On November 18, 2015, the Federal Trade Commission (FTC) released a final rule setting forth a number of key amendments and clarifications to its Telemarketing Sales Rule (TSR). This final rule follows the issuance of a notice of proposed rulemaking in July 2013 and a public comment period. The rule addresses and now prohibits certain payment methods that the FTC has found to be associated with illegitimate telemarketing businesses. Of greater concern to a broader spectrum of telemarketers are amendments that update and clarify provisions related to the federal Do Not Call (DNC) Registry and call recording requirements for certain transactions.

Prohibition on Remote Payment Methods

The final rule focuses primarily on the various types of "novel payment methods" that are used by unscrupulous telemarketers. They include remotely created checks and payment orders, cash-to-cash transfers, and cash reload mechanisms. According to Jessica Rich, Director of the FTC's Bureau of Consumer Protection, "con artists like payments that are tough to trace and hard for people to reverse," adding that "the FTC's new telemarketing rules ban payment methods that scammers like, but honest telemarketers don't use."

Specifically, the amendments will bar telemarketers from receiving payments through traditional "cash-to-cash" money transfers (provided by companies like MoneyGram, Western Union, and RIA) and through "cash reload" mechanisms such as MoneyPak, Vanilla Reload, or Reloadit packs, which are used to add funds to existing prepaid cards.

The amendments also expand the TSR's ban on charging fees in advance of providing services to recover losses resulting from, ironically, prior telemarketing scams. The amendments broaden this provision to cover recovery services for any transaction.

The FTC claims that the amendments narrowly address the offensive payment methods without impeding industry from developing new and alternative payment methods that legitimate marketers can employ.

Do-Not-Call Amendments and Clarifications

Of greater relevance to businesses are amendments and clarifications with respect to the DNC Registry and other do-not-call requests made by consumers. Specifically they address:

  • Existing Business Relationships. If a consumer's number is on the DNC Registry, sellers and telemarketers must demonstrate that they have (i) an existing business relationship (EBR) with the person, or (ii) the person's express written agreement to receive calls (EWA). According to the FTC, this clarification is intended "to make it unmistakably clear that the burden of proof for establishing an EBR or EWA as an affirmative defense to otherwise prohibited calls to numbers on the registry 'falls on the seller or telemarketer relying on it.'" While this requirement may appear obvious to many, the FTC felt it necessary to clarify this responsibility nonetheless.

    Perhaps more importantly, the FTC also noted that an EBR or EWA belongs only to the "specific seller" that obtained it directly from the consumer. The obligation that the lead be "obtained directly from the consumer" might be problematic for companies that rely on third-party lead generators. The FTC cautions, "cold calls to consumers whose names and numbers appear on a calling list purchased from a third party list broker are prohibited . . . because the calls are not placed by the specific seller that obtained the EBR or EWA." Given this statement, it will be interesting to see how the FTC views leads generated by a third party where the intended user of the lead is disclosed to the consumer, as is current industry practice.
  • Entity-Specific Do-Not-Call Lists.
    • The ruling also prohibits companies from placing unfair burdens on consumers who wish to be placed on a seller's/telemarketer's entity-specific do-not-call list. For example, impermissible burdens include, among others, harassing consumers who make such a request, hanging up on them, requiring the consumer to listen to a sales pitch before accepting the request, and assessing a charge or fee for honoring the request.
    • Further, the TSR now specifies that if a seller or telemarketer does not get the information needed to place a consumer's number on its entity-specific do-not-call list, the business may not claim protection under the safe harbor for isolated or accidental violations.
  • DNC Registry Fees. The revised TSR emphasizes that no person may participate in any arrangement to share the cost of accessing the DNC Registry, including any arrangement with any telemarketer or service provider to divide the costs to access the registry among various clients of that telemarketer or service provider.

Express Verifiable Authorization

The TSR requires companies to obtain a consumer's express verifiable authorization prior to processing a payment or collection of a product or service, or a charitable donation where the consumer's billing informationis not a credit or debit card. This authorization may be achieved in various ways, including orally where the authorization is recorded and made available to the consumer, donor, and the consumer's bank or billing entity. Before the adoption of the final rule, the TSR required that the authorization include several items of information, such as the amount and date of the payment, the account to be charged or debited, and the consumer's name, but not the goods or services being purchased. The revised TSR now requires that this recording include an accurate description of the goods, services or charitable contribution for which payment authorization is sought.

This amendment, which several commenters supported and which received no objections, was initiated by the FTC in response to telemarketing sales that failed to disclose the actual goods and services being purchased in the consumer's authorization. The FTC noted that it has uniformly interpreted this provision of the TSR to include this information, but decided to adopt the proposed amendment because its "law enforcement experience shows that some sellers and telemarketers appear to have omitted this information intentionally from their audio recordings to conceal from consumers the real purpose of the verification recording and the fact that they will be charged."

It is important to note that the express verifiable authorization standard is only required where a credit or debit card is not provided for payment, which would likely render this issue moot for the vast majority of telephonic transactions. It would only apply to the few alternative payment mechanisms still available to telemarketers following the bans discussed above.

Business-to-Business Exemption

The FTC clarified that the TSR's business-to-business DNC exemption extends only to calls designed to induce a sale to or contribution from a business entity; it does not cover soliciting employees at their places of business to make personal charitable contributions or to purchase goods or services for their individual use. The FTC explained that "this amendment is simply a clarification of the scope of the existing exemption, not a change," and is intended to "further deter telemarketers from attempting to circumvent the DNC registry by soliciting employees at their places of business to make personal charitable contributions or to purchase goods or services for their individual use."