expired and evidence of the promised improvement in the consumer's credit record has been achieved.)

Credit card "laundering" - obtaining access to the credit card system through another's merchant account without the authorization of the financial institution - not only violates the Rule, it is a criminal offense under federal law as well as under the law of some states.

Finally, the Rule prohibits the use of threats, intimidation or profane or obscene language to pressure a consumer into accepting a sales offer. Repeated calls to an individual who has declined to accept an offer are considered acts of intimidation and is an abusive practice.

"Do not call" Policies
Sellers may not call, or cause a telemarketer to call, a consumer who has requested to receive no more calls from, or on behalf of, the particular goods/services being offered. The Rule further requires sellers to maintain "Do not call" lists of those consumers who do not wish to be contacted by phone, to develop a written policy implementing this "Do not call" list-keeping requirement, and to train its telemarketing personnel in these procedures.

Enforcement and Penalties
Calling a consumer who has requested not to be called is a Rule violation and could result in civil penalties of up to $10,000 per violation, nationwide injunctions prohibiting certain conduct or redress to injured consumers. If a written "Do not call" policy is in place and the call was the result of error, there may be no Rule violation, but the complaint could be subject to an enforcement investigation into the effectiveness of the "Do not call" policy, how it is implemented and if all personnel are properly trained in its procedures.

Ultimately, the seller is responsible for keeping a current "Do not call" list, whether it is through a telemarketing service it hires or through its own efforts. However, if the investigation reveals that the telemarketer ignored the seller's written "Do not call" procedures, then the telemarketer would be liable for the Rule violation. The Rule further states that, without an agreement to do otherwise, the seller must maintain advertising and promotional materials, information about prize recipients, sales records, employee records and all verifiable authorizations for demand drafts for a period of two years from the date that the record is produced.

The FTC, the states and private citizens may bring civil lawsuits in federal district courts to enforce the Rule. Actions by the states may be brought by the attorney general or any officer authorized to bring actions on behalf of its residents. Private persons may bring action if they have suffered $50,000 or more in actual damages. In both cases, written notice must be provided to the FTC prior to filing a complaint or immediately upon instituting the action.

This guide has been prepared as an educational tool. For legal matters, consult your own counsel. Copies of the FTC Telemarketing Sales Rule and a more detailed business compliance guide are available from the FTC at the following address:

Federal Trade Commission
Public Reference Branch
6th Street and Pennsylvania Avenue, N.W.
Washington, DC 20580
202-326-2222