The Federal Trade Commission has proposed changes to its telemarketing sales rule (TSR) that would prohibit sellers and telemarketers from accepting or requesting remotely created checks or payment orders, cash-to-cash money transfers, and cash reload mechanisms as payment in inbound and outbound telemarketing transactions. Comments on the proposal are due by July 29, 2013.
The FTC’s rationale for the ban is set forth in the proposal’s supplementary information, which refers to the four methods as “novel payment methods.” According to the FTC, consumers who are victimized by unscrupulous telemarketers using such methods do not have recourse to anti-fraud protections comparable to the dispute resolution rights and limits on liability for unauthorized transactions available for payments using credit or debit cards. As a result, the FTC believes it is necessary to ban use of these methods in all telemarketing transactions to achieve consumer protection against fraud caused by unscrupulous telemarketers.
To support the ban, the FTC further states that it has preliminarily determined that use of the four novel payment methods in telemarketing is an abusive practice under the TSR and an unfair practice in violation of Section 5 of the Federal Trade Commission Act. The FTC states this is because the substantial economic harm to consumers caused by such use (as demonstrated by the numerous enforcement actions cited by the FTC) is not outweighed by any countervailing benefits to consumers or competition.
In addition, the FTC finds that consumers cannot reasonably avoid the economic injury caused by such payment methods, for reasons that include consumers’ inability to understand the effect of these methods on their consumer protections. Previously, the FTC had expressly permitted at least one payment method it now seeks to ban, remotely created checks, in telemarketing transactions.
The proposal invites comments responding to a list of eight general questions and 34 issue-specific questions about the ban and the other proposed amendments described below. The FTC said it hopes to receive information from commenters that will allow it to understand the potential impact of the ban on legitimate telemarketing businesses. The agency also indicated that it seeks to understand why any legitimate telemarketing transactions using the novel payment methods could not be conducted using alternative payment methods, such as Automated Clearinghouse (ACH) debits.
In addition to banning the novel payment methods, the proposal includes the following other amendments to the TSR:
The requirement that sellers and telemarketers must obtain a consumer’s “express verifiable authorization” to bill for a transaction involving payment by a method other than credit or debit card would be amended to make explicit that a verification recording must describe the goods, services, or charitable contributions for which payment authorization is sought.
The ban on advance fees for recovery of money lost in previous telemarketing transactions would be expanded to prohibit advance fees for recovering money lost in any kind of transaction.
The express written agreement and existing business relationship exceptions for outbound calls to consumers on the Do Not Call Registry would specify that the seller or telemarketer has the burden of demonstrating that the seller has obtained such an agreement or has such a relationship.
The business-to-business exemption from the “do not call” prohibition would make clear that it only covers calls to induce a sale to or a contribution from a business itself, and not calls to solicit purchases by or contributions from employees.
The prohibition against sharing the cost of Do Not Call Registry fees would make clear that the prohibition applies to persons who sign up to access the registry but, before actually accessing it, sell or transfer the registration for consideration to others wishing to share the cost of access.
The prohibition against sellers or telemarketers interfering with a consumer’s right to be placed on an entity-specific “do not call” list would be amended to include specific examples of practices it prohibits, such as requiring a person to listen to a sales pitch before accepting a request to be placed on such a list. A related amendment would make clear that a seller or telemarketer will be disqualified from relying on the safe harbor for isolated or inadvertent violations of the “do not call” prohibition if the seller or telemarketer fails to obtain the information needed to honor a consumer’s request to be placed on an entity-specific “do not call” list.
Ballard Spahr attorneys are available to advise sellers and telemarketers on compliance with the TSR, as well as other applicable consumer financial services laws. The firm’s attorneys can also review internal rules and provide guidance in conducting periodic audits to ensure the TSR is being followed. The firm’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.
For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or firstname.lastname@example.org, CFS Practice Leader Jeremy T. Rosenblum at 215.864.8505 or email@example.com, John L. Culhane, Jr., at 215.864.8535 or firstname.lastname@example.org, or Privacy and Data Security Group Leader Mercedes Kelley Tunstall at 202.661.2221 or email@example.com.