FTC Seeks To Expand Scope of Telemarketing Sales Rule

On February 23, 2000, the US Federal Trade Commission (“FTC”) announced that it is initiating a five year review of its Telemarketing Sales Rule (“Rule”), which became effective on December 31, 1995. The FTC Rule was issued pursuant to the Telemarketing and Consumer Fraud and Abuse Prevention Act, which directed the Commission to issue rules to protect consumers from deceptive telemarketing practices and other abusive telemarketing activities.

The FTC’s notice signals a broad expansion of the current Rule to cover marketing techniques that are not generally thought of as “telemarketing,” including affinity clubs and Internet websites. During the rulemaking proceeding that led up to the issuance of the original Rule in 1995, the FTC was cautious about not regulating such emerging technologies. Marketers should be concerned that in an effort to regulate bad actors, the FTC does not issue expanded rules that impose onerous requirements on highly efficient marketing techniques used for lawful purposes.

Background

The current Rule:

• requires telemarketers to make specific disclosures of material information;
• prohibits misrepresentations;
• sets limits on the times telemarketers may call consumers;
• prohibits calls to a consumer who has asked not to be called again; and
• sets payment restrictions for the sale of certain goods and services.

Changes in the Telemarketing Marketplace Since 1995

According to the FTC’s public notice, the marketplace for telemarketing has changed in significant ways since 1995. Technologies which were new or non-existent in 1995 now are prevalent for many telemarketing firms. These include:

• new market research techniques that allow sellers to pinpoint with greater precision which consumers are more likely to be potential customers;
• increased use of “frequent customer cards” which enable sellers to collect purchasing data elecronically when consumers buy goods such as groceries and gasoline; and
• the development of “cookie” technology, which enables marketers to learn the specific habits and preference of online consumers, including information about consumers and their computers, the kinds of web sites they visit, and the frequency with which they purchase online.

In addition, the Commission is concerned that traditional telemarketers are now facing competition from new marketing and sales methodologies, especially the Internet. Unlike five years ago, Internet sites are finalizing sales instead of just marketing to consumers. Telemarketing call centers are now linked to the Internet. Consumers now have the ability not only to receive email replies to questions but to call customer service representatives either through the Internet or on a separate phone line without leaving the company’s web site. While the FTC admits that the potential impact of such interactive sales media is “unknown,” the FTC wants to examine them closely to see if they merit regulation at this time.

Finally, the FTC states that it is concerned about an increase in cross-border telemarketing. Such efforts increasingly involve fraud and telemarketers attempt to structure their operations to seek the advantages of less stringent telemarketing laws in other countries. The FTC is seeking comments on how best to protect consumers from these global operations.

How to Participate

The FTC has published 24 specific questions about which they seek comment. Interested parties are invited to submit written comments to the FTC until April 27, 2000.

In addition, the FTC has scheduled public forums, to be held at the FTC in Washington DC on July 27-28, 2000. The public forums will focus on: a) issues relating to the implementation and effectiveness of the Rule; and b) the evolution of telemarketing over the past two decade and its impact on consumers. Parties interested in participating in the public forums must apply by June 16, 2000.

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