[Federal Register Volume 69, Number 221 (Wednesday, November 17, 2004)]
[Proposed Rules]
[Pages 67287-67294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-25470]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / 
Proposed Rules

[[Page 67287]]



FEDERAL TRADE COMMISSION

RIN 3084-0098

16 CFR Part 310


Telemarketing Sales Rule

AGENCY: Federal Trade Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document, the Federal Trade Commission (``FTC'' or 
``Commission'') addresses three issues. First, the Commission seeks 
comment on a proposed amendment of the Telemarketing Sales Rule 
(``TSR'') to create an additional call abandonment safe harbor to allow 
telemarketing calls that deliver a prerecorded message to consumers 
with whom the seller on whose behalf the calls are made has an 
established business relationship. Second, the Commission announces 
that, pending completion of this proceeding, the Commission will 
forbear from bringing any enforcement action for violation of the TSR's 
call abandonment prohibition, 16 CFR 310.4(b)(1)(iv), against a seller 
or telemarketer that places telephone calls to deliver prerecorded 
telephone messages to consumers with whom the seller on whose behalf 
the telemarketing calls are made has an established business 
relationship, as defined in the TSR, provided the seller or 
telemarketer conducts this activity in conformity with the terms of the 
proposed amended call abandonment safe harbor. Third and finally, the 
Commission seeks comment on a petition submitted by the Direct 
Marketing Association (``DMA'') to amend the TSR's call abandonment 
safe harbor provision that currently requires use of ``technology that 
ensures abandonment of no more than three (3) percent of all calls 
answered by a person, measured per day per calling campaign'' \1\ 
substituting instead the phrase ``measured over a 30-day period.''
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    \1\ 16 CFR 310.4(b)(4)(i) (emphasis supplied).

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DATES: Written comments must be received by January 10, 2005.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Prerecorded Message EBR Telemarketing, 
Project No. R411001'' to facilitate the organization of comments. A 
comment filed in paper form should include this reference both in the 
text and on the envelope, and should be mailed or delivered to the 
following address: Federal Trade Commission/Office of the Secretary, 
Room H-159 (Annex K), 600 Pennsylvania Avenue, NW., Washington, DC 
20580. Comments containing confidential material must be filed in paper 
form, as explained in the SUPPLEMENTARY INFORMATION section. The FTC is 
requesting that any comment filed in paper form be sent by courier or 
overnight service, if possible, because U.S. postal mail in the 
Washington area and at the Commission is subject to delay due to 
heightened security precautions. Comments filed in electronic form 
should be submitted by clicking on the following Weblink: https://secure.commentworks.com/ftc-tsr and following the instructions on the 
Web-based form.
    To ensure that the Commission considers an electronic comment, you 
must file it on the Web-based form at the https://secure.commentworks.com/ftc-tsr Weblink. You may also visit http://www.regulations.gov to read this proposed Rule, and may file an 
electronic comment through that Web site. The Commission will consider 
all comments that regulations.gov forwards to it.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments that it receives, whether filed in paper or electronic 
form. Comments received will be available to the public on the FTC Web 
site, to the extent practicable, at http://www.ftc.gov. As a matter of 
discretion, the FTC makes every effort to remove home contact 
information for individuals from public comments it receives before 
placing those comments on the FTC Web site. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at http://www.ftc.gov/ftc/Privacy.htm.

FOR FURTHER INFORMATION CONTACT: Michael Goodman, (202) 326-3071, 
Division of Marketing Practices, Bureau of Consumer Protection, Federal 
Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 310.4(b)(1)(iv) of the amended Telemarketing Sales Rule 
(``TSR'' or ``Rule'') prohibits telemarketers from abandoning calls. An 
outbound telephone call is ``abandoned'' under this section if a person 
answers it and the telemarketer does not connect the call to a sales 
representative within two seconds of the person's completed 
greeting.\2\
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    \2\ 16 CFR 310.4(b)(1)(iv).
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    Call abandonment is an unavoidable consequence of using 
``predictive dialers''--telemarketing equipment that increases 
telemarketers' productivity by calling multiple consumers for every 
available sales representative. Doing so maximizes the amount of time 
representatives spend speaking with consumers and minimizes the time 
representatives spend waiting to reach a prospective customer. An 
inevitable side effect of predictive dialers' functionality, however, 
is that the dialer will reach more consumers than can be connected to 
available sales representatives. In those situations, the dialer will 
either disconnect the call (resulting in a ``hang-up'' call) or keep 
the consumer connected with no one on the other end of the line in case 
a sales representative becomes available (resulting in ``dead air''). 
The call abandonment provision is designed to remedy these abusive 
practices.
    Notwithstanding the prohibition on call abandonment, the TSR 
contains a safe harbor designed to preserve telemarketers' ability to 
use predictive dialers. The safe harbor is available if the 
telemarketer or seller: abandons no more than three percent of all 
calls answered by a person; allows the telephone to ring for fifteen 
seconds or four rings; whenever a sales representative is unavailable 
within two seconds of a person's answering the call, plays a 
prerecorded message stating the name and telephone number of the seller 
on whose behalf the call was

[[Page 67288]]

placed; and maintains records documenting compliance.\3\ Thus, to 
comply with this provision of the TSR, at least ninety-seven percent of 
a telemarketer's calls that are answered by a person (rather than an 
answering machine) must be connected to a live sales representative. A 
telemarketing campaign that consists solely of prerecorded messages, 
therefore, would violate Sec.  310.4(b)(1)(iv) and would not satisfy 
the safe harbor.
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    \3\ The safe harbor provision is 16 CFR 310.4(b)(4).
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II. Voice Mail Broadcasting Corporation's Submission Regarding the 
TSR's Treatment of Telemarketing Calls To Deliver a Prerecorded Message 
to Consumers With Whom the Seller Has an Established Business 
Relationship

    Voice Mail Broadcasting Corporation (``VMBC'') submitted a request 
for an advisory opinion on the permissibility of prerecorded message 
telemarketing to consumers with whom the seller has an established 
business relationship.\4\ The Commission has decided to treat VMBC's 
request as a petition to amend the TSR under Sec.  1.25 of the FTC's 
Rules of Practice.\5\
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    \4\ Starz Encore Group, The Spoken Hub, Copilevitz & Canter, and 
SoundBite Communications also have written to the Commission seeking 
compliance advice about this issue.
    \5\ 16 CFR 1.25.
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    VMBC's submission pertains to the impact of Sec.  310.4(b)(1)(iv) 
on a telemarketer using a particular business model. As indicated 
above, that business model involves delivery of prerecorded telephone 
messages solely to consumers with whom the seller on whose behalf the 
telemarketing calls are performed has an ``established business 
relationship.''\6\ Additionally, under the business model in question, 
the prerecorded messages would give the called party an opportunity to 
assert an entity-specific Do Not Call request by speaking to a sales 
representative. The messages would either allow the called party to 
speak to a sales representative by pressing a button on the telephone 
keypad during the message, or, in the alternative, they would provide a 
toll-free number that the called party may call to speak to a sales 
representative.
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    \6\ 16 CFR 310.2(n). Under this definition, `` `[e]stablished 
business relationship' means a relationship between a seller and a 
consumer based on: (1) The consumer's purchase, rental, or lease of 
the seller's goods or services or a financial transaction between 
the consumer and seller, within the eighteen (18) months immediately 
preceding the date of a telemarketing call; or (2) the consumer's 
inquiry or application regarding a product or service offered by the 
seller, within the three (3) months immediately preceding the date 
of a telemarketing call.''
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    VMBC asserts that the harms that prompted inclusion of the call 
abandonment provisions in the TSR would not be present in campaigns 
conducted according to the business model described above. Those harms 
were (1) ``dead air'' calls, in which there is a prolonged period of 
silence between a consumer answering a call and the connection of that 
call to a sales representative; and (2) ``hang-up'' calls, in which 
telemarketers hang up on consumers whom they have called without 
speaking to them.\7\ Nothing inherent in telemarketing calls that 
deliver prerecorded messages to consumers with whom the seller has an 
established business relationship would cause ``dead air''; nor would 
such calls necessarily result in any ``hang-ups'' on consumers. In 
fact, it appears that using prerecorded messages to consumers with whom 
the seller has an established business relationship would enable a 
telemarketer to preclude completely some of the odious side effects of 
predictive dialers. For instance, using a prerecorded message would 
make it unnecessary to subject a consumer who has answered a call to 
``dead air'' time while waiting for a live sales representative to 
become available, or to a hang-up because no sales representative 
becomes available.
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    \7\ Statement of Basis and Purpose for the Amended TSR, 68 FR 
4580, 4641 (Jan. 29, 2003).
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    Moreover, the prerecorded messages in the business model VMBC 
describes would disclose the seller's identity in every call, so the 
seller would not be engaging in recorded message telemarketing under 
the cloak of anonymity. In fact, according to VMBC, because the 
messages in question would be delivered only to existing customers, the 
``strong incentive to protect the goodwill of customers'' would serve 
as a check on the potential for abuse.\8\
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    \8\ To support its assertion that consumers do not object to 
prerecorded message telemarketing when they have an established 
business relationship with the seller, VMBC states that in one 
typical campaign conducted for a major retailer, only .02 of 1% of 
the nearly 5.8 million calls resulted in the consumer asserting an 
entity-specific Do Not Call request.
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    VMBC points out that the Federal Communications Commission 
(``FCC'') telemarketing rules under the Telephone Consumer Protection 
Act (``TCPA'')--which largely parallel the Do Not Call and certain 
other of the TSR's provisions--have since the early 1990s permitted 
prerecorded message telemarketing to consumers with whom a seller has 
an established business relationship.\9\ In virtually all other 
circumstances, the TCPA rules broadly prohibit prerecorded message 
telemarketing.\10\
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    \9\ See 47 CFR 64.1200(a)(2)(iv). The FCC stated its rationale 
for retaining the established business relationship exemption when 
it revised its TCPA regulations last year, pursuant to the Do Not 
Call Implementation Act: ``We believe that while consumers may find 
prerecorded voice messages intrusive, such messages do not 
necessarily impose the same costs on the recipients as, for example, 
unsolicited facsimile messages. Therefore, we retain the exemption 
for established business relationship calls from the ban on 
prerecorded messages.'' 68 FR 44158 (]80) (July 25, 2003).
    \10\ The only other circumstance in which the TCPA permits 
prerecorded message telemarketing is in instances where the consumer 
has given prior consent. 47 CFR 64.1200(a)(6)(i).
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    VMBC points out that the FTC, in its Report to Congress Pursuant to 
the Do Not Call Implementation Act \11\ (``DNCIA Report''), discussed 
the difference between the TSR and the TCPA regulations with respect to 
the treatment of prerecorded message telemarketing in instances where 
the seller has an established business relationship with the called 
consumer. In its DNCIA Report, the Commission suggested that ``the 
incentive to nurture established business relationships may provide an 
adequate restraint on the growth of recorded message 
telemarketing.''\12\
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    \11\ Public Law No. 108-10, 117 Stat. 557. Section 4 of the 
DNCIA required, inter alia, that within 45 days after the 
promulgation of final revised TCPA regulations by the FCC, the FTC 
and the FCC each transmit to the House Committee on Energy and 
Commerce and the Senate Committee on Commerce, Science, and 
Transportation a report to include: an analysis of the telemarketing 
rules promulgated by the FTC; an analysis of the telemarketing rules 
promulgated by the FCC; a discussion of inconsistencies between the 
rules promulgated by the FTC and the FCC; a discussion of the effect 
of any inconsistencies on consumers, and persons paying for access 
to the registry; and proposals to remedy any such inconsistencies. 
The FTC's Report is accessible online at http://www.ftc.gov/os/2003/09/dnciareport.pdf.
    \12\ DNCIA Report, p. 35.
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A. The Importance of Preserving the Consumer's Ability To Assert a Do 
Not Call Request When Receiving a Prerecorded Message Telemarketing 
Call

    It appears that ``dead air'' and ``hang-up'' calls are unlikely to 
result from the business model VMBC describes. At the same time, the 
Commission recognizes that it may be more economical for companies to 
contact consumers via prerecorded messages rather than using live 
telemarketers, so the volume of commercial calls that consumers receive 
may increase. Accordingly, the Commission believes that, if allowed, 
telemarketing calls that deliver prerecorded messages to consumers with 
whom a seller has an established business relationship must preserve 
the ability of those consumers to assert their Do Not Call rights 
quickly, effectively,

[[Page 67289]]

and efficiently, so that consumers retain an effective right to decide 
whether to receive commercial calls, including prerecorded messages. 
Asserting an entity-specific Do Not Call request should be no more 
difficult in the case of prerecorded message telemarketing than it is 
in the case of telemarketing that uses live sales representatives. 
Although consumers who have placed their telephone numbers on the 
National Do Not Call Registry may receive telemarketing calls from 
sellers with whom they have an established business relationship, 
consumers may immediately request that their number be placed on the 
seller's entity-specific do not call list. This request prevents future 
calls from that seller. Consumers should have the same ability to 
immediately assert a Do Not Call request when they receive a 
prerecorded telemarketing call pursuant to the established business 
relationship exemption.
    When a consumer is contacted by a live sales representative, the 
consumer may interrupt the sales pitch immediately to make a Do Not 
Call request, and the sales representative must take that request 
without delay. The Commission believes that, similarly, prerecorded 
messages must present an entity-specific Do Not Call option immediately 
after the prompt disclosures required by Sec.  310.4(d) and (e) are 
delivered at the outset of the call.\13\ Nevertheless, the Commission 
seeks information and data about the costs and benefits of requiring 
that the disclosure of how to make a Do Not Call request be made at the 
outset of the call. The Commission also seeks information about 
alternative approaches that the Commission might use in this area and 
the costs and benefits of these alternatives.
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    \13\ Section 310.4(d) requires the following prompt oral 
disclosures in outbound commercial telemarketing calls: (1) The 
identity of the seller; (2) that the purpose of the call is to sell 
goods or services; (3) the nature of the goods or services; and (4) 
that no purchase or payment is necessary to be able to win a prize 
or participate in a prize promotion if a prize promotion is offered 
and that any purchase or payment will not increase the person's 
chances of winning. Section 310.4(e) requires the following oral 
disclosures in outbound charitable solicitation calls: (1) The 
identity of the charitable organization on behalf of which the 
request is being made; and (2) that the purpose of the call is to 
solicit a charitable contribution.
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    Moreover, the Commission believes that the Do Not Call option 
should allow consumers to assert their Do Not Call rights during the 
message. Although FCC rules allow prerecorded messages to provide a 
toll-free number that consumers may call to make a Do Not Call 
request,\14\ this requires consumers to be prepared with pen and paper 
at the ready when they answer the phone, to take down the number, and 
to place a separate call in order to assert a Do Not Call request. This 
approach encumbers consumers' assertions of company-specific Do Not 
Call rights.
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    \14\ See 47 CFR 64.1200(b)(2).
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    The business model described in VMBC's letter contemplates some 
prerecorded messages that would enable consumers to speak with a sales 
representative during the call by pressing a button on their telephone 
keypads. The Commission believes this type of interactive feature 
(pressing a button during the message to connect to a sales 
representative or an automated system to make a Do Not Call request) 
would be ideal in the established business relationship prerecorded 
message context as a means to protect consumers' Do Not Call rights 
under the TSR.
    The Commission has, therefore, incorporated this feature into the 
proposed amendment to the call abandonment safe harbor provision that 
would permit telemarketing calls to consumers with whom a seller has an 
established business relationship to deliver a prerecorded message. 
Nevertheless, the Commission seeks information and data about the 
technical feasibility and costs of implementing such a feature in 
outbound telemarketing calls that deliver prerecorded messages to 
established customers. The Commission also seeks comment on alternative 
methods of preserving the consumer's ability to assert a Do Not Call 
request when receiving a prerecorded message telemarketing call.

B. The Commission's Proposal To Amend the TSR's Call Abandonment Safe 
Harbor Provision To Permit Prerecorded Message Telemarketing to 
Consumers With Whom a Seller Has an Established Business Relationship

    Because the harms that the call abandonment provisions were 
intended to remedy seem unlikely to arise from calls made pursuant to 
the business model at issue in VMBC's petition, the Commission proposes 
to amend the TSR to add a new call abandonment safe harbor, as 
indicated below:
    (5) A seller or telemarketer initiating an outbound telephone call 
that delivers a prerecorded message to a person with whom the seller 
has an established business relationship will not be liable for 
violating 310.4(b)(1)(iv) if:
    (i) The seller or telemarketer, for each such telemarketing call 
placed, allows the telephone to ring for at least fifteen (15) seconds 
or four (4) rings before disconnecting an unanswered call;
    (ii) Within two (2) seconds after the person's completed greeting, 
the seller or telemarketer promptly plays a prerecorded message that:
    (a) Presents an opportunity to assert an entity-specific Do Not 
Call request pursuant to Sec.  310.4(b)(1)(iii)(A) at the outset of the 
message, with only the prompt disclosures required by Sec. Sec.  
310.4(d) or (e) preceding such opportunity; and
    (b) Complies with all other requirements of this Rule and other 
applicable federal and state laws.
    Proposed Sec.  310.4(b)(5) would create a new safe harbor for 
sellers and telemarketers calling consumers with whom the seller has an 
established business relationship for the purpose of delivering a 
prerecorded message. There are four criteria that a seller or 
telemarketer placing such calls would be required to meet to take 
advantage of the safe harbor and avoid liability for violating the 
TSR's prohibition against call abandonment in Sec.  310.4(b)(1)(iv). 
The first criterion is that the seller or telemarketer (1) must allow 
the telephone to ring for at least fifteen seconds or four rings before 
disconnecting an unanswered call. This ``ring time'' element is 
identical to the analogous element of the existing safe harbor in Sec.  
310.4(b)(4)(ii). The ring time standard is intended to give consumers, 
including the elderly or infirm who may struggle to get to the 
telephone, a reasonable opportunity to answer telemarketing calls while 
preventing the undesirable result of consumers' privacy being disrupted 
by ringing phones with no caller present on the other end of the line. 
The ring time standard is modeled on DMA's ethical guidelines for its 
members.\15\
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    \15\ Prior to adoption of the amended TSR, Article <greek-i>38 
of DMA's ethical guidelines recommended allowing the phone to ring 
at least four times or for twelve seconds before disconnecting a 
call. 68 FR 4580, 4644 (Jan. 29, 2003). Since adoption of the 
amended TSR, DMA has issued revised guidelines. Article <greek-i>45 
of these revised ethical guidelines now tracks the TSR in urging 
that ``[m]arketers using automated dialing equipment should allow 15 
seconds or 4 rings before disconnecting an unanswered call.'' http://www.the-dma.org/guidelines/ethicalguidelines.shtml#tele.
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    The second criterion of the proposed safe harbor is that the seller 
or telemarketer must play the prerecorded message within two seconds 
after the person's completed greeting. The purpose of this element of 
the safe harbor is to minimize ``dead air.'' This element follows the 
analogous element in Sec.  310.4(b)(4)(iii), allowing no more than two 
seconds of dead air. As noted, where there is no wait for a live sales 
representative because a prerecorded message is being delivered by a

[[Page 67290]]

machine, telemarketers should have no problem meeting this standard. 
The Commission, however, specifically seeks information on whether the 
maximum amount of dead air should be less than two seconds in the new 
safe harbor, since the rationale for allowing two seconds may be 
inapposite to telemarketing that uses prerecorded messages rather than 
live sales representatives. The Commission also seeks information on 
the relative costs and benefits of a standard that would set the 
maximum amount of dead air at a level lower than two seconds.
    The third criterion of the proposed new safe harbor is self-
explanatory. Its purpose is to ensure the same Do Not Call rights for 
consumers receiving telemarketing calls that deliver a prerecorded 
message that are enjoyed by consumers receiving telemarketing calls 
from live sales representatives. It requires that the prerecorded 
message present, ``at the outset,'' preceded only by the prompt oral 
disclosures required by the TSR, an opportunity for the called party to 
assert an entity-specific Do Not Call request pursuant to Sec.  
310.4(b)(1)(iii)(A).
    Under the business model VMBC describes, some telemarketing 
campaigns would employ messages with an entity-specific Do Not Call 
mechanism, providing the called party with an opportunity to speak to a 
sales representative during the message by pressing a button on the 
telephone keypad. This approach allows consumers to exercise their Do 
Not Call rights in a manner that closely tracks consumers' experience 
when called by a live sales representative, and would therefore satisfy 
the proposed safe harbor. The Commission seeks information about the 
costs to industry of requiring this mechanism in each message, and 
whether the costs are outweighed by the benefits to consumers who want 
to assert an entity-specific Do Not Call request immediately, without 
having to write down a toll-free number and call back.
    The fourth and final element of the proposed new safe harbor 
provision makes it explicit that it does not obviate or negate any 
other provision of the TSR or other federal or state laws. This 
proposed safe harbor provision would preserve consistency with the 
existing TSR safe harbor governing predictive dialers \16\ and put 
sellers and telemarketers on notice that other applicable regulations 
may be stricter than what the Commission's proposal provides.
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    \16\ Footnote 7 of the amended TSR states: ``This provision does 
not affect any seller's or telemarketer's obligation to comply with 
relevant state and federal laws, including but not limited to the 
TCPA, 47 U.S.C. 227, and 47 CFR part 64.1200.'' The final element of 
the proposed new safe harbor incorporates the same concept without 
duplicating this footnote.
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C. FTC Enforcement Policy Pending Completion of This Proceeding

    In consideration of VMBC's petition and similar requests from other 
parties, the Commission now believes that, under certain limited 
circumstances, enforcement of the call abandonment provision would 
serve only to deter conduct that does not cause the harms to consumers 
that prompted adoption of that provision. Therefore, the Commission has 
determined that, pending completion of this proceeding, the Commission 
will forbear from bringing any enforcement action for violation of the 
TSR's call abandonment prohibition, 16 CFR 310.4(b)(1)(iv), against a 
seller or telemarketer that places telephone calls to deliver 
prerecorded telemarketing messages to consumers with whom the seller on 
whose behalf the telemarketing calls are placed has an established 
business relationship, as defined in the TSR, provided the seller or 
telemarketer conducts this activity in conformity with the terms of the 
proposed amended call abandonment safe harbor. In the event the record 
that develops in this proceeding tends to disprove the Commission's 
tentative conclusions regarding prerecorded message telemarketing to 
consumers with whom the seller has an established business 
relationship, the Commission will announce a revised enforcement policy 
that will apply to subsequent enforcement actions.

III. DMA's Petition

    On May 18, 2004, DMA submitted a petition asking that the 
Commission ``revise its current method for calculating abandoned calls 
from a per day, per calling campaign measurement * * * to the per 30 
day measurement adopted by the Federal Communications Commission (FCC) 
in its revisions to its telemarketing rules * * *.''\17\ DMA states 
that ``meeting the 3% benchmark under the FTC's per day, per calling 
campaign standard presents a much greater compliance obstacle than 
meeting the FCC's abandoned call standard. Marketers who use predictive 
dialing technology are having difficulty configuring their software to 
comply with the FTC's per day, per calling campaign 3% standard.'' 
DMA's letter does not explain why this would be so. The letter, 
however, does quote a DMA member as follows:
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    \17\ DMA petition at 1 (available at http://www.ftc.gov/os/2004/10/041019dmapetition.pdf).

    The FTC requires the 3% abandon average per campaign per day, 
which is virtually impossible for vendors who run multiple campaigns 
each day. On a typical day, we may run more than 100 individual 
client campaigns. The system manages the efficiency as an average of 
all campaigns per day, so it is inevitable that certain logins would 
end the day at say, 3.1% and others at 2.9%, yet the overall average 
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would still be 3% or less.

Nevertheless, DMA's letter does not explain why a telemarketer's system 
cannot dynamically maintain a steady level of no more than three 
percent call abandonment for all calls being placed. In fact, the 
paragraph quoted above suggests that telemarketers engage in precisely 
the practice the Commission was concerned about when it adopted the 
``per day, per campaign'' method of calculating the maximum level of 
abandoned calls. The Commission stated:

    The ``per day per campaign'' unit of measurement is consistent 
with DMA's guidelines addressing its members' use of predictive 
dialer equipment. Under this standard, a telemarketer running two or 
more calling campaigns simultaneously cannot offset a six percent 
abandonment rate on behalf of one seller with a zero percent 
abandonment rate for another seller in order to satisfy the Rule's 
safe harbor provision. Each calling campaign must record a maximum 
abandonment rate of three percent per day to satisfy the safe 
harbor.\18\
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    \18\ 68 FR 4643 (Jan. 29, 2003) (footnotes omitted).

    DMA's petition concedes that ``the former DMA Guidelines for 
Ethical Business Practices (The DMA Guidelines) used the per day 
standard for the maximum number of abandoned calls per campaign that 
companies who use predictive dialing equipment must satisfy as a 
condition of membership in the DMA.'' DMA points to the fact that the 
permissible abandonment rate in the DMA Guidelines was five percent, 
instead of the three percent level incorporated in the TSR's call 
abandonment safe harbor. Nevertheless, DMA provides no facts to support 
the proposition that the per day per campaign method was feasible at a 
five percent level, but not at the three percent level.
    DMA mentions two other factors in support of its petition. The 
first factor is that the California Public Utilities Commission--whose 
three percent call abandonment rate the Commission cited in adopting 
the TSR's call abandonment safe harbor--measures abandoned calls on a 
per 30-day basis, according to DMA. Second, DMA argues the FTC

[[Page 67291]]

should defer to the FCC's determination on how the permissible call 
abandonment rate should be calculated, because the issue ``lies closer 
to the core expertise of the FCC than of the FTC.'' The Commission does 
not believe these factors are sufficient to require the requested 
change in the TSR. It is not impossible for entities subject to both 
the TSR and either the FCC's TCPA rules or the California Public 
Utilities Commission's rules to comply with both; compliance with the 
FTC's more precise standard would constitute acceptable compliance with 
either or both of those other sets of regulations. Moreover, recent 
court decisions controvert DMA's argument that the FTC's expertise or 
legal authority regarding the acceptable level of call abandonment is 
inferior to that of the FCC.\19\
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    \19\ Mainstream Mktg. Serv., Inc. v. FTC, 283 F. Supp. 2d 1151, 
1170 (D. Colo. 2003) (``[T]he court finds no basis to conclude that 
the FCC has exclusive jurisdiction to regulate the practice of 
abandoning calls''); U.S. Security v. FTC, 282 F. Supp. 2d 1285, 
1292 (W.D. Okla. 2003) (``The [TSR's] restriction on abandoned calls 
is a permissible regulation of this most (and undisputedly) invasive 
and abusive practice, and its promulgation, which is in no way 
hindered or hobbled by the FCC's grant of authority, has carried 
into effect congressional intent as expressed by the [Telemarketing 
Act]''); Nat'l. Fed'n. of the Blind v. FTC, 303 F. Supp. 2d 707 at 
716 (D. Md. 2004).
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    DMA provides no information that would tend to counter the concern 
about the shortcomings of a ``per 30-day'' standard that the Commission 
set forth at length in its DNCIA Report.\20\ The concern is that the 
FCC's approach to measuring the three percent call abandonment rate 
over a 30-day period could enable telemarketers to target call 
abandonments at certain less valued groups of consumers, resulting in 
their receipt of more than their share of abandoned calls. Under such a 
scenario, predictive dialers could be set to abandon calls at a higher 
rate to one subset of the population and a lower rate to another subset 
of the population. For example, a telemarketer could offset a high 
abandonment rate in a multi-day cold-call campaign to persons who never 
previously purchased from the seller, and make up the difference by 
abandoning no calls in a subsequent campaign targeting its most valued 
existing customers. Telemarketers could also offset a high abandonment 
rate in low income zip codes and make up the difference by abandoning 
no calls in affluent ones. The FTC's per day per campaign measure 
reduces the potential for concentrating abuse by ensuring an even 
distribution of abandoned calls to all segments of the public, 
regardless of their purchasing history or demographic characteristics. 
Given the detrimental impact of call abandonment on consumers, the FTC 
does not believe that variations in telemarketing campaigns (such as 
calling times, number of operators available, and the number of 
telephone lines used by the call centers) justify allowing call 
abandonment to fall disproportionately on particular groups of 
consumers.
---------------------------------------------------------------------------

    \20\ DNCIA Report, p. 31.
---------------------------------------------------------------------------

    Therefore, the Commission believes that DMA has not provided an 
adequate factual basis that would compel modification of the TSR's 
method for measuring the maximum allowable abandonment rate. 
Nonetheless, the Commission is receptive to any factual information 
that would establish that such a change is warranted, and encourages 
commenters to include such information in their submissions. In 
particular, the Commission is interested in any elaboration on the 
problems telemarketers who are running multiple campaigns at the same 
time face in attempting to comply with the current requirement. The 
Commission is also interested in any information demonstrating that 
callers who make a relatively small number of calls per day may be 
differentially disadvantaged by the current requirements. Finally, the 
Commission seeks information and data demonstrating that it need not be 
concerned that, if additional flexibility were provided, telemarketers 
would intentionally set the abandonment rates above 3 percent on some 
campaigns or on calls directed to certain consumers and use lower rates 
of abandonment on other campaigns or calls to satisfy the overall 3 
percent requirement.

IV. Invitation To Comment

    All persons are hereby given notice of the opportunity to submit 
written data, views, facts, and arguments addressing the issues raised 
by this Notice. Written comments must be received on or before January 
10, 2005. Comments should refer to: ``Prerecorded Message EBR 
Telemarketing, Project No. R411001'' to facilitate the organization of 
comments. A comment filed in paper form should include this reference 
both in the text and on the envelope, and should be mailed or delivered 
to the following address: Federal Trade Commission/Office of the 
Secretary, Room H-159 (Annex K), 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. If the comment contains any material for which 
confidential treatment is requested, it must be filed in paper (rather 
than electronic) form, and the first page of the document must be 
clearly labeled ``Confidential.'' \21\ The FTC is requesting that any 
comment filed in paper form be sent by courier or overnight service, if 
possible, because U.S. postal mail in the Washington area and at the 
Commission is subject to delay due to heightened security precautions.
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    \21\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record.
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    To ensure that the Commission considers an electronic comment, you 
must file it on the Web-based form at the https://secure.commentworks.com/ftc-tsr Weblink. You may also visit http://www.regulations.gov to read this proposed Rule, and may file an 
electronic comment through that Web site. The Commission will consider 
all comments that regulations.gov forwards to it.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments that it receives, whether filed in paper or electronic 
form. Comments received will be available to the public on the FTC Web 
site, to the extent practicable, at http://www.ftc.gov. As a matter of 
discretion, the FTC makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC Web site. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

V. Communications by Outside Parties to Commissioners or Their Advisors

    Written communications and summaries or transcripts of oral 
communications respecting the merits of this proceeding from any 
outside party to any Commissioner or Commissioner's advisor will be 
placed on the public record. See 16 CFR 1.26(b)(5).

VI. Paperwork Reduction Act

    The information collection requirements contained in the TSR were 
reviewed by OMB under the Paperwork Reduction Act and cleared on July 
24, 2003, under OMB Control Number 3084-0097. The proposed rule 
amendment, as discussed above, provides a safe harbor from the TSR's 
prohibition on call abandonment for sellers and telemarketers that call 
only

[[Page 67292]]

consumers with whom the seller has an established business 
relationship, as defined in the Rule. Thus, the proposed rule amendment 
does not impose any new, or affect any existing, record submission, 
recordkeeping, or public disclosure requirement that would be subject 
to review and approval by OMB pursuant to the Paperwork Reduction Act, 
44 U.S.C. 3501-3520.

VII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612, 
requires an agency to provide an Initial Regulatory Flexibility 
Analysis (``IRFA'') with a proposed rule and a Final Regulatory 
Flexibility Analysis (``FRFA'') with the final rule, if any, unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities. See 5 U.S.C. 603-605.
    The Commission has determined that it is appropriate to publish an 
IRFA in order to inquire into the impact of the proposed rule on small 
entities. Therefore, the Commission has prepared the following 
analysis.

A. Reasons for the Proposed Rule

    The proposed modification of the TSR, discussed above, responds to 
requests from the telemarketing industry to provide a safe harbor to 
allow sellers and telemarketers calling persons with whom the seller 
has an established business relationship to deliver a prerecorded 
message.

B. Statement of Objectives and Legal Basis

    The objectives of the proposed rule are discussed above. The legal 
basis for the proposed rule is the Telemarketing and Consumer Fraud and 
Abuse Prevention Act, 15 U.S.C. 6102.

C. Description of and, Where Feasible, an Estimate of the Number of 
Small Entities to Which the Proposed Rule Will Apply

    This proposed rule will impact sellers that make interstate 
telephone calls to consumers (outbound calls) with whom the seller has 
an established business relationship for the purpose of delivering a 
prerecorded message in an attempt to sell their products or services. 
Also affected may be firms that provide prerecorded message 
telemarketing services to others on a contract basis. For the majority 
of entities subject to the proposed rule, a small business is defined 
by the Small Business Administration as one whose average annual 
receipts do not exceed $6 million or that has fewer than 500 
employees.\22\
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    \22\ These numbers represent the size standards for most retail 
and service industries ($6 million total receipts) and manufacturing 
industries (500 employees). A list of the SBA's size standards for 
all industries can be found at http://www.sba.gov/size/summary-whatis.html.
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    In the proceedings to amend the TSR in 2002, the Commission sought 
public comment and information on the number of small business sellers 
and telemarketers that would be impacted by those amendments, which 
were broader in scope than those at issue in the instant proceeding. In 
its requests, the Commission noted the lack of publicly available data 
regarding the number of small entities that might be impacted by the 
proposed Rule.\23\ The Commission received no information in response 
to its requests.\24\
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    \23\ See 68 FR 4580, 4667 (Jan. 29, 2003) (noting that Census 
data on small entities conducting telemarketing does not distinguish 
between those entities that conduct exempt calling, such as survey 
calling, those that receive inbound calls, and those that conduct 
outbound calling campaigns. Moreover, sellers who act as their own 
telemarketers are not accounted for in the Census data.).
    \24\ See 68 FR 4580, 4667 (Jan. 29, 2003): 68 FR 45134, 45143 
(July 31, 2003) (noting, in the final amended rules, that comment 
was requested, but not received, regarding the number of small 
entities subject to the National Do Not Call Registry provisions of 
the amended TSR).
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    The requests for clarification regarding the operation of the 
abandoned call provision of the TSR that have led to this rulemaking 
proceeding provide no data regarding the number of small entities that 
may be affected by the outcome of the proceeding. Based on the absence 
of available data in this and related proceedings, the Commission 
believes that a precise estimate of the number of small entities that 
fall under the proposed rule is not currently feasible, and 
specifically requests information or comment on this issue.

D. Description of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Proposed Rule

    The proposed rule does not impose any new, or affect any existing, 
reporting, disclosure, or specific recordkeeping requirements within 
the meaning of the Paperwork Reduction Act. The Commission does not 
believe that modifying the Rule to create a safe harbor that would 
allow sellers and telemarketers calling to deliver a prerecorded 
message to persons with whom they have an established business 
relationship will create a significant burden on sellers or 
telemarketers that have already established systems to comply with the 
existing TSR. The Commission also does not believe that this 
modification of the Rule will increase or otherwise modify any existing 
compliance costs, and may in fact reduce them for small entities that 
are able to take advantage of the safe harbor.

E. Identification of Other Duplicative, Overlapping, or Conflicting 
Federal Rules

    The FTC has not identified any other federal statutes, rules, or 
policies that would conflict with the proposed safe harbor that would 
allow telemarketing calls that deliver a prerecorded message to persons 
with whom the seller has an established business relationship. The FCC 
rules pursuant to the TCPA contain a safe harbor that allows 
telemarketing calls that deliver a prerecorded message to persons with 
whom the seller has an established business relationship. The FTC's 
proposed modification would harmonize the TSR to the FCC's TCPA rules 
on this issue. With respect to the issue of calculating callers' 
abandonment rate on a ``per day'' or ``per 30-day'' basis, the FTC does 
not propose to modify its Rule to make it consistent with the relevant 
FCC TCPA rule. As explained in Section III above, compliance with the 
FTC's more precise standard would constitute acceptable compliance with 
the FCC rule, so there is no conflict between these rules.

F. Discussion of Significant Alternatives to the Proposed Rule That 
Would Accomplish the Stated Objectives and Minimize Any Significant 
Economic Impact of the Proposed Rule on Small Entities

    The proposed safe harbor would allow telemarketing calls that 
deliver a prerecorded message to persons with whom the seller has an 
established business relationship, but require that the prerecorded 
message include an opportunity during the call for the recipient of the 
call to assert an entity-specific Do Not Call request. Other regulatory 
options under consideration include requiring instead that the 
prerecorded message include a toll-free number that call recipients 
could contact to assert an entity-specific Do Not Call request. Also, 
the proposed safe harbor requires that the prerecorded message begin 
within two seconds after the recipient of the call completes his or her 
greeting. Other regulatory options under consideration include 
requiring that the prerecorded message begin sooner than two seconds 
after the recipient of the call completes his or her greeting. The 
proposed safe harbor is intended to be available to all entities 
subject to the Rule, and it does not

[[Page 67293]]

appear that a delayed effective date for small entities or other 
alternatives to the current proposal would either be appropriate or 
necessarily result in any further reduction in the compliance burdens 
of the Rule for small entities. The Commission nonetheless seeks 
comments and information on what other alternative formulations, if 
any, of the proposed safe harbor might further minimize compliance 
burdens for small entities, without compromising the intent and purpose 
of the Rule to prevent abusive telemarketing practices.

VIII. Specific Issues for Comment

    The Commission seeks comment on various aspects of the proposed 
amendment to the call abandonment safe harbor provision of the TSR. 
Without limiting the scope of issues on which it seeks comment, the 
Commission is particularly interested in receiving comments on the 
questions that follow. In responding to these questions, include 
detailed, factual supporting information whenever possible.

A. General Questions for Comment

    Please provide comment, including relevant data, statistics, 
consumer complaint information, or any other evidence, on (a) the 
proposed safe harbor to allow telemarketing calls that deliver a 
prerecorded message to persons with whom the seller has an established 
business relationship, and (b) DMA's request to substitute a ``per 30-
day period'' for the current ``per day per campaign'' method of 
measuring the maximum allowable rate of call abandonment under the 
existing safe harbor in 16 CFR 310.4(b)(4)(i). Please include answers 
to the following questions:
    1. What is the effect (including any benefits and costs), if any, 
on consumers?
    2. What is the impact (including any benefits and costs), if any, 
on individual firms that must comply with the Rule?
    3. What is the impact (including any benefits and costs), if any, 
on industry, including those who may be affected by these proposals but 
not obligated to comply with the Rule?
    4. What changes, if any, should be made to the proposed Rule to 
minimize any cost to industry, individual firms that must comply with 
the Rule, or consumers?
    5. How would each suggested change affect the benefits that might 
be provided by the proposed Rule to industry, individual firms that 
must comply with the Rule, or consumers?
    6. How would the proposed Rule affect small business entities with 
respect to costs, profitability, competitiveness, and employment?

B. Questions on Proposed Specific Provisions

    In response to each of the following questions, please provide: (1) 
Detailed comment, including data, statistics, consumer complaint 
information, and other evidence, regarding the issue referred to in the 
question; (2) comment as to whether the proposed changes do or do not 
provide an adequate solution to the problems they were intended to 
address, and why; and (3) suggestions for additional changes that might 
better maximize consumer protections or minimize the burden on 
industry.
    1. Are ``hang-up'' calls and ``dead air''--the two harms that 
prompted adoption of the current call abandonment provisions--likely to 
arise from telemarketing calls that deliver a prerecorded message to 
consumers with whom the seller has an established business 
relationship? Are there other consumer harms that may result from such 
calls, and if so, what are they? Could the proposed safe harbor be 
crafted to eliminate such harms, and if so, how? If not, why not?
    2. What are the costs and benefits to consumers of receiving 
telemarketing calls from companies with whom they have an established 
business relationship via prerecorded messages as opposed to live sales 
representatives? Is there any data as to how many consumers choose to 
act on the telemarketing calls that they receive via prerecorded 
messages? Is it likely that consumers will receive more telemarketing 
calls under this proposed new safe harbor in Sec.  310.4(b)(5)? Is it 
likely that consumers will receive more unwanted telemarketing calls 
under this proposed new safe harbor?
    3. What are the costs and benefits of obtaining consumers' prior 
consent before contacting them with prerecorded telemarketing messages?
    4. Is there any data as to how many consumers choose to opt out of 
prerecorded telemarketing calls currently? What mechanisms are used to 
allow consumers to opt out of prerecorded telemarketing messages? At 
what point in the course of the message are consumers given the 
opportunity to opt out? Does the industry follow a standard practice as 
to when in the call a consumer must be given the opportunity to opt 
out?
    5. How much, if any, ``dead air'' should be permitted between the 
completion of the answering consumer's greeting and the beginning of 
the prerecorded message in the proposed new call abandonment safe 
harbor for telemarketing calls delivering a prerecorded message to 
consumers with whom the seller has an established business 
relationship? Because using prerecorded messages obviates the need to 
wait for an available live sales representative, is there any reason 
that the prerecorded message could not start less than two seconds 
after completion of the answering consumer's greeting? What would be 
the costs and benefits of starting the prerecorded message less than 
two seconds after completion of the answering consumer's greeting?
    6. What would be the costs to industry of requiring that each 
prerecorded message include a mechanism that would enable the consumer 
receiving the call to assert a Do Not Call request during the call, for 
example, by pressing a number on the keypad, or by stating aloud the 
wish not to receive future calls? Specifically, what would be the 
incremental expense of such a requirement? What would be the overall 
costs and benefits to consumers of such a requirement? What would be 
the comparative costs and benefits to industry and consumers of 
providing a toll-free number in a prerecorded message that call 
recipients could call to assert a Do Not Call request? Are there other 
alternative means of preserving the consumer's ability to assert a Do 
Not Call request that would strike a better balance of costs and 
benefits than requiring an opportunity during the prerecorded message 
to assert a Do Not Call request?
    7. Is it appropriate that the proposed new safe harbor in Sec.  
310.4(b)(5) specifies that the seller or telemarketer must use a 
prerecorded message that presents an opportunity to assert an entity-
specific Do Not Call request at the outset of the message, with only 
the prompt disclosures required by Sec.  310.4(d) or (e) preceding it? 
Why or why not? What are the costs and benefits of this approach? In 
the alternative, would it be better to specify that the information 
about how to assert an entity-specific Do Not Call request be given 
within a certain length of time after the beginning of the pre-recorded 
message? If so, how much time should be allowed before the information 
must be given? What are the costs and benefits of this approach?
    8. Does the proposed new safe harbor in Sec.  310.4(b)(5) provide 
industry with sufficient guidance as to the circumstances under which 
prerecorded message telemarketing calls would be permissible? If not, 
how could the provision be crafted to accomplish that purpose more 
effectively?
    9. Would the proposed new safe harbor in Sec.  310.4(b)(5) 
complicate

[[Page 67294]]

enforcement efforts against a seller or telemarketer who violates the 
TSR and claims falsely that it has an established business relationship 
with called consumers?
    10. Is it appropriate that the proposed new safe harbor in Sec.  
310.4(b)(5) specifies that the seller or telemarketer must allow the 
telephone to ring for at least fifteen seconds or four rings before 
disconnecting an unanswered call? If not, is there some other more 
appropriate element that should be included in the safe harbor to 
preclude the problem of premature ``hang-ups'' before consumers can 
reach the telephone?
    11. Is it appropriate that the proposed new safe harbor in Sec.  
310.4(b)(5) specifies that the seller or telemarketer must comply with 
all other requirements of the TSR and other applicable federal and 
state laws? If not, why not?
    12. Is the burden on telemarketers in meeting the three percent 
maximum abandoned call level per day per telemarketing campaign 
outweighed by benefits to consumers in having call abandonment 
distributed evenly at a uniformly low level to all called consumers? 
What, if any, characteristics of the telemarketing equipment currently 
in use might make compliance with the ``per day per campaign'' standard 
problematic? What, if any, costs would result from having the equipment 
adjusted or replaced to eliminate problems?
    13. According to DMA, ``marketers who use predictive dialing 
technology are having difficulty configuring their software to comply 
with the FTC's per day, per calling campaign 3% [maximum abandoned 
call] standard.'' Is this statement accurate? If so, why? And if so, 
how widespread is this difficulty? If this statement is not accurate, 
why not? Were similar problems encountered in meeting the DMA's former 
guideline of no more than five percent of calls abandoned per day per 
telemarketing campaign? Why or why not?
    14. If the three percent maximum call abandonment rate were 
measured over a 30-day period, instead of per day per telemarketing 
campaign, what effect, if any, would this change have on actual call 
abandonment rates? What would prevent a telemarketer from targeting 
call abandonments at certain less valued groups of consumers, resulting 
in their receipt of more than their share of abandoned calls? What 
would prevent setting predictive dialers to abandon calls at a higher 
rate to one subset of the population and a lower rate to another subset 
of the population? Is it appropriate that some segments of the 
population should be subjected to a higher rate of call abandonment 
than other segments of the population? If so, why?
    15. Can telemarketing equipment be programmed to dynamically 
maintain a steady level of no more than three percent call abandonment 
for all calls being placed? What, specifically, is the equipment that 
has that capacity to be programmed in such a manner, if any? What are 
the costs associated with this equipment?

IX. Proposed Rule

List of Subjects in 16 CFR Part 310

    Telemarketing, Trade practices.

    Accordingly, the Commission proposes to amend title 16, Code of 
Federal Regulations, as follows:

PART 310--TELEMARKETING SALES RULE

    1. The authority citation for part 310 continues to read as 
follows:

    Authority: 15 U.S.C. 6101-6108.

    2. Amend Sec.  310.4 by adding a new paragraph (b)(5).


Sec.  310.4  Abusive telemarketing acts or practices.

    * * *
    (b) * * *
    (5) A seller or telemarketer initiating an outbound telephone call 
that delivers a prerecorded message to a person with whom the seller 
has an established business relationship will not be liable for 
violating Sec.  310.4(b)(1)(iv) if:
    (i) The seller or telemarketer, for each such telemarketing call 
placed, allows the telephone to ring for at least fifteen (15) seconds 
or four (4) rings before disconnecting an unanswered call;
    (ii) Within two (2) seconds after the person's completed greeting, 
the seller or telemarketer promptly plays a prerecorded message that:
    (A) Presents an opportunity to assert an entity-specific Do Not 
Call request pursuant to Sec.  310.4(b)(1)(iii)(A) at the outset of the 
message, with only the prompt disclosures required by Sec.  310.4(d) or 
(e) preceding such opportunity; and
    (B) Complies with all other requirements of this part and other 
applicable federal and state laws.\8\ * * *
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    \8\ This provision does not affect any seller's or 
telemarketer's obligation to comply with relevant state and federal 
laws, including but not limited to the TCPA, 47 U.S.C. 227, and 47 
CFR part 64.1200.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 04-25470 Filed 11-16-04; 8:45 am]
BILLING CODE 675-01-P