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
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