UNITED STATES OF AMERICA
Federal Trade Commission
WASHINGTON, D.C. 20580

atts

Monica E. Vaca
Acting Associate Director
Division of Marketing Practices

November 5, 2014

Ms. Karen J. Meyers, Assistant Attorney General
Director, Consumer Protection Division

Office of New Mexico Attorney General

111 Lomas Boulevard — Suite 300

Albuquerque, NM 87102

Dear Ms. Meyers:

You have requested our opinion on whether the Telemarketing Sales Rule (“TSR”)
applies to a business model in which a seller mails promotional materials that it labels “catalogs”
to solicit inbound calls from consumers to purchase the seller’s debt relief services. The seller’s
materials, such as the example enclosed with your request, offer several debt relief plans, each of
which asks consumers to “Call for Custom Price.”

Your request describes a scenario in which a consumer who calls the number listed in the
catalog (and also in some cases in a cover letter or additional promotional materials') cannot
purchase a debt relief plan during that call, even if the consumer agrees to do so. This is because
the seller provides the consumer with an enrollment packet after the call by postal mail, email,
fax or website. The packet includes a welcome kit and enrollment agreement that the consumer
must sign and return to complete a purchase. The packet also provides the first disclosures to the
consumer of all the terms and conditions for using the seller’s debt relief services.

As you know, the definition of “telemarketing” in the Telemarketing and Consumer
Fraud and Abuse Prevention Act of 1994 (“Telemarketing Act” or “Act”), which directed the
Commission to issue the TSR,” expressly excludes catalog sales.’ The Act defines telemarketing
as “a plan, program, or campaign which is conducted to induce purchases of goods or services,
or a charitable contribution, donation, or gift of money or any other thing of value, by use of one

' You note that a recent court decision, New Mexico ex rel. King v. Credit Arbitrators, LLC, Civ.
No. 12-16 (D. N.M. Mar. 26, 2014), held that the TSR’s debt relief requirements apply to a seller
that mails a debt relief catalog together with a cover letter or other promotional materials that
solicit inbound calls to a specified number. The same reasoning and holding apply with equal
force, in staffs view, to any mailing of promotional materials apart from a catalog that solicit
inbound calls from consumers to the seller’s telephone number.

2 15 U.S.C. §§ 6101-1606.

3 15 U.S.C. § 6102(a)(1).

4 15US.C. § 6106(4).


Ms. Karen Meyers
Page 2 of 3

or more telephones and which involves more than one interstate telephone call.* The next
sentence of the definition then limits the Commission’s authority to apply the TSR to catalog
sales as follows:

The term does not include the solicitation of sales through the mailing of a
catalog which: contains a written description or illustration of the goods or
services offered for sale; includes the business address of the seller; includes
multiple pages of written materials or illustrations; and has been issued not less
frequently than once a year, where the person making the solicitation does not
solicit customers by telephone but only receives calls initiated by customers in
response to the catalog and during those calls takes orders only without
further solicitation.°

The question you pose is whether this statutory exclusion prevents application of the TSR’s debt
relief requirements to the business model described above.’ In staff's opinion, it does not and the
TSR would apply.

The statutory language unquestionably excludes legitimate mail order catalog sellers
from the requirements of the TSR when a consumer can complete his or her order during the
initial call. For instance, this would occur when the seller takes the order, verifies payment, and
completes the sale before the consumer hangs up.* In contrast, consumers cannot complete an
order for debt relief services during a call responding to a catalog offer under the business model
you describe. The text of the exclusion specifies that it is available to a catalog seller when it
“takes orders only without further solicitation” during a consumer’s call. By contrast, if the sales
transaction cannot be completed during the call, the catalog sales exclusion would be
unavailable.

* 15 U.S.C. 6106(4).

® Id. (emphasis added). The definition of telemarketing in the TSR tracks the statutory
exclusion. 16 C.F.R. §310.2(dd).

7 Although the TSR generally exempts inbound calls initiated by a consumer in response to a
direct mail solicitation, this exemption does not extend to calls in response to offers of “debt
relief services.” 16 C.F.R. § 310.6(b)(6). The exemption also requires that a qualifying direct
mail solicitation disclose ‘tall material information listed in § 310,3(a)(1),” rather than deferring
those disclosures to an enrollment packet sent to a consumer only after the call.

® While we have been unable to find any discussion of the exclusion in the legislative history of
the Act, there are multiple statements that Congress intended the Act to protect not only
consumers but also legitimate businesses engaged in telemarketing. E.g.,S. REP. NO. 103-80, at
2 (1993) (“The effects of telemarketing fraud are felt throughout the Nation, and both consumers
and legitimate telemarketers are impacted.”); H.R. REP. NO. 103-20, at 2 (1993) (“The
legislation strikes an equitable balance between the interest of stopping deceptive (including
fraudulent) and abusive telemarketing activities and not unduly burdening legitimate
businesses.”); 140 CONG. REC. H6158-06 (1994) (statement of Rep. Swift) (“The telemarketing
bill does not impose further regulations on the legitimate telemarketing industry.”).


Ms. Karen Meyers
Page 3 of 3

Furthermore, because the communications between the consumer and seller go beyond
mere order taking, and must continue after the initial call to complete an order, the business
model you describe involves “further solicitation” and is therefore outside the scope of the
exemption. Indeed, the fact that the catalog you describe provides no prices for its debt relief
offerings makes it clear that the seller must engage in “further solicitation” during a consumer’s
initial call, Without being able to determine the price of the seller’s debt relief plans from its
catalog, consumers cannot be prepared to make a purchase when they call, much less decide
which of the seller’s plans to buy, in the absence of “further solicitation.”

For the foregoing reasons, it is staff's opinion that neither the statutory exclusion in the
Telemarketing Act, nor the parallel definition of “telemarketing” in the TSR, shield a seller using
the debt relief business model you describe from the requirement to comply with the debt relief
provisions of the TSR. Any failure to comply with those provisions, including the prohibition in
section 310.4(a)(5) against collecting any fees for debt relief services until the promised debt
relief services have been provided, may subject the seller to an enforcement action seeking civil
penalties of up to $16,000 for each violation.”

Please be advised that the views expressed in this letter are those of the FTC staff. They
have not been reviewed, approved, or adopted by the Commission, and are not binding on the
Commission. However, they reflect the opinion of the staff charged with enforcement of the
TSR.

Respectfully yours,
Nyy.
“pus
Monica E. Vaca
Acting Associate Director for Marketing Practices

° 16 CER. § 310.4(a)(5).

'© Civil penalties for trade regulation rule enforcement actions are authorized by 15 U.S.C.

§ 5(m)(1)(A). As required by the Federal Civil Penalties Inflation Adjustment Act of 1990
(FCPIAA), 28 U.S.C. 2461 note, as amended by the Debt Collection Improvement Act of 1996,
Public Law 104-134, § 31001(s)(1), 110 Stat. 1321-373, the penalty for violations of 15 U.S.C.
§ 5(m)(1)(A) was most recently adjusted for inflation in 2009. 74 Fed. Reg. 857 (Jan. 9, 2009).