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FTC Amends Telemarketing Sales Rule

Payment methods, Verification, Do Not Call provisions among those modified

The Federal Trade Commission (FTC) announced amendments to the Telemarketing Sales Rule (TSR). The most significant changes are designed to protect consumers from fraud by prohibiting four types of payment methods. Other changes clarify the collection of certain verification information and do not call compliance obligations.

The four types of payments that will become forbidden to telemarketers for both inbound and outbound telemarketing transactions are: (a) remotely created checks, (b) remotely created payment orders, (c) “cash-to-cash” money transfers through companies like MoneyGram and Western Union and (d) “cash reload” mechanisms such as MoneyPak, Vanilla Reload, or Reloadit packs used to add funds to existing prepaid cards. Because they are created by the party receiving the payment and do not require a signature from the party to be charged, remotely created payment instruments have a high rate of consumer complaints and have been on the FTC’s radar for some time. As for the cash reload mechanisms, some providers recently replaced this method with a swipe reload process, an alternative that will not be affected by the TSR amendment.  This restriction applies whether a marketer otherwise qualifies under the TSR’s general media and direct mail exemptions. 

Note that by definition, remotely created checks do not include ACH payments or payments subject to the Truth in Lending Act and Regulation Z.  As further point of clarification, cash-to-cash money transfers will not be banned entirely, but telemarketers will not be able to accept that form of payment. According to the FTC's press release, “The [amendments] will have no effect on the routine ways people use newer payment technologies – for example, when consumers pay a bill by authorizing an online payment from their bank account. Rather, the amended TSR is carefully crafted to target the ways scammers exploit novel payment methods that reputable telemarketing companies don’t use.”

The amendments also seek to curb deceptive practices by broadening the advance-fee ban on recovery services from losses incurred in prior telemarketing transactions to include non-telemarketing transactions. Online advance-fee transactions are now included in the ambit of the TSR.

The FTC clarified a point that was arguably already included in the TSR. The amendments now explicitly state that any recording made for the purpose of proving a consumers’ express verifiable authorization to make a purchase or donation for non-credit/debit card payments must affirmatively include a description of the goods or services for which the consumer is paying.

The FTC further clarified that the TSR’s business-to-business exemption applies only for calls for goods and services to be purchased by the business itself, not to  personal purchases made as a result of calls to business lines.   

In addition, the TSR amendment will also clarifies certain issues with respect to the National Do Not Call (DNC) Registry. The amendment will expressly require that a seller or telemarketer has the burden of demonstrating either an existing business relationship or prior express written consent if it calls a number on the DNC Registry.  There are additional clarifications interfering with requests to be placed on an internal do not call list, such as hanging up on the person, failing to honor the request, requiring the person to first listen to a sales pitch, or requiring the person to call a different number to make the request.  

UPDATE:  The Telemarketing Sales Rule amendments were formally published on December 14, 2015 in the Federal Register. Amendment other than the restrictions on payment types will be effective: February 12, 2016. The payment restrictions are effective June 13, 2016.

Takeaway:  Marketers that are subject to the Telemarketing Sales Rule will no longer be able to accept certain types of payment from consumers. As such, it will not be able to accept remotely created checks as a form of payment (ACH remains unaffected).  In addition, if a marketer is required to obtain express verifiable authorization, the sales representative must include a description of what is being purchased as part of the verification. Businesses should also confirm that they are making outbound calls in compliance with the new DNC provisions.

If you have further questions on these amendments or telemarketing compliance, please contact one of our practice group attorneys.


 

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