Finalizing amendments to the Telemarketing Sales Rule, the Federal Trade Commission banned four types of payment methods the agency claims are "favored by con artists and scammers."
Specifically, marketers are now prohibited from using unsigned checks, remotely created payment orders, "cash-to-cash" money transfers, and payment via a "cash reload" mechanism used to add funds to existing prepaid cards. When applying the traditional unfairness test—asking whether the practices caused or were likely to cause substantial injury to consumers that was neither reasonably avoidable by consumers nor outweighed by countervailing benefits to consumers or competition—the FTC said each of the four payment methods in telemarketing transactions constituted an abusive practice.
"The record demonstrates that the telemarketing use of each of these payment methods has resulted in rampant abuse that has caused substantial harm to consumers," according to a Commission statement by Chairwoman Edith Ramirez and Commissioners Julie Brill and Terrell McSweeny. The abuse has persisted "despite significant law enforcement efforts" by the FTC and other agencies. "Indeed, gaps in our financial system make it difficult to detect and stop fraudulent use of these payment methods. And, in contrast to the overwhelming evidence of telemarketing fraud exploiting the use of these payment methods, we find almost no evidence that they are being used for legitimate telemarketing purposes."
Opponents of the ban argued that the prohibition is premature and impinges on legitimate and emerging uses of the four payment methods, but the FTC disagreed. Although law enforcement has tried for years to control "the widespread abuse" of the payment methods, no progress has been made. This frustration was evidenced in the supporting comments filed by law enforcement authorities, including 24 state Attorneys General, the Department of Justice, and the Consumer Financial Protection Bureau after the ban was proposed, the agency added.
Commissioner Maureen Ohlhausen gave voice to the opposition in a dissenting statement. She argued that the ban failed to recognize the benefits to consumers or the resultant competition from the payment methods now prohibited. "Although the record shows there is consumer injury from the use of novel payment methods in telemarketing fraud, it is not clear that this injury likely outweighs the countervailing benefits to consumers and competition of permitting novel payments methods," she wrote.
Other changes to the Rule include a requirement that the goods or services must be described in the tape recording in which the consumer provides his express verifiable consent to be charged and that the ban be extended on advance fees on recovery services to cover losses in prior telemarketing and non-telemarketing transactions.
In addition, provisions related to the National Do Not Call Registry were tweaked to state that a seller or telemarketer must demonstrate that it has an existing business relationship with, or has received an express written agreement from, a consumer it calls if the consumer's number is on the Registry. The agency emphasized that sellers are prohibited from sharing the cost of the fees to access the Registry, and also specified that if a seller or telemarketer does not obtain the information needed to place a consumer's number on its entity-specific do not call list, the seller or telemarketer is disqualified from the safe harbor for isolated or accidental violations.
To read the amended Telemarketing Sales Rule, click here.
To read the Commission's statement, click here.
To read Commissioner Ohlhausen's dissenting statement, click here.
Why it matters: Telemarketers should familiarize themselves with the changes, which take effect 60 days after publication of the Federal Register notice. The FTC noted that given existing Bank Secrecy Act requirements, the amendments should not impose any significant additional costs to the payments industry and that because the agency has "found virtually no evidence of legitimate telemarketing uses of the four payment methods at issue," the ban should not have a major impact on legitimate telemarketing activity.