Marketers Must Take Heed of FTC’s Proposed TSR Revisions4 Jun, 2013 By: Marc Roth
Last month, the Federal Trade Commission (FTC) announced proposed changes to the Telemarketing Sales Rule (TSR). A majority of the proposal addressed the FTC’s concerns with and attempts to ban certain abusive billing and payment practices by unscrupulous marketers. However, the proposal also addressed several other areas, which for the most part did not receive much press, but in fact may have larger implications for direct response marketers.
In its proposal, the FTC seeks to ban certain types of payment methods that the agency has identified as being highly prone to abuse. Almost half of the FTC’s 103-page proposal addresses how E-checks, cash-to-cash transfers and reloadable debit cards are often used to commit fraud and launder ill-gotten funds. Declaring these payment mechanisms unfair and abusive, the FTC seeks public input on the benefits and risks associated with these practices, and whether banning them would pose problems for legitimate businesses.
But more alarming for DR marketers are two other proposals that the FTC characterizes as merely clarifying existing and long-standing policy under, but not sufficiently codified in, the TSR. The first proposal would specify that the recording of a consumer’s express verifiable authorization must include a description of what the consumer is buying. In its proposal, the FTC notes that, “Although it is difficult to imagine how a verification recording could ‘evidence clearly’ a payment authorization ‘for the goods or services or charitable contribution that are the subject of the telemarketing transaction’ without mentioning the goods, services, or charitable contribution, Commission staff have found that sellers and telemarketers often omit this information from their audio recordings, contrary to this provision's mandate to include it.”
Although the FTC seeks comments from the public on this proposal, the fact that the agency considers this to be simply a clarification of an existing policy and expectation, and thus will not likely be swayed by comments to the contrary, suggests the proposal will likely go into effect as proposed. If (and when) this happens, marketers must ensure that where a transaction must be recorded under the TSR, a script must identify the purchased product or service. While this may be easily achieved for a primary transaction, complying with this requirement may be more difficult where one or more upsells are offered that include a free-to-pay conversion and pre-acquired account information. In these cases, the consumer authorization for the upsell must be recorded, and the purchased product or service must be included in that recording.
The second proposal addresses another situation that the FTC believes is clear under the TSR, but nevertheless warrants explicit coverage in the Rule. The FTC proposes to require sellers who rely on certain exceptions to the TSR’s do-not-call (DNC) scrubbing requirement when calling consumers on the DNC registry – “express verifiable consent” (EWA) and “existing business relationship” (EBR) – to possess and demonstrate evidence of such consent or relationship. Further, in its proposal the FTC makes clear that a seller or telemarketer must itself possess the consent or relationship, “neither the EWA nor EBR exception is available to sellers or telemarketers with respect to calls to numbers on the Registry resulting from the use of calling lists purchased from third-party list brokers. [The TSR] plainly states that an EWA is limited to the ‘specific party’ from which a person listed on the Registry wishes to receive calls, permitting such calls only if the seller has obtained the express agreement, in writing, of such person to place calls to that person.”
Similarly, the TSR states that “an EBR is limited to the ‘seller’ that has an EBR with a person whose number is on the Registry [where] that person has not stated that he or she does not wish to receive outbound telephone calls” from the seller. The FTC’s proposal warns, “Consequently, the use of calling lists obtained from a third party for ‘cold calls’ to consumers whose numbers are on the Registry is not permitted by either of these two exceptions to the prohibition against outbound calls to numbers on the Registry.”
By revising the TSR in this way, the FTC places the burden of proving an EWA or EBR on the seller or telemarketer, and if not satisfied, a DNC violation may be found. Marketers who rely on a third party’s EWA or EBR when calling consumers without scrubbing against the DNC, such as in the case of “call to confirm” scenarios where there is no bona fide purpose for the call on behalf of the merchant through whom the consumer entered into a transaction, would do so at great risk.
The FTC seeks comments on these and other proposals by July 29. A copy of the notice of proposed rulemaking is available at http://www.ftc.gov/os/2013/05/130521telemarketingsalesrulefrn.pdf
Marc Roth is a partner in the Advertising, Marketing and Media division of Manatt Phelps & Phillips LLP in New York. He can be reached at firstname.lastname@example.org.