Not to be outdone by last year’s changes to Federal Communication Commission rules under the Telephone Consumer Protection Act (“TCPA”), the Federal Trade Commission (“FTC”) has teed up a number of issues that may be the focal point of big changes to the Telemarketing Sales Rule (“TSR”). Similar to the TCPA rules, the TSR includes the FTC’s version of Do-Not-Call rules and restrictions on the use of prerecorded message calls. Unlike the TCPA rules, the TSR imposes certain disclosure and other requirements for outbound calls, some inbound calls, and upsells on both outbound and inbound calls. When the FTC announced on July 31, 2014, that the TSR has come due for review, it asked for public comment on issues that suggest the FTC is considering restrictions on telephone “data pass” and broader application of negative option and other disclosure requirements to inbound calls currently exempt from the scope of the TSR. While the ongoing stream of lawsuits filed under the TCPA continues, it is worth taking a closer look at the FTC’s Rule Review, Request for Public Comments (“Request”) to determine what additional restrictions/requirements could be on the horizon for telemarketers.
The FTC first requests information about the treatment of “preacquired account information” in situations where consumers provide their financial account information to a seller to complete a purchase and are subsequently charged by a different seller for additional purchases arising from the same call or later call. The Request notes that the Restore Online Shoppers Confidence Act (“ROSCA”), 15 U.S.C. § 8401 et seq. (2010), and the rules of payment card networks prohibit an “initial merchant” from disclosing a consumer’s account billing information to any “post-transaction third-party seller” for the purpose of charging the consumer’s account. Under ROSCA, any third-party seller is required to obtain the consumer’s full billing information directly from the consumer. ROSCA and the credit card rules are in conflict with the TSR, which explicitly permits the use of preacquired account information by third parties under certain circumstances.
In particular, the TSR permits telemarketers to use preacquired information in combination with free trial offers when the telemarketer acquires additional evidence of “express informed consent,” in the form of an audio recording of the entire call and the receipt from the consumer of the last four digits of the account number. To use preacquired account information not involving free offers, a telemarketer must “identify the account to be charged with sufficient specificity” for the customer to understand what will be charged and obtain “express agreement” from the consumer to be charged. The FTC asks whether requiring “express informed consent” has “been effective in preventing the use of preacquired information for unauthorized billing of consumers’ accounts.” In addition, the FTC is inquiring whether changes should be made to create consistency between the TSR and ROSCA.
Comments on the preacquired account information questions may focus on whether one telemarketing call center should need to re-collect from the consumer a full 16 digit credit card number during an upsell transaction involving a different seller than the original sale. Comments may also address whether it is possible to identify a card to be charged with enough specificity – such as by identifying the card type and last four digits –that requiring the consumer to read back an entire 16 digit credit card number is overly burdensome and harmful to business.
As a second point of discussion, the FTC focuses its Request on how best to protect consumers from deceptive “negative option offers.” A negative option offer treats the consumer’s failure to take an affirmative act to reject the goods or services as an acceptance of the offer, creating situations where the consumer is unaware of future financial obligations. This practice has been especially common in continuity and recurring billing programs as well as “free trial offers,” where the marketer later charges a consumer’s credit card after the consumer signed up for a “free” product or service. Section 310.3 of the TSR requires telemarketers and sellers to disclose all material terms and conditions related to negative option features, along with the “express informed consent” requirement described above. As the TSR is currently written, the disclosure requirements apply to outbound calls and upsells on inbound and outbound calls. However, the disclosure requirements do not apply to inbound calls that are placed by consumers in response to general media advertisements (except in the case of ads relating to investment opportunities, debt relief services, or business opportunities).
In 2003, the FTC found that negative option marketing offers weren’t typically marketed through general media advertisements, such as television, radio, Internet webpages, and emails. As we’ve previously discussed, the FTC has been evaluating how best to address certain types of negative option offers for some time, most recently announcing it would retain the Prenotification Negative Option Rule (which governs offers like selection-of-the-month clubs) without modification after completing a regulatory review. Now the FTC’s Request asks the public what impact the passage of ROSCA and the changing media landscape should have on the negative option requirements of the TSR. Specifically, should telemarketers who receive inbound calls from consumers in response to these general media advertisements with negative option products receive the same disclosures required for outbound telemarketing calls?
The FTC also inquires about whether the TSR should include a requirement that sellers and telemarketers retain records of telemarketing calls. The TSR currently has no such requirement and, according to the FTC, obtaining records for a seller’s sales calls to consumers is often handled through requests to telecommunication service providers. The FTC suggests that this process can be time-consuming and inefficient. The FTC asks for comments about the compliance costs and burdens if telemarketers and sellers were required to keep their own call records.
While the FTC does not elaborate much on other provisions of the TSR that may be a focus of change, marketers should understand that any and all aspects of the TSR are up for discussion. For call centers, payment processors, fulfillment houses, and other services providers, the FTC’s Request does not discuss in detail the “assisting and facilitating” provisions of the TSR that provide a basis to hold service providers liable for the TSR violations of their customers. Nonetheless, it is possible that the Request will generate comments on these and other issues, including strong reactions from consumer protection advocates.