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08.10.10 Telemarketing Sales Rule Final

08.10.10 Telemarketing Sales Rule Final

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 Tuesday, August 10, 2010
Part III
Federal TradeCommission 
16 CFR Part 310 Telemarketing Sales Rule; Final Rule
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48458
Federal Register
/Vol. 75, No. 153/Tuesday, August 10, 2010/Rules and Regulations
1
TSR Proposed Rule,
74 FR 41988 (Aug. 19,2009). The TSR is set forth at 16 CFR 310.
2
The comments and other material placed on therulemaking record are available at (
http:// www.ftc.gov/os/comments/tsrdebtrelief/ index.shtm
). In addition, a list of commenters citedin this SBP, along with their short citation namesor acronyms used throughout the SBP, followsSection V of this SBP. When a commentersubmitted more than one comment, the comment isalso identified by date.
3
Throughout the SBP, the Commission uses theterm
‘‘
providers
’’
to refer to
‘‘
sellers andtelemarketers
’’
as defined in the TSR.
‘‘
Seller
’’
isdefined as
‘‘
any person who, in connection with atelemarketing transaction, provides, offers toprovide, or arranges for others to provide goods orservices to the customer in exchange forconsideration.
’’
16 CFR 310.2(aa).
‘‘
Telemarketer
’’
isdefined as
‘‘
any person who, in connection withtelemarketing, initiates or receives telephone callsto or from a customer or donor.
’’
16 CFR 310.2(cc).
4
15 U.S.C. 6101-6108. Subsequently, the USAPATRIOT Act, Pub. L. No. 107–56, 115 Stat. 272(Oct. 26, 2001), expanded the Telemarketing Act’sdefinition of 
‘‘
telemarketing
’’
to encompass callssoliciting charitable contributions, donations, orgifts of money or any other thing of value.
5
15 U.S.C. 6102(a).
6
15 U.S.C. 6102(a)(3).
7
15 U.S.C. 6103, 6104.
8
TSR and Statement of Basis and Purpose and Final Rule ( 
‘‘
TSR Final Rule
’’
)
, 60 FR 43842 (Aug.23, 1995);
Amended TSR and Statement of Basisand Purpose ( 
‘‘
TSR Amended Rule
’’
)
, 68 FR 4580(Jan. 29, 2003);
Amended TSR and Statement of Basis and Purpose ( 
‘‘
TSR Amended Rule 2008
’’
),
73FR 51164 (Aug. 29, 2008).
9
16 CFR 310.2(cc) (using the same definition asthe Telemarketing Act, 15 U.S.C. 6106(4)). The TSRexcludes from the definition of telemarketing:the solicitation of sales through the mailing of acatalog which: contains a written description orillustration of the goods or services offered for sale;includes the business address of the seller; includesmultiple pages of written material or illustrations;and has been issued not less frequently than oncea year, when the person making the solicitationdoes not solicit customers by telephone but onlyreceives calls initiated by customers in response tothe catalog and during those calls takes orders onlywithout further solicitation.
Id.
10
15 U.S.C. 6105(b).
11
See
15 U.S.C. 44, 45(a)(2), which exclude orlimit from the Commission’s jurisdiction severaltypes of entities, including bona fide nonprofits, bank entities (including, among others, banks,thrifts, and federally chartered credit unions), andcommon carriers, as well as the business of insurance.
12
16 CFR 310.6(b)(5)-(6). Moreover, the Ruleexempts from the National Do Not Call Registryprovisions calls placed by for-profit telemarketers tosolicit charitable contributions; such calls are notexempt, however, from the
‘‘
entity-specific
’’
do not
FEDERAL TRADE COMMISSION16 CFR Part 310Telemarketing Sales Rule
AGENCY
:
Federal Trade Commission(
‘‘
Commission
’’
or
‘‘
FTC
’’
).
ACTION
:
Final rule amendments.
SUMMARY
:
In this document, theCommission adopts amendments to theTelemarketing Sales Rule (
‘‘
TSR
’’
or
‘‘
Rule
’’
) that address the telemarketing of debt relief services. These amendmentsdefine debt relief services, prohibit debtrelief providers from collecting feesuntil after services have been provided,require specific disclosures of materialinformation about offered debt relief services, prohibit specificmisrepresentations about materialaspects of debt relief services, andextend the TSR’s coverage to includeinbound calls made to debt relief companies in response to general mediaadvertisements. The amendments arenecessary to protect consumers fromdeceptive or abusive practices in thetelemarketing of debt relief services.
DATES
:
These final amendments areeffective on September 27, 2010, exceptfor §310.4(a)(5), which is effective onOctober 27, 2010.
ADDRESSES
:
Requests for copies of theseamendments to the TSR and thisStatement of Basis and Purpose (
‘‘
SBP
’’
)should be sent to: Public ReferenceBranch, Federal Trade Commission, 600Pennsylvania Avenue NW, Room 130,Washington, D.C. 20580. The completerecord of this proceeding is alsoavailable at that address. Relevantportions of the proceeding, includingthe final amendments to the TSR andSBP, are available at (
http:// www.ftc.gov 
).
FOR FURTHER INFORMATION CONTACT
:
Alice Hrdy, Allison Brown, EvanZullow, or Stephanie Rosenthal,Attorneys, Division of FinancialPractices, Bureau of ConsumerProtection, Federal Trade Commission,600 Pennsylvania Avenue NW, RoomNJ-3158, Washington, D.C. 20580, (202)326-3224.
SUPPLEMENTARY INFORMATION
:
I. Overview and Background
A. Overview 
This document states the basis andpurpose for the Commission’s decisionto adopt amendments to the TSR thatwere proposed and published for publiccomment on August 19, 2009.
1
Aftercareful review and consideration of theentire record on the issues presented inthis rulemaking proceeding, includingpublic comments submitted by 321interested parties,
2
the Commission hasdecided to adopt, with severalmodifications, the proposedamendments to the TSR intended tocurb deceptive and abusive practices inthe telemarketing of debt relief services.The Rule provisions will: (1)prohibitdebt relief service providers
3
fromcollecting a fee for services until a debthas been settled, altered, or reduced;(2)require certain disclosures in callsmarketing debt relief services;(3)prohibit specific misrepresentationsabout material aspects of the services;and (4)extend the TSR’s coverage toinclude inbound calls made to debtrelief companies in response to generalmedia advertisements.Beginning on September 27, 2010,sellers and telemarketers of debt relief services will be required to comply withthe amended TSR requirements, exceptfor §310.4(a)(5), the advance fee banprovision, which will be effective onOctober 27, 2010.
B. The Commission’s Authority Under the TSR
Enacted in 1994, the Telemarketingand Consumer Fraud and AbusePrevention Act (
‘‘
Telemarketing Act
’’
or
‘‘
Act
’’
) targets deceptive and abusivetelemarketing practices, and directedthe Commission to adopt a rule withanti-fraud and privacy protections forconsumers receiving telephonesolicitations to purchase goods orservices.
4
Specifically, the Act directedthe Commission to issue a rule definingand prohibiting deceptive and abusivetelemarketing acts or practices.
5
Inaddition, the Act mandated that the FTCpromulgate regulations addressing somespecific practices, which the Actdesignated as
‘‘
abusive.
’’
6
The Act alsoauthorized state attorneys general orother appropriate state officials, as wellas private persons who meet stringentjurisdictional requirements, to bringcivil actions in federal district court.
7
 Pursuant to the Act’s directive, theCommission promulgated the originalTSR in 1995 and subsequently amendedit in 2003 and again in 2008 to add,among other things, provisionsestablishing the National Do Not CallRegistry and addressing the use of pre-recorded messages.
8
The TSR applies tovirtually all
‘‘
telemarketing,
’’
defined tomean
‘‘
a plan, program, or campaignwhich is conducted to induce thepurchase of goods or services or acharitable contribution, by use of one ormore telephones and which involvesmore than one interstate telephonecall.
’’
9
The Telemarketing Act, however,explicitly states that the jurisdiction of the Commission in enforcing the Rule iscoextensive with its jurisdiction underSection 5 of the Federal TradeCommission Act (
‘‘
FTC Act
’’
).
10
As aresult, some entities and products falloutside the scope of the TSR.
11
 In addition, the Rule wholly orpartially exempts several types of callsfrom its coverage. For example, the Rulegenerally exempts inbound calls placed by consumers in response to direct mailor general media advertising.
12
 
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48459
Federal Register
/Vol. 75, No. 153/Tuesday, August 10, 2010/Rules and Regulations
call provisions or the TSR’s other requirements. 16CFR 310.6(a).
13
See, e.g.,
16 CFR 310.6(b)(5)-(6) (provisionsrelated to general advertisements and direct mailsolicitations).
14
The TSR requires that telemarketers solicitingsales of goods or services promptly disclose severalkey pieces of information in an outbound telephonecall or an internal or external upsell: (1) the identityof the seller; (2) the fact that the purpose of the callis to sell goods or services; (3) the nature of thegoods or services being offered; and (4) in the caseof prize promotions, that no purchase or paymentis necessary to win. 16 CFR 310.4(d);
see also
16CFR 310.2(ee) (defining
‘‘
upselling
’’
). Telemarketersalso must disclose in any telephone sales call thecost of the goods or services and certain othermaterial information. 16 CFR 310.3(a)(1).In addition, the TSR prohibits misrepresentationsabout, among other things, the cost and quantity of the offered goods or services. 16 CFR 310.3(a)(2). Italso prohibits making false or misleadingstatements to induce any person to pay for goodsor services or to induce charitable contributions. 16CFR 310.3(a)(4).
15
16 CFR 310.4(a)(7); 16 CFR 310.3(a)(3).
16
16 CFR 310.4(a)(2).
17
16 CFR 310.4(a)(3). As the Commission haspreviously explained, [in] recovery room scams ...adeceptive telemarketer calls a consumer who haslost money, or who has failed to win a promisedprize, in a previous scam. The recovery roomtelemarketer falsely promises to recover the lostmoney, or obtain the promised prize, in exchangefor a fee paid in advance. After the fee is paid, thepromised services are never provided. In fact, theconsumer may never hear from the telemarketeragain.
TSR Final Rule
, 60 FR at 43854.
18
16 CFR 310.4(a)(4);
see TSR Amended Rule,
68FR at 4614 (finding that these three services were
‘‘
fundamentally bogus
’’
).
19
16 CFR 310.3(c).
20
16 CFR 310.3(b).
21
16 CFR 310.4(b)(iii).
22
16 CFR 310.4(a)(7).
23
16 CFR 310.4(b)(1)(iv) (a call abandonment safeharbor is found at 16 CFR 310.4(b)(4)).
24
16 CFR 310.4(b)(1)(v).
25
See, e.g.,
TASC (Oct. 26, 2009) at 7; NFCC at2; Federal Reserve Board,
Charge-off and Delinquency Rates
(May 24, 2010),
available at 
(
http://www.federalreserve.gov/releases/chargeoff/ delallsa.htm
) (charting recent increase in creditcard delinquency rate);
Debt Settlement:Fraudulent, Abusive, and Deceptive Practices PoseRisk to Consumers: Hearing on The Debt Settlement Industry: The Consumer’s Experience Before the S.Comm. on Commerce, Science, & Transportation,
111
th
Cong. at 1 (2010) (statement of Philip A.Lehman, Assistant Attorney General, NorthCarolina Department of Justice) (
‘‘
NC AGTestimony
’’
).
26
See
Weinstein (Oct. 26, 2009) at 8 (
see
attachedBernard L. Weinstein & Terry L. Clower,
Debt Settlement: Fulfilling the Need for An EconomicMiddle Ground 
at 7 (Sept. 2009) (
‘‘
Weinsteinpaper
’’
)). It is not clear, however, how wide a
‘‘
slice
’’
of the debt-impaired population is suitable for debtsettlement programs.
See
Summary of Communications (June 16, 2010) at 1 (according toindustry groups, consumers who can afford to pay1.5-2% of their debt amount each month shouldenter debt settlement). Moreover, even for thoseconsumers for whom debt settlement might beappropriate, the practice of charging large advancefees makes it much less likely that those consumerscan succeed in such a program. CFA at 9; CareOneat 4;
see
SBLS at 2-3.
27
See
List of FTC Law Enforcement ActionsAgainst Debt Relief Companies, following Section Vof the SBP, for a list of cases that the FTC hasprosecuted since 2003 (
‘‘
FTC Case List
’’
). Inaddition, as detailed in the subsequent List of StateLaw Enforcement Actions Against Debt Relief Companies (
‘‘
State Case List
’’
), state lawenforcement agencies have brought at least 236enforcement actions against debt relief companiesin the last decade.
28
See, e.g.,
FTC,
Settling Your Credit Card Debts
(2010); FTC,
Fiscal Fitness: Choosing a Credit Counselor 
(2005); FTC,
For People on Debt Management Plans: A Must-Do List 
(2005); FTC,
Knee Deep in Debt 
(2005).
29
In September 2008, the Commission held apublic workshop entitled
‘‘
Consumer Protection andthe Debt Settlement Industry
’’
(
‘‘
Workshop
’’
), which brought together stakeholders to discuss consumerprotection concerns associated with debt settlementservices, one facet of the debt relief servicesindustry. Workshop participants also debated themerits of possible solutions to those concerns,including the various remedies that weresubsequently included in the proposed rule. Anagenda and transcript of the Workshop are availableat (
http://www.ftc.gov/bcp/workshops/ debtsettlement/index.shtm
). Public commentsassociated with the Workshop are available at(
http://www.ftc.gov/os/comments/ debtsettlementworkshop/index.shtm
). As discussed below, in November 2009, the Commission held apublic forum on issues specific to the rulemakingproceeding.
30
A more detailed description of the history andevolution of these different forms of debt relief can be found in Section II of the Notice of ProposedRulemaking in this proceeding.
31
GP (Oct. 22, 2009) at 2; Cambridge (Oct. 26,2009) at 1. Each creditor determines what, if any,repayment options to offer the consumer based on
Continued
However, there are certain
‘‘
carve-outs
’’
from some of the TSR’s exemptions thatlimit their reach, such as the carve-outfor calls initiated by a customer inresponse to a general advertisementrelating to investment opportunities.
13
 The TSR is designed to protectconsumers in a number of differentways. First, the Rule includesprovisions governing communications between telemarketers and consumers,requiring certain disclosures andprohibiting materialmisrepresentations.
14
Second, the TSRrequires telemarketers to obtainconsumers’
‘‘
express informed consent
’’
to be charged on a particular account before billing or collecting payment and,through a specified process, to obtainconsumers’
‘‘
express verifiableauthorization
’’
to be billed through anypayment system other than a credit ordebit card.
15
Third, the Rule prohibits asan abusive practice requesting orreceiving any fee or consideration inadvance of obtaining any credit repairservices;
16
recovery services;
17
or offersof a loan or other extension of credit, thegranting of which is represented as
‘‘
guaranteed
’’
or having a high likelihoodof success.
18
Fourth, the Rule prohibitscredit card laundering
19
and other formsof assisting and facilitating sellers ortelemarketers engaged in violations of the TSR.
20
Fifth, the TSR, with narrowexceptions, prohibits telemarketers fromcalling consumers whose numbers areon the National Do Not Call Registry orwho have specifically requested not toreceive calls from a particular entity.
21
 Finally, the TSR requires thattelemarketers transmit to consumers’telephones accurate Caller IDinformation
22
and places restrictions oncalls made by predictive dialers
23
andthose delivering pre-recordedmessages.
24
 
C. Overview of Debt Relief Services
Debt relief services have proliferatedin recent years as the economy hasdeclined and greater numbers of consumers hold debts they cannotpay.
25
A range of nonprofit and for-profit entities – including creditcounselors, debt settlement companies,and debt negotiation companies– offerdebt relief services, frequently throughtelemarketing. Thus, consumers withdebt problems have several options forwhich they may qualify. Those whohave sufficient assets and income torepay their full debts over time, if theircreditors make certain concessions (
e.g.
,a reduction in interest rate), can enrollin a debt management plan with a creditcounseling agency. On the other end of the spectrum, for consumers who are sofar in debt that they can never catch up,declaring Chapter 13 or Chapter 7 bankruptcy might be the mostappropriate course. Debt settlement isostensibly designed for consumers whofall between these two options,
i.e.
,consumers who cannot repay their fulldebt amount, but could pay somepercentage of it.
26
 Over the last several years, theCommission has addressed consumerprotection concerns about debt relief services through law enforcementactions,
27
consumer education,
28
andoutreach to industry and other relevantparties.
29
The brief description of thedebt relief services industry in the nextsection is based upon information in therecord, the enforcement activities of theFTC and the states, and independentresearch by Commission staff.
30
 1. Credit Counseling AgenciesCredit counseling agencies (
‘‘
CCAs
’’
)historically were nonprofitorganizations that worked as liaisons between consumers and creditors tonegotiate
‘‘
debt management plans
’’
(
‘‘
DMPs
’’
). DMPs are monthly paymentplans for the repayment of credit cardand other unsecured debt, enablingconsumers to repay the full amountowed to their creditors underrenegotiated terms that make repaymentless onerous.
31
To be eligible for a DMP,
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