[Federal Register Volume 60, Number 30 (Tuesday, February 14, 1995)]
[Proposed Rules]
[Pages 8313-8333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3537]



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FEDERAL TRADE COMMISSION
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'') proposes to implement the Telemarketing and Consumer 
Fraud and Abuse Prevention Act (``Telemarketing Act'' or ``the Act''). 
Section 3 of the Act directs the FTC to prescribe rules, within 365 
days of enactment of the Act, prohibiting deceptive telemarketing acts 
or practices and other abusive telemarketing acts or practices.

DATES: Written comments must be submitted on or before March 31, 1995. 
Due to the time constraints of this rulemaking proceeding, the 
Commission does not contemplate any extensions of this comment period 
or any additional periods for written comment or rebuttal comment.
    Following the period for written comments, Commission staff plan to 
conduct a Public Workshop Conference to afford Commission staff and 
interested parties an opportunity to explore and discuss issues raised 
during the comment period. Notification of interest in representing an 
affected, interested party at the Public Workshop-Conference must be 
submitted on or before March 6, 1995. A list of affected interests 
appears in Section D of the Supplementary Information section.
    The Public Workshop-Conference will be held in Chicago, Illinois on 
April 18 through 20, 1995, from 9 a.m. until 5 p.m. each day.

ADDRESSES: Five paper copies of each written comment should be 
submitted to the Office of the Secretary, Room 159, Federal Trade 
Commission, Washington, DC 20580. To encourage prompt and efficient 
review and dissemination of the comments to the public, all comments 
also should be submitted, if possible, in electronic form, on either a 
5\1/4\ or a 3\1/2\ inch computer disk, with a label on the disk stating 
the name of the commenter and the name and version of the word 
processing program used to create the document. (Programs based on DOS 
are preferred. Files from other operating systems should be submitted 
in ASCII text format to be accepted.) Individuals filing comments need 
not submit multiple copies or comments in electronic form. Submissions 
should be captioned: ``Proposed Telemarketing Sales Rule,'' FTC File 
No. R411001.
    Notification of interest in the Public Workshop-Conference should 
be submitted in writing to Carole Danielson, Division of Marketing 
Practices, Federal Trade Commission, Washington, D.C. 20580.
    The Public Workshop-Conference will be held in Chicago, Illinois, 
at the Chicago Hilton Hotel, 720 South Michigan Avenue, Chicago, 
Illinois 60605.

FOR FURTHER INFORMATION CONTACT: David M. Torok, (202) 326-3140, or 
Judith M. Nixon, (202) 326-3173, Division of Marketing Practices, 
Bureau of Consumer Protection, Federal Trade Commission, Washington, DC 
20580.

SUPPLEMENTARY INFORMATION:

Section A. Background

    On August 16, 1994, the President signed into law the Telemarketing 
Act, Public Law No. 103-297. In enacting the Telemarketing Act, 
Congress made the following findings, set forth in section 2 of the 
Act:<SUP>1

    \1\15 U.S.C. 6101.
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    (1) Telemarketing differs from other sales activities in that it 
can be carried out by sellers across State lines without direct contact 
with the consumer. Telemarketers also can be very mobile, easily moving 
from State to State.
    (2) Interstate telemarketing fraud has become a problem of such 
magnitude that the resources of the Federal Trade Commission are not 
sufficient to ensure adequate consumer protection from such fraud.
    (3) Consumers and others are estimated to lose $40 billion a year 
in telemarketing fraud.
    (4) Consumers are victimized by other forms of telemarketing 
deception and abuse. [[Page 8314]] 
    (5) Consequently, Congress should enact legislation that will offer 
consumers necessary protection from telemarketing deception and abuse.
    Based on the above findings, Congress directed the Commission to 
issue a rule, within 365 days from the date of enactment of the Act, 
prohibiting deceptive and abusive telemarketing acts and 
practices.<SUP>2 The Act specifies that the rule shall contain a 
definition of deceptive telemarketing acts or practices.<SUP>3 
According to the statute, this definition may include acts or practices 
of entities or individuals that assist or facilitate deceptive 
telemarketing, including credit card laundering.<SUP>4 The Act further 
specifies that, in order to prohibit other abusive acts or practices, 
the rule shall include:

    \2\15 U.S.C. 6102(b).
    \3\15 U.S.C. 6102(a)(2).
    \4\Id.
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    (1) A requirement prohibiting a pattern of unsolicited telephone 
calls which the reasonable consumer would consider coercive or abusive 
of such consumer's right to privacy;
    (2) Restrictions on the hours when unsolicited telephone calls can 
be made to consumers; and
    (3) A requirement that telemarketers promptly and clearly disclose 
to the person receiving the call that the purpose of the call is to 
sell goods or services, and make any other disclosures the Commission 
deems appropriate, including the nature and price of the goods or 
services being sold.<SUP>5 The Act also directs the Commission to 
consider recordkeeping requirements.<SUP>6

    \5\15 U.S.C. 6102(a)(3).
    \6\Id.
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    Enforcement actions for violations of the final rule will be 
brought by the Commission in the same manner as for other rules with 
respect to unfair or deceptive acts or practices under section 5 of the 
FTC Act.<SUP>7 In addition, Section 4 of the Telemarketing Act<SUP>8 
authorizes the attorneys general of the States to enforce compliance 
with the final rule by instituting Federal court enforcement actions, 
after serving prior written notice upon the Commission when feasible. 
Moreover, Section 5 of the Telemarketing Act<SUP>9 authorizes actions, 
in Federal district court, by private persons adversely affected by any 
pattern or practice of telemarketing which violates the final rule, 
where the amount in controversy exceeds $50,000 in actual damages for 
each such person. As with State actions, such private persons must give 
prior written notice to the Commission, when feasible.

    \7\15 U.S.C. 45. The Telemarketing Act provides that the FTC 
rule shall be treated as a rule issued under section 18(a)(1)(B) of 
the FTC Act, 15 U.S.C. 57a(a)(1)(B).
    \8\15 U.S.C. 6103.
    \9\15 U.S.C. 6104.
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    Section B of this notice discusses the proposed rule that the 
Commission has drafted pursuant to the Telemarketing Act.

Section B. Discussion of the Proposed Rule

Section 310.1  Scope of the Regulations

    Section 310.1 states that this part implements the Telemarketing 
Act, and shall be referred to as the ``Telemarketing Sales Rule.''

Section 310.2  Definitions

    Section 310.2 of the proposed rule defines the following terms: 
Acquirer; attorney general; business venture; cardholder; Commission; 
credit card; credit card sales draft; credit card system; customer; 
goods or services; investment opportunity; material; merchant; merchant 
agreement; person; premium; prize; prize promotion; seller; State; 
telemarketer; telemarketing; telephone solicitation; and verifiable 
retail sales price.
    The definition of ``telemarketing'' sets the parameters of the 
proposed rule's coverage. It tracks the definition of ``telemarketing'' 
included in the Telemarketing Act, with certain additions noted 
below.<SUP>10 As set forth in the Act, telemarketing is defined as any 
plan, program, or campaign which is conducted to induce payment for 
goods or services by use of one or more telephones and which involves 
more than one interstate telephone call.<SUP>11 One addition to the 
definition in the proposed rule clarifies that telemarketing includes 
the use of a facsimile machine, computer modem, or any other telephonic 
medium.<SUP>12 Another addition to the definition explicitly states 
that telemarketing includes not just calls initiated by telemarketers, 
but also calls initiated by persons in response to any form of 
promotional messages used by or on behalf of the seller, including 
postcards, brochures and advertisements.

    \10\See 15 U.S.C. 6106(4).
    \11\The Act's definition of the term ``telemarketing'' states 
that the plan, program, or campaign must be conducted to induce the 
purchase of goods or services. The proposed rule states that the 
plan, program, or campaign must be conducted to induce payment for 
goods or services. This change is intended to make clear that the 
definition of telemarketing includes plans, programs, or campaigns 
conducted to induce rentals or leases, as well as certain donations.
    \12\Since telemarketing includes the use of computer modems and 
other telephonic media, the proposed definition states that 
telemarketing involves not just telephone calls, but also telephone 
connections.
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    The Telemarketing Act and the proposed rule exempt from the 
definition of telemarketing all solicitations of sales through the 
mailing of a catalog,<SUP>13 when the person making the solicitation 
does not call customers but only receives calls from customers in 
response to the catalog and only takes orders during those calls, 
without further solicitation. The proposed rule states that during such 
calls from customers, the person taking the order may provide further 
information to the customer about, or may try to sell, any other item 
included in the same catalog which prompted the customer's calls 
without losing the exemption from the definition of ``telemarketing.''

    \13\The Telemarketing Act and the proposed rule require catalogs 
to include multiple pages of written descriptions or illustrations 
of the goods or services being offered for sale, to include a 
business address of the seller, and to be issued not less frequently 
than once a year.
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    A number of terms are used in the proposed rule's prohibitions on 
credit card laundering. The term ``acquirer'' is defined, in 
Sec. 310.2(a) of the proposed rule, to include any business 
organization, financial institution, or agent of such organization or 
institution that has authority from an organization that operates or 
licenses a credit card system to authorize merchants to accept, 
transmit, or process payment by credit card through the credit card 
system for anything of value. The term ``credit card'' is defined 
expansively, in Sec. 310.2(f), to include any instrument or device, 
however named, used by a cardholder to obtain money, goods, services, 
or anything else of value. Sec. 310.2(g) defines a ``credit card sales 
draft'' as any record or evidence, including a writing or an electronic 
or magnetic transmission or record, of a credit card transaction. The 
term ``credit card system'' is defined, in Sec. 310.2(h), as any method 
or procedure used to generate, transmit, or process for payment a 
credit card sales draft. For purposes of this rule, the term 
``merchant'' is narrowly defined, in Sec. 310.2(m), to include only 
those persons authorized under a written contract with an acquirer to 
honor or accept, transmit, or process credit cards in payment for goods 
or services. Finally, Sec. 310.2(n) defines the term ``merchant 
agreement'' as the written contract between a merchant and an acquirer.
    The proposed rule includes certain requirements for the 
telemarketing sale of business ventures and investment opportunities. 
The term ``business venture'' is defined, in Sec. 310.2(c) of the 
[[Page 8315]] proposed rule, to include any written or oral business 
arrangement, however named, including but not limited to 
franchises,<SUP>14 which consists of the payment of consideration for 
(1) the right or means to offer, sell, or distribute goods or services, 
and (2) the promise of more than nominal assistance in establishing, 
maintaining or operating a new business, or an existing business that 
is entering into a new line or type of business. The term ``investment 
opportunity'' is defined, in Sec. 310.2(k), to include anything, 
tangible or intangible, except a business venture, that is offered, 
offered for sale, sold, or traded either for purposes of profit or 
income or based on express or implied representations about income, 
profit, or appreciation.<SUP>15 In addition, these two definitions 
state that any business arrangement in which persons acquire, or 
purportedly acquire, government-issued licenses, or interests in one or 
more businesses derived from the possession of such licenses, are 
considered to be an ``investment opportunity,'' and not a ``business 
venture.''

    \14\The term ``franchise'' is defined in the FTC Franchise Rule, 
formally entitled ``Disclosure Requirements and Prohibitions 
Concerning Franchising and Business Opportunity Ventures,'' at 16 
CFR 436.2(a).
    \15\The application of the proposed rule to investment 
opportunities is limited, to some extent, by sections 3(d) and (e) 
of the Telemarketing Act, 15 U.S.C. 6102(d) and (e), which exclude 
from rule coverage any of the following persons: A broker, dealer, 
transfer agent, municipal securities dealer, municipal securities 
broker, government securities broker, government securities dealer 
(as those terms are defined in section 3(a) of the Securities and 
Exchange Act of 1934, 15 U.S.C. 78c(a)), an investment adviser (as 
that term is defined in Section 202(a)(11) of the Investment 
Advisers Act of 1940, 15 U.S.C. 80b-2(a)(11)), an investment company 
(as that term is defined in section 3(a) of the Investment Company 
Act of 1940, 15 U.S.C. 80a-3(a)), any individual associated with 
those persons, or any persons described in section 6(f)(1) of the 
Commodity Exchange Act, 7 U.S.C. 8, 9, 15, 13b, 9a.
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    The term ``goods or services'' is defined expansively, in 
Sec. 310.2(j), to cover virtually any item for which payment can be 
induced over the telephone. A list of specific items is included in the 
definition for illustrative purposes only.<SUP>16

    \16\The term ``goods or services'' specifically includes any 
charitable service that is promoted in conjunction with any offer of 
a prize, chance to win a prize, or opportunity to purchase any other 
goods or services. Thus, plans, programs, or campaigns conducted to 
induce payment for such charitable services are the only charitable 
solicitations covered by the proposed rule. In addition, only 
charitable solicitations conducted by an entity ``organized to carry 
on business for its own profit or that of its members'' are within 
the jurisdiction of the Commission. See 15 U.S.C. 44.
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    The proposed definition for ``material,'' in Sec. 310.2(l), is 
taken from the Commission's deception statement.<SUP>17 It states that 
material means likely to affect a consumer's choice of, or conduct 
regarding, goods or services.

    \17\The Commission's Deception Statement, first set out in a 
letter dated October 14, 1983, to the Honorable John D. Dingell, 
Chairman, Subcommittee on Oversight and Investigations, Committee on 
Energy and Commerce, is attached as an appendix to Cliffdale 
Associates, 103 F.T.C. 110 (1984). See also Thompson Medical Co., 
104 F.T.C. 648, 816 (1984).
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    The proposed rule defines ``prize'' and ``premium'' in a relatively 
parallel fashion. Section 310.2(q) states that a ``prize'' means 
anything offered, or purportedly offered, to a person at no cost and 
with no obligation to purchase goods or services and given, or 
purportedly given, by chance. A ``premium,'' on the other hand, is 
defined in Sec. 310.2(p) as anything offered or given, independent of 
chance, to customers as an incentive to purchase goods or services 
offered through telemarketing.
    The proposed definition of ``prize promotion,'' set forth in 
Sec. 310.2(r), includes the traditional sweepstakes or other game of 
chance as well as any oral or written representation that a person has 
won, has been selected to receive, or may be eligible to receive a 
prize or purported prize. Thus, the definition of ``prize promotion'' 
covers not only legitimate contests or sweepstakes, but also fraudulent 
representations that a consumer has won a prize, when no such prize is 
to be distributed.
    A ``seller'' is defined, in Sec. 310.2(s) of the proposed rule, as 
any person who, in conjunction with telemarketing, provides or offers 
to provide goods or services in exchange for consideration or a 
donation. A ``telemarketer,'' on the other hand, is defined in 
Sec. 310.2(u) as any person who, in connection with telemarketing, 
initiates or receives a telephonic communication from a customer. Since 
many of the provisions in the proposed rule apply to both the seller 
and the telemarketer, these two definitions make clear that the 
proposed rule's obligations run not only to the person making or 
answering a telephone call or telephonic communication from a consumer, 
but also to the business providing the goods or services to be sold 
during that call.<SUP>18

    \18\It is possible for a person to be both a seller and a 
telemarketer in the same transaction, if that person both provides 
the goods or services in exchange for consideration or a donation 
and engages in the telephone calls with consumers.
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    The definition of ``telephone solicitation,'' in Sec. 310.2(w) of 
the proposed rule, is intended to include only out-bound sales calls, 
i.e., telephone calls that are initiated by a telemarketer to a 
customer to induce payment for goods or services.
    Finally, the definition of ``verifiable retail sales price,'' in 
Sec. 310.2(x), is based on the Commission's Guides Against Deceptive 
Pricing.<SUP>19 The term means the actual, bona fide price at which one 
or more retailers, in the area of the seller's principal place of 
business, has made a substantial number of sales. The seller must be 
able to document such a retail sales price.

    \19\16 CFR Part 233.
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Section 310.3  Deceptive Telemarketing Acts or Practices

    Section 310.3 of the proposed rule includes lists of specific, 
deceptive telemarketing acts or practices prohibited under the rule. It 
also sets forth prohibited acts or practices that assist and facilitate 
deceptive telemarketing. This Section ends with prohibitions on the 
practice of credit card laundering.

1. Prohibited Deceptive Telemarketing Acts or Practices

    Section 310.3(a) of the proposed rule states that certain acts or 
practices, when conducted by any seller or telemarketer, are considered 
deceptive telemarketing acts or practices and violations of the rule. 
The first subsection prohibits the failure to disclose certain 
information before payment is requested for goods or services. The 
second subsection lists a series of prohibited misrepresentations 
covering all telemarketing transactions, while the third subsection 
lists prohibited misrepresentations in connection with the offer, offer 
for sale, or sale of any business venture. The final two subsections 
prohibit obtaining funds without proper authorization.
    Section 310.3(a)(1) of the proposed rule states that it is a 
prohibited deceptive telemarketing practice for any seller or 
telemarketer to fail to disclose certain material information before 
payment is requested for goods or services offered.<SUP>20 These 
disclosures must be made in the same manner and form as the payment 
request. The information required to be disclosed is as follows: First, 
the total costs, terms and material restrictions, limitations, or 
conditions of receiving any goods or services; second, the quantity of 
any goods or services sold; and third, all material terms and 
conditions of the seller's refund, cancellation, exchange, or 
repurchase policies, including a [[Page 8316]] statement that no such 
policies exist, if that is the case.

    \20\The proposed rule permits sellers or telemarketers to 
discuss the price of goods or services with potential customers 
before disclosing the required information, but they may not ask 
that payment be made until after the disclosures are made.
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    Section 310.3(a)(2) sets forth 24 different misrepresentations 
prohibited in connection with telemarketing. The first five subsections 
go to the heart of any telemarketing sales transaction, prohibiting 
misrepresentations of the total costs, terms or material restrictions, 
limitations, or conditions<SUP>21 of receiving any goods or services. 
These subsections also prohibit misrepresentations of the quantity of 
any goods or services, or any material aspect of the performance, 
efficacy, or central characteristics of any goods or services. In 
addition, sellers and telemarketers are prohibited from misrepresenting 
the duration of any offer made, as well as the nature or terms of the 
seller's refund, cancellation, exchange, or repurchase policies.

    \21\ Given the definition of the term ``material,'' in Section 
310.2(l) of the proposed rule, any seller or telemarketer would be 
prohibited from misrepresenting any restriction, limitation, or 
condition that would be likely to affect a consumer's choice of, or 
conduct regarding, goods or services.
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    Sections 310.3(a)(2) (vi) through (viii) of the proposed rule 
prohibit misrepresentations about prizes. It is a violation of the 
proposed rule to misrepresent that any person has been selected to 
receive a prize, i.e. an item offered, or purportedly offered, at no 
cost and with no other obligation to make a purchase and given, or 
purportedly given, by chance. Therefore, a telemarketer could not claim 
that a consumer has won a prize, when in fact the consumer must pay 
shipping and handling charges to receive the prize. In addition, a 
seller or telemarketer is prohibited from misrepresenting that a 
premium is a prize. Thus, for example, a telemarketer could not claim 
that a consumer has ``won'' an item, when in fact many consumers will 
be given that item as an incentive to purchase goods or services, 
without any element of chance involved in selecting the ``winners.'' 
Finally, a seller or telemarketer is prohibited from misrepresenting 
the odds of winning any prize.
    The next three prohibited practices, in Secs. 310.3(a)(2) (ix) 
through (xi) of the proposed rule, deal with misrepresentations about 
compliance with various laws or about an affiliation with law 
enforcement authorities. Any seller or telemarketer is prohibited from 
misrepresenting its compliance with any Federal, State, or local law, 
statute, regulation, or ordinance, or from falsely claiming that such 
compliance constitutes an endorsement or approval, by the government 
agency, of the seller's or telemarketer's business or conduct. Thus, a 
telemarketer cannot falsely claim that it is registered with a State, 
or, even if registered, that such registration indicates that the State 
had approved the telemarketer's method of operation. In addition, it is 
also a violation of the proposed rule to misrepresent any affiliation, 
association, connection, or relationship with law enforcement, a public 
safety organization, or other Federal, State, or local government 
agency.
    Under Sec. 310.3(a)(2)(xii) of the proposed rule, any seller or 
telemarketer is prohibited from misrepresenting the purpose for which 
the seller or telemarketer will use information relating to a person's 
checking, savings, share, or similar account number, credit card 
account number, or social security number. This prohibits, for example, 
a telemarketer from asking for a consumer's credit card number ``to 
verify'' the consumer's identity, when in fact the telemarketer plans 
to charge a fee to that account.
    Sections 310.3(a)(2)(xiii) and (xiv) of the proposed rule prohibit 
misrepresentations particularly common to certain charitable 
solicitations.<SUP>22 Any seller or telemarketer is prohibited from 
misrepresenting the seller's or telemarketer's non-profit, tax-exempt, 
or charitable status, purpose, affiliation, or identity. Also 
prohibited are misrepresentations that a person is eligible or likely 
to receive a tax deduction, loan, or other benefit if the person pays 
money to the seller or telemarketer.

    \22\Based on the definition of ``goods or services,'' in 
Sec. 310.2(j) of the proposed rule, only charitable services 
promoted in conjunction with an offer of a prize, chance to win a 
prize, or opportunity to purchase any goods or services would be 
covered by these provisions.
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    It is a prohibited deceptive telemarketing act or practice, under 
Sec. 310.3(a)(2)(xv) of the proposed rule, for any seller or 
telemarketer to misrepresent the nature, terms, or existence of any 
prior affiliation, association, connection, or relationship with any 
person. Under Sec. 310.3(a)(2)(xvi), neither a seller nor a 
telemarketer may misrepresent the nature, terms, or existence of any 
prior purchase or agreement to purchase by any person. These sections 
prohibit, for example, claims that a telemarketer is calling to confirm 
a prior order, when no such order exists, or claims that a telemarketer 
is calling all of its customers to ask if they would like to purchase 
additional products, when in fact the person called was not a prior 
customer of that telemarketer.
    Sections 310.3(a)(2)(xvii) through (xx) of the proposed rule 
prohibit misrepresentations concerning investment opportunities. Any 
seller or telemarketer is prohibited from misrepresenting key 
attributes of any investment opportunity, such as the level of risk, 
liquidity, markup over acquisition costs, past performance, earnings 
potential, or market value. Any seller or telemarketer is also 
prohibited from misrepresenting the likelihood that the market value 
for an investment opportunity will either increase or decrease. In 
addition, a seller or telemarketer cannot misrepresent the seller's 
success in assisting persons to liquidate goods or services they 
purchased from the seller, or the profit derived from such liquidation. 
Thus, for example, false claims about an ability to resell an 
investment opportunity for a profit are prohibited.
    Sections 310.3(a)(2)(xxi) and (xxii) of the proposed rule address 
the problem of deceptive credit repair or credit opportunity 
telemarketing claims. Section 310.3(a)(2)(xxi) prohibits 
misrepresentations that certain goods or services can or are likely to 
improve a person's credit history, credit record, or credit rating, or 
that certain goods or services can result in a person obtaining credit. 
Section 310.3(a)(2)(xxii) prohibits misrepresentations about the 
eligibility or likelihood that a person, regardless of that person's 
credit history, will obtain a loan or other credit-related service.
    Section 310.3(a)(2)(xxiii) of the proposed rule prohibits 
misrepresentations that a seller or telemarketer can recover or 
otherwise effect or assist in the return of money or any other item of 
value to a person. This would prohibit, for example, telemarketers from 
falsely claiming that for a fee, paid in advance, they can obtain a 
refund for a consumer who has been victimized in the past by a 
telemarketing scam.
    Finally, Sec. 310.3(a)(2)(xxiv) of the proposed rule prohibits the 
misrepresentation of any other information required to be disclosed 
under this rule. For example, a telemarketer cannot misrepresent the 
verifiable retail sales price of a prize or premium, or misrepresent 
that the sales price of a prize or premium is less than $20.00, when 
that information is required to be disclosed under Secs.  310.4(d)(3) 
and (4) of the proposed rule.
    The next section of the proposed rule, Sec. 310.3(a)(3), prohibits 
any seller or telemarketer from misrepresenting important information 
in connection with the offer, offer for sale, or sale of any business 
venture. This information [[Page 8317]] includes the level of earnings 
for the business venture, the extent or nature of the market for the 
goods or services to be sold, and the nature or availability of any 
territory. Thus, a seller of business ventures could not falsely 
inflate the sales levels of previous owners, or incorrectly claim that 
a purchaser would obtain exclusive rights to market goods or services 
in a certain territory. The proposed rule also prohibits 
misrepresentations about (1) the existence, availability, or provision 
of retail outlets or accounts; (2) the locations or sites for vending 
machines, rack displays, or any other sales display; or (3) the nature 
or availability of any services offered to secure any such outlets, 
accounts, locations, sites or displays. Also prohibited are 
misrepresentations that any person owns or operates a business venture 
purchased from the seller, or that a person can give an accurate, 
independent description of his or her experience as an owner or 
operator of such a business venture. These provisions prohibit, for 
example, false claims that a shill--a phony reference that is paid to 
tout a business opportunity he does not own or operate--has actually 
purchased a business venture, or false claims about any person's 
experience as a business venture owner.
    Under Sec. 310.3(a)(4) of the proposed rule, it is a prohibited 
deceptive telemarketing act or practice for a seller or telemarketer to 
obtain or submit for payment from a person's checking, savings, share, 
or similar account, a check, draft, or other form of negotiable paper 
without that person's express written authorization. For example, a 
telemarketer cannot submit an unsigned draft on a consumer's bank 
account without that consumer's prior written authorization. Similarly, 
Sec. 310.3(a)(5) of the proposed rule prohibits the collection of any 
amount of money from a person through any means, unless such amount is 
expressly authorized by the person. This section is intended to cover 
other forms of payment, in addition to unsigned drafts, and to prohibit 
misrepresentations of the amount collected. For example, if a consumer 
pays for goods or services by credit card, no amount may be charged to 
the consumer's account unless the consumer authorizes that charge. This 
authorization does not have to be in writing, however.

2. Assisting and Facilitating

    Section 310.3(b)(1) of the proposed rule sets forth a general 
prohibition against assisting or facilitating deceptive telemarketing 
acts or practices. This section states that it is a deceptive 
telemarketing act or practice, and a violation of the rule, for a 
person to provide substantial assistance or support to any seller or 
telemarketer when that person knows or should know that the seller or 
telemarketer is engaged in any act or practice that violates the rule.
    Section 310.3(b)(2) of the proposed rule lists five specific types 
of conduct that provide substantial assistance or support to 
telemarketing. This list is not meant to limit, in any way, the general 
scope of Sec. 310.3(b)(1) concerning assisting or facilitating 
deceptive telemarketing acts or practices.<SUP>23 Assistors who engage 
in these activities will violate the rule if they know, or should know, 
that the person they are assisting is engaged in an act or practice 
that violates the rule.

    \23\Thus, practices not included on this list could still be 
found to provide substantial assistance or support to telemarketing.
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    The five types of assisting and facilitating activities listed in 
the proposed rule are as follows: First, providing lists of customer 
contacts to a seller or telemarketer (e.g., serving as a list broker); 
second, receiving consideration in exchange for providing a 
testimonial, endorsement, certification, appraisal, or financing, or 
for serving as a reference, with respect to any business venture or 
investment opportunity (e.g., acting as a paid shill or an art 
appraiser, or providing financing for a business opportunity); third, 
securing retail outlets or accounts for the sale of goods or services, 
or locations or sites for vending machines, rack displays, or any other 
sales displays, used in connection with any business venture (e.g., 
operating as a locating company); fourth, furnishing any certificate or 
coupon which may later be exchanged for goods or services (e.g., 
producing generic vacation certificates used in prize promotion scams); 
and fifth, providing any script, advertising, brochure, promotional 
material, or direct marketing piece to be used in telemarketing.

3. Credit Card Laundering

    Section 310.3(c) of the proposed rule prohibits credit card 
laundering, or the practice of depositing into the credit card system a 
sales draft that is not the result of a credit card transaction between 
the cardholder and a merchant.\24\ For example, credit card laundering 
involves a merchant with access to the credit card system deceiving an 
acquirer by submitting for payment credit card transactions that are 
not the merchant's own. This deception is crucial for telemarketers 
engaged in fraud, since such telemarketers find it difficult, if not 
impossible, to obtain merchant accounts to process their credit card 
transactions. Credit card laundering facilitates deceptive 
telemarketing acts or practices by providing fraudulent telemarketers 
with ready access to cash through the credit card system.

    \24\As defined in Sec. 310.2(m), a merchant is the person who is 
under a contractual agreement with an acquirer to honor or accept, 
transmit, or process credit cards in payment for goods or services.
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    This Section of the proposed rule is divided into three parts. 
Section 310.3(c)(1) of the proposed rule deals with merchants who 
engage in credit card laundering. Under this section, it is a deceptive 
telemarketing act or practice, and a violation of the rule, for a 
merchant to present to or deposit into the credit card system for 
payment, a credit card sales draft generated by a telemarketing 
transaction that is not the result of a telemarketing credit card 
transaction between the cardholder and the merchant. It is also a 
deceptive act or practice for a merchant to cause another person to 
present to or deposit into the credit card system for payment such a 
credit card sales draft.
    Section 310.3(c)(2) of the proposed rule deals with telemarketers, 
brokers, or others who employ merchants to engage in credit card 
laundering. This section states that it is a deceptive telemarketing 
act or practice, and a violation of the proposed rule, for any person 
to employ, solicit, or otherwise cause a merchant or an employee, 
representative, or agent of a merchant, to present to or deposit into 
the credit card system for payment, a credit card sales draft generated 
by a telemarketing transaction that is not the result of a 
telemarketing credit card transaction between the cardholder and the 
merchant.
    Finally, Sec. 310.3(c)(3) prohibits joint ventures or other 
business relationships between a merchant and a telemarketer for the 
purpose of engaging in credit card laundering. Specifically, this 
section prohibits any person from obtaining access to the credit card 
system through the use of a business relationship or an affiliation 
with a merchant, when such access is not authorized by the merchant 
agreement.

Section 310.4  Abusive Telemarketing Acts or Practices

    Section 310.4 of the proposed rule begins with a list of specific 
abusive conduct that is prohibited. This section also prohibits 
repeated telemarketing calls and calls to persons who have stated that 
they do not wish to receive such calls. In addition, this section sets 
[[Page 8318]] restrictions on the times when telemarketers may make 
calls, and includes oral and written disclosures that must be made. 
This Section of the proposed rule ends with a prohibition on the sale 
or distribution of lists of customer contacts by persons found to have 
violated certain provisions of this rule.

1. Abusive Conduct Generally

    Section 310.4(a) of the proposed rule sets forth eight different 
abusive telemarketing acts or practices that are violations of the 
rule. The first such practice is the use of threats or intimidation in 
connection with telemarketing. The second prohibited practice is 
providing for or directing a courier to pick up a payment from a 
customer. This prohibition is intended to address a prevalent practice 
used by fraudulent telemarketers of sending an overnight courier to a 
consumer's home to pick up cash or a check shortly after a successful 
sales pitch. In this manner, the telemarketer obtains payment from the 
consumer before the consumer has adequate time to think about the 
transaction or obtain information about the telemarketer. The proposed 
rule would prohibit this practice.
    Section 310.4(a)(3) of the proposed rule restricts the 
telemarketing of credit repair services. This section prohibits any 
seller or telemarketer from requesting or receiving payment of any fee 
or consideration for goods or services represented to improve a 
person's credit history, credit record, or credit rating until the 
contract for the services has expired and the promised results have 
been achieved. Specifically, two events must occur before payment can 
be requested or received for these services: first, either the term of 
the contract or the time frame in which the seller has represented the 
goods or services will be provided has expired; and second, the seller 
has provided the purchaser with documentation showing that the promised 
results have been achieved. This documentation may be either (1) from 
the original furnisher or provider of the information to the consumer 
reporting agency, confirming that the promised results have been 
achieved; or (2) in the form of a consumer report from the consumer 
reporting agency demonstrating that the promised results have been 
achieved. Such a report must have been issued more than six months 
after the results were achieved.\25\

    \25\The proposed rule makes clear that nothing in the rule 
alters the requirement in the Fair Credit Reporting Act, 15 U.S.C. 
1681, that a consumer report may only be obtained for a specified 
permissible purpose.
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    Recovery room scams are the focus of Sec. 310.4(a)(4). In these 
operations, a telemarketer typically calls a consumer who has lost 
money in a previous scam, promising that, for a fee paid up front, the 
telemarketer can recover the money the consumer previously lost. After 
the consumer pays the requested fee, the promised services are not 
delivered. In fact, the consumer may never hear from the telemarketer 
again. This Section of the proposed rule prohibits any seller or 
telemarketer from requesting or receiving payment of any fee or 
consideration for goods or services represented to recover or otherwise 
effect or assist in the return of money or any other item of value to a 
person until three days after such money or other item is delivered to 
that person. The proposed rule states that this provision does not 
apply to goods or services provided to a person by a licensed attorney 
or licensed private investigator pursuant to a written agreement with 
that person.
    Section 310.4(a)(5) of the proposed rule is intended to limit 
advance fee loan scams and similar practices, in which telemarketers 
guarantee that they will obtain a loan or other credit-related service 
for a consumer, if the consumer pays them a fee in advance. As with 
recovery room scams, after the consumer pays the fee, the promised 
services typically are not provided. Under this section of the proposed 
rule, any seller or telemarketer is prohibited from requesting or 
receiving payment of any fee or consideration in advance of obtaining a 
loan or any credit service when the seller or telemarketer has 
guaranteed or represented a high likelihood of success in obtaining or 
arranging a loan or credit service for a person.
    Prize promotions conducted through telemarketing are the subject of 
Sec. 310.4(a)(6). Any seller or telemarketer conducting such promotions 
must distribute all prizes or purported prizes offered within 18 months 
of the initial offer to any person.
    Section 310.4(a)(7) of the proposed rule addresses the problem of 
reloading, the practice of offering to sell additional goods or 
services to a person who previously has made a purchase from that 
seller. In deceptive telemarketing scams, consumers may be victimized 
numerous times by reloading that occurs prior to delivery of the first 
items sold, before realizing they have been deceived. This serial 
deception often occurs because consumers have not seen the goods or 
services already purchased, and therefore do not know that they were 
deceived in the previous transaction. The proposed rule prohibits any 
seller or telemarketer from offering or selling goods or services 
through a telephone solicitation to a person who previously has paid 
the same seller for goods or services, until all terms and conditions 
of the initial sales transaction have been fulfilled.\26\ The proposed 
rule makes clear that all prizes or premiums offered in conjunction 
with the initial transaction must also be distributed before a second 
offer or sale can be made.

    \26\By limiting this prohibition to offering or selling goods or 
services through telephone solicitations, this Section does not 
prevent consumers from calling telemarketers to make an additional 
purchase before the first transaction is complete.
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    The final abusive telemarketing act or practice prohibited by the 
proposed rule concerns the use of shills. Section 310.4(a)(8) of the 
proposed rule prohibits any seller or telemarketer from identifying a 
person as a reference for a business venture unless the following three 
criteria are satisfied: (1) Such person has actually purchased the 
business venture; (2) such person has operated the business venture for 
at least six months or the seller or telemarketer has disclosed the 
length of time the reference has operated the business venture; and (3) 
such person does not receive consideration for any statements made to 
prospective purchasers.

2. Pattern of Calls

    Section 310.4(b) of the proposed rule deals with repeated 
telemarketing calls, and calls to persons who have indicated an 
unwillingness to receive such calls. This section prohibits a 
telemarketer from engaging in such calls, or a seller from causing a 
telemarketer to engage in such calls.\27\ Specifically, this Section 
states that it is an abusive act or practice and a violation of the 
rule to call a person's residence to offer, offer for sale, or sell, on 
behalf of the same seller, the same or similar goods or services more 
than once within any three-month period. This prohibition does not 
apply if the person gives prior consent to more frequent calls,\28\ or 
if the person is not reached during an earlier attempted call. It also 
does not apply to verification calls--those calls made solely to verify 
a previous telephone sale.

    \27\A seller may cause a telemarketer to engage in such calls by 
providing the telemarketer with a customer contact list that 
includes customers that should not be called.
    \28\The person may give prior consent either orally or in 
writing.
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    The proposed rule also prohibits calls to a person's residence when 
that person previously has stated that he or she does not wish to 
receive telephone solicitations made by or on behalf of the 
[[Page 8319]] seller whose goods or services are being offered.
    Sellers and telemarketers are given a limited safe harbor against 
liability for violating these provisions. Section 310.4(b)(2) of the 
proposed rule states that a seller or telemarketer will not be liable 
for such violations once in any calendar year per person called if the 
following four requirements are met: (1) It has established and 
implemented written procedures to comply with Secs. 310.4(b)(1)(i) and 
(ii); (2) it has trained its personnel in those procedures; (3) the 
seller, or the telemarketer acting on behalf of the seller, has 
maintained and recorded lists of persons who may not be contacted, in 
compliance with Secs. 310.4(b)(1)(i) and (ii); and (4) any subsequent 
call is the result of administrative error.

3. Calling Time Restrictions

    Under Sec. 310.4(c) of the proposed rule, any telemarketer is 
prohibited from engaging in telephone solicitations\29\ to a person's 
residence at any time other than between 8 a.m. and 9 p.m. local time 
at the called person's location. This prohibition does not apply if the 
person called gives his or her prior consent to receive a call at a 
different time.\30\

    \29\Based on the definition of ``telephone solicitation'' in 
Sec. 310.2(w) of the proposed rule, these calling time restrictions 
apply only to outbound telemarketing calls.
    \30\As with the pattern of calls requirement in 
Sec. 310.4(b)(1), the person may give prior consent either orally or 
in writing.
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4. Required Oral Disclosures

    Section 310.4(d) of the proposed rule sets forth certain oral 
disclosures that must be made in telemarketing.\31\ The preamble to 
this section states that it is an abusive telemarketing act or 
practice, and a violation of the rule, for a telemarketer to fail to 
make any of these required oral disclosures.

    \31\The disclosures required by this section are in addition to 
the disclosures required under Sec. 310.3(a)(1) of the proposed 
rule, which must be made before any payment is requested for goods 
or services.
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    All telephone solicitations must begin by disclosing key 
information to the person called. This information includes the 
caller's true first and last name, the seller's name, and that the 
purpose of the call is to sell goods or services. The proposed rule 
does not require that the telemarketer's name be disclosed, if it is 
different from the seller's. In addition, the proposed rule does not 
set forth the exact language that must be used to convey the message 
that the purpose of the call is to sell goods or services. The choice 
of language is left to the telemarketer.
    If the telephone solicitation includes a charitable solicitation, 
slightly different and additional information must be disclosed at the 
beginning of the call. Not only must the caller's true first and last 
name and the name of the seller or charity be disclosed, but the 
telemarketer's name also must be disclosed in these calls. In addition, 
the telemarketer's status as a paid professional fundraiser must be 
disclosed, as well as the fact that the purpose of the call is to 
solicit charitable donations. If other goods or services are offered 
for sale during the call, the caller must disclose that the purpose of 
the call is also to sell goods or services.
    Section 310.4(d)(2) of the proposed rule states that if a caller 
verifies a telemarketing sale, either during the call containing the 
original sales presentation or in a separate call, the caller verifying 
the sale must repeat all of the disclosures required under 
Sec. 310.3(a)(1).\32\ In this fashion, consumers will hear all of the 
important terms and conditions of the sale at the time they are 
verifying that purchase.

    \32\These disclosures include the total costs, terms, and 
material restrictions, limitations, or conditions of receiving any 
goods or services, the quantity of any goods or services, and all 
material terms and conditions of the seller's refund, cancellation, 
exchange, or repurchase policies.
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    Section 310.4(d)(3) of the proposed rule requires three additional 
oral disclosures for any telemarketing which includes a prize 
promotion. The first disclosure is that no purchase or payment is 
necessary to win.\33\ Second, the caller must disclose the verifiable 
retail sales price of each prize offered, or a statement that the 
retail sales price of the prize offered is less than $20.00.\34\ The 
third required disclosure is the odds of winning each prize offered. A 
true statement that the odds of winning cannot be determined in 
advance, or that the odds of winning are determined by the number of 
entrants, would satisfy this requirement.

    \33\If a purchase or payment were required in a prize promotion 
that by definition involves a game of chance, that promotion would 
be an illegal lottery. See 18 U.S.C. 1301.
    \34\Misrepresenting the retail sales price would be a violation 
of Sec. 310.3(a)(2)(xxiv) of the proposed rule because such 
information is required to be disclosed under the rule.
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    Under Sec. 310.4(d)(4) of the proposed rule, any telemarketing 
which includes an offer of a premium must make the additional 
disclosure of the verifiable retail sales price of such premium or 
comparable item, or a statement that the retail sales price of the 
premium is less than $20.00.

5. Written Disclosures/Acknowledgements

    Section 310.4(e) of the proposed rule states that it is an abusive 
telemarketing act or practice for a seller or telemarketer that 
conducts a prize promotion or offers for sale any investment 
opportunity to request or accept any payment from a person without 
first providing the person with a written disclosure, in duplicate, and 
receiving from the person a written acknowledgement that the person has 
read the disclosure. The information required to be disclosed must be 
printed in not less than 10-point type (unless otherwise noted), in a 
color or shade that readily contrasts with the background of the 
notice. The information in the investment opportunity disclosure must 
be segregated from all other information that may be included in the 
document, while the information in the prize promotion disclosure must 
be on one page.
    Both disclosures must be sent in an envelope that contains no other 
enclosures except for a return envelope, if the seller or telemarketer 
wishes to include such an envelope. The envelope for the prize 
promotion disclosure may not contain any writing representing that the 
person to whom the envelope is addressed has been selected or may be 
eligible to receive a prize.
    For prize promotions, the following information is required: (1) 
The seller's legal name and telephone number, and the complete street 
address of the seller's principal place of business; (2) if the seller 
has been in operation under any other name(s), each such name and the 
length of time the seller operated under each name; (3) the verifiable 
retail sales price of each prize offered, or a statement that the 
retail sales price of the prize offered is less than $20.00; (4) the 
odds of winning each prize offered and the number of persons who will 
receive each prize; (5) the total amount and description of any 
shipping or handling fees or any other charges that must be paid to 
receive or use a prize; (6) a complete description of any restrictions, 
conditions, or limitations on eligibility to receive or use a prize, 
including all steps a person must take to receive the most valuable 
prize offered; (7) the statement: ``No purchase or payment is necessary 
to win,'' with a description of the no-purchase entry method; (8) a 
statement that a list of winners is available and the address to which 
a person may write to obtain such a list; (9) a statement that it is a 
violation of this rule for the seller to accept payment in any form 
unless the [[Page 8320]] seller has received from the person a written 
disclosure acknowledgement; and (10) the statement: ``I have read and 
understand this disclosure.'' This final statement must be in at least 
12-point bold face type, immediately preceding a signature block.
    For investment opportunities, the following information must be 
included in the written disclosure: (1) The seller's legal name and 
telephone number, and the complete street address of the seller's 
principal place of business; (2) if the seller has been in operation 
under any other name(s), each such name and the length of time the 
seller operated under that name; (3) the complete cost to make the 
investment and a detailed list of all present charges and any 
anticipated future charges; (4) a description of all known risks 
associated with the investment opportunity, including the possibility 
that additional payments might be required for a person purchasing the 
investment opportunity to retain that person's interest in the 
investment opportunity, to realize the projected or stated returns of 
the investment opportunity, to prevent total loss of the investment 
opportunity, or for any other reason; (5) the length of time the seller 
has been in business and has offered the particular investment 
opportunity; (6) a statement disclosing whether or not the seller is 
licensed and, if so, with whom, the type of license, and the length of 
time the seller has held such license; (7) a statement that it is a 
violation of this rule for the seller to effect an investment 
transaction unless the seller has received from the person a written 
disclosure acknowledgement; and (8) the statement: ``I have read and 
understand this disclosure.'' This final statement must be in at least 
12-point bold face type, immediately preceding a signature block.
    Additional written disclosures, provided in duplicate, are required 
for certain types of investment opportunities. If a seller or 
telemarketer offers for sale any investment opportunity involving 
tangible assets, Sec. 310.4(e)(2)(ii) of the proposed rule requires the 
following additional information to be included in the written 
investment disclosure: (1) The percentage markup that the seller places 
on the item above its own cost in acquiring the item; and (2) an 
estimate of the value that persons would be likely to receive if they 
were to liquidate the asset through a market sale immediately following 
the purchase. The proposed rule makes clear that all such estimates 
must be substantiated by competent and reliable evidence.
    If sellers or telemarketers offer for sale any investment 
opportunity involving tangible assets sold on credit or leverage, they 
must include in the written disclosure all of the information set forth 
in Secs. 310.4(e)(2)(i) and (ii) of the proposed rule, as well as the 
following: (1) The percentage of a person's down payment that would be 
devoted to fees and costs by the end of the first six months after the 
investment is made; (2) the percentage of a person's down payment that 
would be devoted to fees and costs by the end of the first year after 
the investment is made; and (3) a statement that all such investment 
opportunities are extremely risky.
    Finally, if a seller or telemarketer offers for sale any investment 
opportunity involving the acquisition of government-issued licenses or 
interests in businesses derived from the possession of such licenses, 
the following additional information must be included in the written 
disclosure set forth in Sec. 310.4(e)(2)(i) of the proposed rule: (1) 
All material terms and limitations of any government-issued license(s) 
that serve as the basis for the investment opportunity, including 
whether and to whom the license or licenses have been issued; (2) the 
percentage of the person's payment that will be used to acquire any 
applicable license(s) from the licensee(s) or from any person or entity 
not affiliated in any way with the seller; and (3) the percentage of 
the person's payment that will be used to capitalize any business 
derived from such license(s).

6. Distribution of Lists

    The final abusive practice set forth in Sec. 310.4 of the proposed 
rule involves the distribution of lists of customer contacts. Section 
310.4(f) states that it is an abusive telemarketing act or practice, 
and a violation of the rule, for any person, subject to any federal 
court order resolving a case in which the complaint alleged a violation 
of Sec. 310.3, 310.4(a), or 310.4(e) of this rule,<SUP>35 and the court 
did not dismiss or strike all such allegations from the case, to sell, 
rent, publish, or distribute any list of customer contacts from that 
person. In other words, any such person will be prohibited from 
circulating its customer contact lists in any fashion.

    \35\The enumerated sections cover all of the prohibited 
deceptive telemarketing acts or practices, the eight general abusive 
telemarketing acts or practices, and the written disclosures and 
acknowledgements required for prize promotions and investment 
opportunities.
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Section 310.5  Recordkeeping Requirements

    Section 310.5 of the proposed rule requires any seller or 
telemarketer to keep, for 24 months from the date the record is 
produced, certain records relating to its telemarketing activities. 
Failure to keep those records shall be considered a violation of the 
rule. The seller and its telemarketer are not required to keep 
duplicative records, if they have entered into a written agreement 
allocating responsibility for the recordkeeping requirements of the 
proposed rule. The terms of any such agreement shall govern, unless 
those terms are unclear as to whom must maintain any required records. 
In that case, the responsibility for recordkeeping shall fall on the 
seller.
    Section 310.5(c) of the proposed rule sets forth the parties 
responsible for maintaining records at the end of, or after a change in 
ownership of, the seller's or telemarketer's business. In the event of 
dissolution or termination of such business, the principal of the 
seller or telemarketer is required to maintain these records. On the 
other hand, in the event of any sale, assignment, succession, or other 
change in ownership of the seller's or telemarketer's business, the 
successor business is required to maintain the records.

Section 310.6  Exemptions

    Certain acts or practices are exempt from the proposed rule. The 
first exemption, set forth in Sec. 301.6(a), is for incidental 
telemarketing sales--that is, sales by any person who engages in fewer 
than ten sales each year through the use of the telephone. Second, 
telephonic contacts between businesses also are exempt, except for such 
contacts that involve the sale of office or cleaning supplies, or the 
inducement of payment for any charitable service promoted in 
conjunction with (1) an offer of a prize, (2) a chance to win a prize, 
or (3) the opportunity to purchase any goods or services. Finally, on 
Sec. 310.6(c) of the proposed rule exempts any telephonic contact made 
solely by a person, when there has been no initial sales contact 
directed to that particular person, by telephone or otherwise, from the 
seller or telemarketer. However, this exemption does not apply to calls 
regarding employment services where the seller or telemarketer requests 
or receives payment prior to providing the promised services, business 
ventures, investment opportunities, prize promotions, or credit-related 
programs.
    Given the definition of ``telemarketing'' in Sec. 310.2(v) and the 
[[Page 8321]] exemptions set forth in this section, the proposed rule 
covers all outbound telephone calls intended to induce payment for 
goods or services, except for calls made by a person who engages in 
fewer than ten telephone sales each year, or for telephonic contacts 
made from one business to another that do not involve the sale of 
office or cleaning supplies or certain charitable solicitations. The 
only inbound telemarketing calls covered are those received from a 
person who is responding to an initial communication, other than a 
catalog, from the seller or telemarketer that was directed to that 
particular person. In addition, all inbound telemarketing calls related 
to business ventures, investment opportunities, prize promotions, or 
credit-related programs are covered.

Section 310.7  Actions by States and Private Persons

    The Telemarketing Act permits certain State officials and private 
persons to bring civil actions in an appropriate Federal district court 
for violations of this rule.<SUP>36 Section 310.7 of the proposed rule 
sets forth the notice such parties must provide to the Commission 
concerning those actions. Such parties must serve written notice of its 
action on the Commission, if feasible, prior to initiating an action 
under this rule. The notice must include a copy of the complaint and 
any other pleadings to be filed with the court. If prior notice is not 
feasible, the State official or private person must serve the 
Commission with the required notice immediately upon instituting its 
action.

    \36\See 15 U.S.C. 6103 and 6104.
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Section 310.8  Federal Preemption

    Section 310.8 of the proposed rule states that nothing in the rule 
shall be construed to preempt any State law that is not in direct 
conflict with any provision of the rule. Thus, State statutes 
concerning telemarketing that contain prohibitions or requirements that 
are not imposed by this rule would remain in effect, as long as those 
statutes do not conflict with this rule.

Section 310.9  Severability

    Section 310.9 of the proposed rule sets forth the Commission's 
intent that the provisions of this rule be separate and severable from 
one another. Thus, if any provision is stayed or determined to be 
invalid, the remaining provisions shall continue in effect.

Section C. Invitation to Comment

    Before adopting this proposed rule as final, consideration will be 
given to any written comments submitted to the Secretary of the 
Commission on or before March 31, 1995. Comments submitted will be 
available for public inspection in accordance with the Freedom of 
Information Act (5 U.S.C. 552) and Commission regulations, on normal 
business days between the hours of 8:30 a.m. and 5 p.m. at the Public 
Reference Section, Room 130, Federal Trade Commission, 6th Street and 
Pennsylvania Avenue, N.W., Washington, D.C. 20580.

Section D. Public Workshop-Conference

    The FTC staff will conduct a Public Workshop-Conference to discuss 
written comments received in response to the Notice of Proposed 
Rulemaking. The purpose of the conference is to afford Commission staff 
and interested parties a further opportunity to openly discuss and 
explore issues raised in the rulemaking proceeding, and, in particular, 
to examine publicly any areas of significant controversy or divergent 
opinions that are raised in the written comments. The conference is not 
intended to achieve a consensus opinion among participants or between 
participants and Commission staff with respect to any issue raised in 
the rulemaking proceeding. Commission staff will consider the views and 
suggestions made during the conference, in conjunction with the written 
comments, in formulating its final recommendation to the Commission 
concerning the proposed rule.
    Commission staff will select a limited number of parties, from 
among those who submit written comments, to represent the significant 
interests affected by the proposed regulations. These parties will 
participate in an open discussion of the issues. It is contemplated 
that the selected parties might ask and answer questions based on their 
respective comments.
    In addition, the conference will be open to the general public. 
Members of the general public who attend the conference may have an 
opportunity to make a brief oral statement presenting their views on 
issues raised in the rulemaking proceeding. Oral statements of views by 
members of the general public will be limited to a few minutes in 
length. The time allotted for these statements will be determined on 
the basis of the time allotted for discussion of the issues by the 
selected parties, as well as by the number of persons who wish to make 
statements.
    Written submissions of views, or any other written or visual 
materials, will not be accepted during the conference. The discussion 
will be transcribed and the transcription placed on the public record.
    To the extent possible, Commission staff will select parties to 
represent the following affected interests: Sellers; telemarketers; 
list providers; representatives of the credit card system; consumers; 
Federal, State and local law enforcement and regulatory authorities; 
and any other interests that Commission staff may identify and deem 
appropriate for representation.
    Parties to represent the above-referenced interests will be 
selected on the basis of the following criteria:
    1. The party submits a written comment during the 45-day comment 
period.
    2. The party notifies Commission staff of its interest and 
authorization to represent an affected interest within 20 days of 
publication of the Notice of Proposed Rulemaking.
    3. The party's participation would promote a balance of interests 
being represented at the conference.
    4. The party's participation would promote the consideration and 
discussion of a variety of issues raised in the rulemaking proceeding.
    5. The party has expertise in activities affected by the proposed 
regulations.
    6. The party adequately reflects the views of the affected 
interest(s) which it purports to represent, not simply a single entity 
or firm within that interest.
    7. The number of parties selected will not be so large as to 
inhibit effective discussion among them.
    A neutral third-party facilitator will be retained for the 
conference. It will be held over the course of three consecutive days, 
on April 18-20, 1995. Parties interested in participating and 
authorized to represent an affected interest at the conference must 
notify Commission staff by March 6, 1995. Prior to the conference, 
parties selected to represent an affected interest will be provided 
with computer disks containing copies of the comments received in 
response to this notice.

Section E. Communications by Outside Parties to Commissioners or 
Their Advisors

    Pursuant to Commission Rule 1.26(b)(5), communications with respect 
to the merits of this proceeding from any outside party to any 
Commissioner or Commissioner advisor during the course of this 
rulemaking shall be subject to the following treatment. Written 
communications, including written communications from members of 
Congress, shall be forwarded promptly to the Secretary for placement on 
the public record. Oral communications, not including oral 
[[Page 8322]] communications from members of Congress, are permitted 
only when such oral communications are transcribed verbatim or 
summarized at the discretion of the Commissioner or Commissioner 
advisor to whom such oral communications are made and are promptly 
placed on the public record, together with any written communications 
and summaries of any oral communications relating to such oral 
communications. Oral communications from members of Congress shall be 
transcribed or summarized at the discretion of the Commissioner or 
Commissioner advisor to whom such oral communications are made and 
promptly placed on the public record, together with any written 
communications and summaries of any oral communications relating to 
such oral communications.

Section F. Regulatory Flexibility Act

    The provisions of the Regulatory Flexibility Act relating to an 
initial and final regulatory analysis (5 U.S.C. 603, 604) are not 
applicable to this document because it is believed that these 
regulations, if promulgated, will not have a significant economic 
impact on a substantial number of small entities (5 U.S.C. 605).
    The Telemarketing Act requires the Commission to issue regulations, 
not later than 365 days after the date of enactment, prohibiting 
deceptive telemarketing acts or practices and other abusive 
telemarketing acts or practices. The Act limits the scope of the 
regulations to entities that engage in telemarketing through one or 
more interstate telephone calls; telemarketing sales by local companies 
to local customers would most likely be intrastate calls and thus 
outside the parameters of the proposed rule. The Act also exempts 
certain catalog sales operations from the scope of the regulations. In 
addition, the proposed rule exempts incidental telemarketing sales, 
i.e., calls made by any person who engages in fewer than ten sales each 
year through the use of the telephone. The proposed rule also exempts 
certain contacts between businesses, and certain calls initiated by a 
person when there is no initial sales contact directed to that 
particular person from a seller or telemarketer.
    As a result of these statutory and regulatory limitations, we 
believe that many small entities will fall outside the scope of the 
regulations. In addition, any economic costs imposed on small entities 
remaining within the parameters of the rule are, in many instances, 
specifically imposed by statute. Where they are not, efforts have been 
made to make the proposed rule's requirements flexible, in part to 
minimize any unforeseen burden on small entities, as described 
elsewhere in this notice.
    To ensure that no substantial economic impact is being overlooked, 
public comment is requested on the effect of the proposed regulations 
on the costs to, profitability and competitiveness of, and employment 
in small entities. Subsequent to the receipt of public comments, it 
will be decided whether the preparation of a final regulatory 
flexibility analysis is warranted. Accordingly, based on available 
information, the Commission hereby certifies under the Regulatory 
Flexibility Act, 5 U.S.C. 605(b), that the proposed regulations will 
not have a significant economic impact on a substantial number of small 
entities. This notice serves as certification to that effect for the 
purposes of the Small Business Administration.

Section G. Questions on the Proposed Rule

    The Commission seeks comments on various aspects of the proposed 
rule. Without limiting the scope of issues it seeks comment on, the 
Commission is particularly interested in receiving comments on the 
questions that follow. Responses to these questions should be itemized 
according to the numbered questions in this Notice. In responding to 
these comments, include detailed, factual supporting information 
whenever possible.

Section 310.2  Definitions

    1. The proposed rule defines the following terms for use in the 
prohibition on credit card laundering: ``acquirer,'' ``cardholder,'' 
``credit card,'' ``credit card sales draft,'' ``credit card system,'' 
``merchant,'' and ``merchant agreement.''
    a. Are these definitions clear, meaningful, and appropriate?
    b. Are there other approaches to defining these terms that would be 
more useful?
    2. The proposed rule defines the term ``business venture.''
    a. Is this definition clear, meaningful, and appropriate? What are 
the advantages and disadvantages of defining the term in this manner?
    b. Is the definition as drafted sufficiently comprehensive to 
encompass the types of business ventures which have been, are, or may 
be sold through telemarketing?
    c. Are there other approaches to defining the term ``business 
venture'' that would be more useful?
    3. The proposed rule defines the term ``goods or services.''
    a. Is this definition clear, meaningful, and appropriate? What are 
the advantages and disadvantages of defining the term in this manner?
    b. Is the definition as drafted sufficiently comprehensive to 
encompass the types of products, services, or other offers which have 
been, are, or may be sold through telemarketing?
    c. Are there other approaches for defining the term ``goods or 
services'' that would be more useful?
    4. The proposed rule defines the term ``investment opportunity.''
    a. Is this definition clear, meaningful, and appropriate? What are 
the advantages and disadvantages of defining the term in this manner?
    b. Is the definition as drafted sufficiently comprehensive to 
encompass the types of investment opportunities which have been, are, 
or may be sold or traded through telemarketing?
    c. Are there other approaches to defining the term ``investment 
opportunity'' that would be more useful?
    5. The proposed rule defines the terms ``premium,'' ``prize,'' and 
``prize promotion.''
    a. Are these definitions clear, meaningful, and appropriate? Are 
the distinctions between a ``premium'' and a ``prize'' clear, 
meaningful, and appropriate? What are the advantages and disadvantages 
of defining these terms in this manner?
    b. Are the definitions as drafted sufficiently comprehensive to 
encompass the types of premiums, prizes, and prize promotions which 
have been, are, or may be offered through telemarketing?
    c. Are there other approaches to defining these terms that would be 
more useful?
    6. The proposed rule defines the terms ``seller'' and 
``telemarketer.''
    a. Are these definitions clear, meaningful, and appropriate? Are 
the distinctions between a ``seller'' and a ``telemarketer'' clear, 
meaningful, and appropriate? What are the advantages and disadvantages 
of defining these terms in this manner?
    b. Are there other approaches to defining these terms that would be 
more useful?
    c. Since most of the provisions of the proposed rule apply to 
sellers and/or telemarketers, do these definitions reflect the 
appropriate scope of the rule?
    7. The proposed rule states that the term ``telemarketing'' 
includes the use of a facsimile machine, computer [[Page 8323]] modem, 
or any other telephonic medium, as well as calls initiated by persons 
in response to postcards, brochures, advertisements, or any other 
printed, audio, video, cinematic, or electronic communications by or on 
behalf of the seller.
    a. Is this definition clear, meaningful, and appropriate?
    b. Is the definition of ``telemarketing'' sufficiently broad to 
encompass current as well as future technology?
    c. Are there other approaches to defining the term 
``telemarketing'' that would be more useful?
    8. The proposed definition of ``telemarketing'' includes within the 
rule's coverage on-line information services which a person accesses by 
computer modem.
    a. Is such coverage appropriate?
    b. Is the proposed rule as drafted sufficiently comprehensive to 
regulate the types of plans, programs, or campaigns for the sale of 
goods or services that have been, are, or may be conducted through such 
computer information services?
    9. The proposed definition of ``telemarketing'' tracks the 
Telemarketing Act in exempting catalog sales from coverage under the 
rule. One of the requirements of this exemption is that ``the person 
making the solicitation * * * only receives calls initiated by 
customers in response to the catalog and during those calls takes 
orders only without further solicitation.'' The proposed rule states 
that the term ``further solicitation'' does not include providing the 
customer with information about, or attempting to sell, any other item 
included in the same catalog which prompted the customer's call.
    a. Does the proposed rule sufficiently clarify the types of 
solicitation activities that are permitted in connection with catalog 
sales?
    b. How much will the additional flexibility provided by this 
definition benefit catalog sellers? How will it affect law enforcement 
efforts to stop fraudulent or deceptive telemarketers?
    10. The proposed rule defines the term ``verifiable retail sales 
price.''
    a. Is this definition clear, meaningful, and appropriate?
    b. Are there other approaches to defining this term that would be 
more useful?

Section 310.3  Deceptive Telemarketing Acts or Practices

    11. Section 310.3(a) of the proposed rule sets forth certain 
conduct that will be considered a deceptive telemarketing act or 
practice and a violation of the rule, including the failure to make 
certain disclosures and the misrepresentation of certain information. 
Questions 13 through 18 seek comments on the particular types of acts 
and practices included in this Section of the proposed rule. Looking at 
Sec. 310.3(a) as a whole:
    a. Would it be appropriate to include in the final rule a general 
prohibition against material misrepresentations or the failure to 
disclose material information? What would be the advantages and 
disadvantages to this approach?
    b. Are there other approaches to prohibiting deceptive 
telemarketing acts or practices that would be more useful to consumers? 
That would be more useful to law enforcement authorities? If so, how 
would these alternatives affect the burden the rule places on 
businesses forced to comply with it?
    c. Are there other approaches to prohibiting deceptive 
telemarketing acts or practices that would reduce the burden imposed on 
legitimate businesses attempting to comply with the rule's 
requirements? If so, how would these alternatives affect the usefulness 
of the rule to consumers? To law enforcement authorities?
    12. Section 310.3(a) of the proposed rule makes both the seller and 
the telemarketer equally liable for any deceptive telemarketing acts or 
practices.
    a. Are there parts of this Section that should apply only to the 
seller or to the telemarketer? If so, what specific Sections should 
apply only to sellers? To telemarketers? Why are such limitations 
appropriate?
    b. What are the benefits of making both sellers and telemarketers 
jointly liable for violations?
    c. What additional costs or other burdens will the rule impose on 
sellers and/or telemarketers if the rule makes both liable for any 
violations of this Section? If the rule makes telemarketers jointly 
liable with sellers, will this reduce the ability of telemarketers to 
respond to the needs of their clients in a timely fashion?
    d. If telemarketers are not jointly liable for deceptive practices 
of the sellers for whom they work, would some telemarketers simply seek 
to avoid knowledge of any questionable practices of the sellers from 
whom they work? Are there alternative ways to keep telemarketers from 
taking such an approach, without imposing full liability for all of the 
actions taken by their clients?
    13. Section 310.3(a)(1) of the proposed rule requires that certain 
disclosures be made before payment is requested for any goods or 
services offered, and that the disclosures be made in the same manner 
and form as the payment request.
    a. Are there other disclosures that should be required? Are any of 
the required disclosures unnecessary?
    b. Is the description of the information to be disclosed clear, 
meaningful, and appropriate?
    c. What are the current practices of sellers and telemarketers 
regarding such disclosures?
    d. What costs will this disclosure requirement impose on legitimate 
businesses?
    e. What are the advantages or disadvantages of requiring these 
disclosures before payment is requested? Is it more appropriate to 
require these disclosures at some other time?
    14. As part of the prohibition against deceptive telemarketing acts 
or practices, Sec. 310.3(a)(2) of the proposed rule prohibits specific 
misrepresentations in connection with telemarketing.
    a. Are there other misrepresentations that should be included in 
the prohibited list? Are any of the prohibited misrepresentations 
unnecessary?
    b. Is the description of the prohibited misrepresentations clear, 
meaningful, and appropriate?
    c. How will this section benefit consumers or law enforcement 
efforts? What, if any, costs will this Section impose on legitimate 
businesses?
    15. As part of the prohibition against deceptive telemarketing acts 
or practices, Sec. 310.3(a)(3) of the proposed rule prohibits specific 
misrepresentations in connection with the offer, offer for sale, or 
sale of any business venture.
    a. Are there other misrepresentations that should be included in 
the prohibited list? Are any of the prohibited misrepresentations 
unnecessary?
    b. Is the description of the prohibited misrepresentations clear, 
meaningful, and appropriate?
    c. How will this section benefit consumers or law enforcement 
efforts? What, if any, costs will this Section impose on legitimate 
businesses?
    16. Section 310.3(a)(4) of the proposed rule prohibits obtaining or 
submitting a check, draft, or other form of negotiable paper for 
payment from a person's checking, savings, share, or similar account 
without that person's express written authorization.
    a. Is this prohibition clear, meaningful, and appropriate?
    b. What are the advantages or disadvantages of this prohibition? 
[[Page 8324]] 
    c. Is the proposed prohibition sufficiently broad to encompass all 
forms by which a person's account could be debited in this manner for 
payment of goods or services?
    d. What will be the economic impact on sellers and telemarketers of 
requiring express written authorization prior to debiting a person's 
account in this manner?
    e. What are the current practices of entities regarding 
authorizations for debiting a person's checking, savings, share, or 
similar account?
    17. Section 310.3(a)(5) of the proposed rule prohibits obtaining 
any amount of money from a person through any means unless the amount 
is expressly authorized by the person.
    a. Is this prohibition clear, meaningful, and appropriate?
    b. What are the advantages or disadvantages of this prohibition?
    c. Is the proposed prohibition sufficiently broad to encompass all 
forms by which a seller or telemarketer could obtain unauthorized 
amounts of money?
    18. Under Sec. 310.3(b)(1) of the proposed rule, it would be a 
deceptive telemarketing act or practice for any person to provide 
substantial assistance or support to any seller or telemarketer when 
that person knows or should know that the seller or telemarketer is 
engaged in any act or practice that violates the rule.
    a. What are the advantages or disadvantages to providing such a 
general prohibition against ``assisting and facilitating?''
    b. Is this general prohibition against ``assisting and 
facilitating'' clear, meaningful, and appropriate?
    c. Are there other approaches to prohibiting ``assisting and 
facilitating'' that would be more useful to consumers? That would be 
more useful to law enforcement authorities? If so, how would these 
alternatives affect the burden the rule places on businesses forced to 
comply with it?
    d. Are there other approaches to prohibiting ``assisting and 
facilitating'' that would reduce the burden imposed on legitimate 
businesses attempting to comply with the rule's requirements? If so, 
how would these alternatives affect the usefulness of the rule to 
consumers? To law enforcement authorities?
    19. Section 310.3(b)(2) of the proposed rule lists specific acts or 
practices that provide substantial assistance or support to 
telemarketing.
    a. Is it appropriate to single out the acts and practices listed in 
this section?
    b. Are there other acts or practices which should be included in 
this section?
    c. Is the description of the listed acts or practices clear, 
meaningful, and appropriate?
    20. Under Sec. 310.3(c) of the proposed rule, certain acts or 
practices that constitute ``credit card laundering'' will be considered 
deceptive and a violation of the rule.
    a. Is the description of prohibited acts or practices clear, 
meaningful, and appropriate?
    b. What are the advantages or disadvantages of this provision?
    c. Is the proposed prohibition sufficiently comprehensive to 
encompass all forms of credit card laundering which have been, are, or 
may be used in connection with telemarketing?
    d. Are there other approaches to prohibiting credit card laundering 
that would be more useful to consumers? To law enforcement authorities? 
If so, how would these alternatives affect the burden the rule places 
on businesses required to comply with it?
    e. Are there other approaches to prohibiting credit card laundering 
that would reduce the burden imposed on legitimate businesses 
attempting to comply with the rule's requirements? If so, how would 
these alternatives affect the usefulness of the rule to consumers? To 
law enforcement authorities?
    f. Will the regulations against credit card laundering interfere 
with current practices of legitimate businesses?

Section 310.4  Abusive Acts or Practices

    21. Section 310.4(a) of the proposed rule lists specific activities 
that will be considered to be abusive telemarketing acts or practices 
and a violation of the Telemarketing Sales Rule. Is there other conduct 
that should be included in Sec. 310.4(a)?
    22. Section 310.4(a) of the proposed rule makes both the seller and 
the telemarketer equally liable for engaging in the listed abusive 
telemarketing acts or practices.
    a. Are there parts of this Section that should apply only to the 
seller or to the telemarketer? If so, what specific sections should 
apply only to sellers? To telemarketers? Why are such limitations 
appropriate?
    b. What are the benefits of making both sellers and telemarketers 
jointly liable for violations?
    c. What additional costs or other burdens will the rule impose on 
sellers and/or telemarketers if the rule makes both liable for any 
violations of this Section? If the rule makes sellers and telemarketers 
jointly liable, will this reduce the ability of telemarketers to 
respond to the needs of their clients in a timely fashion?
    d. If telemarketers are not jointly liable for abusive practices of 
the sellers for whom they work, would some telemarketers simply seek to 
avoid knowledge of any questionable practices of the sellers from whom 
they work? Are there alternative ways to keep telemarketers from taking 
such an approach, without imposing full liability for all of the 
actions taken by their clients?
    23. Section 310.4(a)(1) of the proposed rule prohibits any seller 
or telemarketer from engaging in threats or intimidation.
    a. Is it appropriate to include this practice as an abusive act or 
practice?
    b. Is the description of the prohibited activity clear, meaningful, 
and appropriate?
    c. Are there other approaches to prohibiting this type of activity?
    d. Do the terms ``threats'' and ``intimidation'' need additional 
definition in order to specify the type of behavior that would violate 
the rule, or are the terms self-explanatory?
    24. Section 310.4(a)(2) prohibits a seller or telemarketer from 
providing for or directing a courier to pick up payment from a 
customer.
    a. Is it appropriate to include this practice as an abusive act or 
practice?
    b. Is the description of the prohibited activity clear, meaningful, 
and appropriate?
    c. Are there other approaches to prohibiting this type of activity?
    d. What will be the economic impact, and the costs and benefits, of 
this provision?
    e. Do legitimate telemarketers use couriers to pick up payments? If 
so, in what circumstances? How would these businesses be affected if 
they could not use couriers to pick up payments?
    f. Will a prohibition on courier pick-ups be effective in reducing 
the consumer injury that results from telemarketing fraud? How will a 
fraudulent telemarketer adjust his or her practices in response to this 
prohibition?
    25. Section 310.4(a)(3) of the proposed rule prohibits requesting 
or receiving payment of any fee or consideration for ``credit repair'' 
goods or services until the time frame in which the seller has 
represented the goods or services will be provided has expired and the 
seller has provided documentation that the promised results have been 
achieved.
    a. Is it appropriate to include this practice as an abusive act or 
practice?
    b. Is the description of the prohibited activity clear, meaningful, 
and appropriate? [[Page 8325]] 
    c. Are there other approaches to prohibiting this type of activity?
    d. What will be the economic impact, and the costs and benefits, of 
this provision?
    e. Are there any legitimate services that could not be provided, or 
would be more costly to provide, if this prohibition were promulgated? 
If such services exist, how could the rule be crafted to prohibit 
deceptive credit repair services while still permitting these 
legitimate activities?
    26. Section 310.4(a)(4) of the proposed rule prohibits requesting 
or receiving payment of any fee or consideration for goods or services 
represented to recover or otherwise assist in the return of money or 
any other item of value to a person until three days after such money 
or other item is delivered to that person. This provision does not 
apply to a licensed attorney or licensed private investigator who has a 
written agreement with that person.
    a. Is it appropriate to include this practice as an abusive act or 
practice?
    b. Is the description of the prohibited activity clear, meaningful, 
and appropriate?
    c. Are there other approaches to prohibiting this type of activity?
    d. What will be the economic impact, and the costs and benefits, of 
this provision?
    e. Are there any legitimate services that could not be provided, or 
would be more costly to provide, if this prohibition were promulgated? 
If such services exist, how could the rule be crafted to prohibit 
deceptive recovery services while still permitting these legitimate 
activities?
    f. Is it necessary, useful, and appropriate to exempt licensed 
attorneys and licensed private investigators from this provision?
    g. Does this prohibition impact on legitimate businesses other than 
licensed attorneys or licensed private investigators?
    27. Section 310.4(a)(5) of the proposed rule prohibits requesting 
or receiving payment of any fee or consideration in advance of 
obtaining a loan or any credit service when the seller or telemarketer 
has guaranteed or represented a high likelihood of success in obtaining 
or arranging a loan or credit service for a person.
    a. Is it appropriate to include this practice as an abusive act or 
practice?
    b. Is the description of the prohibited activity clear, meaningful, 
and appropriate?
    c. Are there other approaches to prohibiting this type of activity?
    d. What will be the economic impact, and the costs and benefits, of 
this provision?
    e. Are there any legitimate services that could not be provided, or 
would be more costly to provide, if this prohibition were promulgated? 
If such services exist, how could the rule be crafted to prohibit 
deceptive advance-fee loan schemes while still permitting these 
legitimate activities?
    28. Section 310.4(a)(6) of the proposed rule prohibits failing to 
distribute all prizes or purported prizes offered in a telemarketing 
prize promotion within 18 months of the initial offer to any person.
    a. Is it appropriate to include this practice as an abusive act or 
practice?
    b. Is the description of the prohibited activity clear, meaningful, 
and appropriate?
    c. Are there other approaches to prohibiting this type of activity?
    d. What will be the economic impact, and the costs and benefits, of 
this provision?
    e. What are the current practices of sellers or telemarketers 
regarding the time frame within which prizes are distributed in 
telemarketing prize promotions?
    f. Is 18 months an appropriate period of time in which to require 
that all prizes or purported prizes be distributed?
    29. Section 310.4(a)(7) of the proposed rule prohibits offering or 
selling goods or services through a telephone solicitation to a person 
who previously has paid the same seller for goods or services, until 
all terms and conditions of the initial transaction have been 
fulfilled, including the distribution of all prizes and premiums 
offered in conjunction with the initial transaction.
    a. Is it appropriate to include this practice as an abusive act or 
practice?
    b. Is the description of the prohibited activity clear, meaningful, 
and appropriate?
    c. Are there other approaches to prohibiting this type of activity?
    d. What will be the economic impact, and the costs and benefits, of 
this provision?
    e. What are the current practices of sellers and telemarketers 
regarding making additional telephone solicitations before fulfilling 
the terms and conditions of the initial sales transaction?
    f. Are there telemarketing activities for which this prohibition 
would not be feasible?
    30. Section 310.4(a)(8) of the proposed rule prohibits identifying 
a person as a reference for a business venture unless certain 
requirements are met.
    a. Is it appropriate to include this practice as an abusive act or 
practice?
    b. Are the descriptions of the prohibited activity and of the 
stated requirements clear, meaningful, and appropriate?
    c. Are there other approaches to prohibiting this type of activity?
    d. What will be the economic impact, and the costs and benefits, of 
this provision?
    e. What are the current practices of telemarketers regarding the 
use of references in the telemarketing of business ventures?
    31. Section 310.4(b)(1) of the proposed rule prohibits more than 
one telephone solicitation in any three-month period to a person's 
residence to offer, offer for sale, or sell the same or similar goods 
or services on behalf of the same seller, without the person's prior 
consent. The requirement does not apply to calls made solely to verify 
previous sales or attempted calls which do not reach a person. This 
Section also would prohibit calling a person's residence when that 
person has stated that he or she does not wish to receive further 
telephone solicitations made by or on behalf of the seller.
    a. Are the descriptions of the prohibited activities clear, 
meaningful, and appropriate?
    b. Are there other approaches to prohibiting this type of activity?
    c. Should these prohibitions be extended to business-to-business 
calls?
    d. What will be the economic impact, and the costs and benefits, of 
prohibiting more than one telephone solicitation within any three-month 
period? Is a three-month period of time appropriate?
    e. What will be the economic impact, and the costs and benefits, of 
prohibiting further calls after a person has asked not to receive 
telephone solicitations by or on behalf of the seller?
    f. What are the current practices of sellers and telemarketers 
regarding the number of calls to a person's residence within a 
specified period of time for the same or similar goods or services on 
behalf of the same seller?
    g. What are the current practices of sellers and telemarketers 
regarding identifying those persons who do not wish to receive further 
telephone solicitations by or on behalf of the seller?
    32. Section 310.4(b)(2) of the proposed rule sets forth certain 
actions that a seller or telemarketer can take that would provide a 
defense against liability for violating Secs. 310.4(b)(1). 
[[Page 8326]] 
    a. Is it appropriate to provide a defense against potential 
liability with regard to these activities?
    b. Is it appropriate to limit this defense to one erroneous call 
per person called in any calendar year?
    c. Are there other requirements which should be included in the 
list of practices which provide a defense against potential liability? 
Are any of the activities required by the proposed rule inappropriate?
    d. Is the description of the requirements to avoid liability clear, 
meaningful, and appropriate?
    e. Are there other approaches to providing a defense for potential 
liability that would be more useful?
    f. What will be the economic impact, and the costs and benefits, of 
taking the actions set forth in Sec. 310.4(b)(2)?
    g. What are the current practices of sellers or telemarketers with 
respect to the activities set forth in Sec. 310.4(b)(2)?
    33. Section 310.4(c) of the proposed rule prohibits telephone 
solicitations to a person's residence at any time other than between 
the hours of 8 a.m. and 9 p.m. local time at the called person's 
location, without the prior consent of the person being called.
    a. Is the description of the prohibited activity clear, meaningful, 
and appropriate?
    b. What will be the economic impact, and the costs and benefits, of 
this provision?
    c. What are the current practices of telemarketers regarding the 
times during which telephone solicitations are made to residences?
    d. Should the period when telephone solicitations are permitted be 
narrowed or expanded? Why or why not?
    e. Should this prohibition be extended to contacts between 
businesses?
    34. Section 310.4(d)(1) of the proposed rule requires that certain 
oral disclosures be made at the beginning of all telephone 
solicitations.
    a. Are the descriptions of the required disclosures clear, 
meaningful, and appropriate?
    b. Are there other oral disclosures that should be required? Are 
any of the required disclosures unnecessary?
    c. What will be the economic impact of requiring these disclosures 
at the beginning of the telephone solicitation? If these disclosures 
are not required at the beginning of the telephone solicitation, when 
should they be required? What are the advantages or disadvantages of 
this alternative?
    d. Are the disclosure requirements for those engaged in charitable 
solicitations necessary? Will these disclosure requirements provide 
useful information to consumers? If so, how will this information be 
useful to consumers? What impact will these disclosure requirements 
have on professional fundraisers? What impact will these disclosure 
requirements have on charities that use these professional fundraisers?
    e. Do telemarketers currently make the disclosures required by 
Sec. 310.4(d)(1)? Why or why not?
    f. The proposed rule would prohibit the use of aliases by persons 
making telephone solicitations. Is this appropriate? What are the costs 
and benefits of prohibiting the use of aliases? Is there an alternative 
approach that would permit the use of aliases while still ensuring that 
consumers and law enforcement authorities could identify a particular 
caller? What are the costs and benefits of such an alternative?
    35. Section 310.4(d)(2) of the proposed rule requires that certain 
oral disclosures be made whenever a caller verifies a telemarketing 
sale.
    a. Are the descriptions of the required disclosures clear, 
meaningful, and appropriate?
    b. Are there other oral disclosures that should be required? Are 
any of the required disclosures unnecessary?
    c. What will be the economic impact of requiring these disclosures 
in any verification call?
    d. Do telemarketers currently make the disclosures required by 
Sec. 310.4(d)(2)? Why or why not?
    36. Sections 310.4(d)(3) and (4) of the proposed rule require 
additional disclosures where telemarketing includes a prize promotion 
or an offer of a premium.
    a. Is it appropriate to classify the failure to make these 
additional disclosures as an abusive act or practice?
    b. Are the descriptions of the required disclosures clear, 
meaningful, and appropriate?
    c. Are there other oral disclosures that should be required? Are 
any of the required disclosures unnecessary?
    d. What will be the economic impact of requiring these additional 
oral disclosures? Will these additional oral disclosures help consumers 
protect themselves from fraudulent or deceptive telemarketers?
    e. Is it appropriate to require that these disclosures be made both 
orally and in writing, as is required by Sec. 310.4(e)(1), or would it 
be sufficient to permit either an oral or a written disclosure alone? 
How would the economic costs of this Section be affected if the latter 
approach were adopted?
    f. What are the current practices of telemarketers regarding the 
disclosure of the information required by Secs. 310.4(d)(3) and (4)?
    37. In addition to the oral disclosures required during telephone 
solicitations, Sec. 310.4(e) of the proposed rule requires that written 
disclosures be provided in duplicate in connection with telemarketing 
involving a prize promotion or the offer for sale of any investment 
opportunity.
    a. What are the advantages and disadvantages of these required 
disclosures? Are written disclosures appropriate or necessary?
    b. Is it appropriate to include a failure to make these disclosures 
as an abusive act or practice?
    c. Are the descriptions of the required disclosures, their timing, 
size, and other requirements clear, meaningful, and appropriate?
    d. Are there other written disclosures that should be required? Are 
any of the required written disclosures unnecessary?
    e. Are there any forms of prize promotions or investment 
opportunities for which the disclosures would not be feasible?
    f. Section 310.4(e) specifies the size of the disclosures, what 
else can be included in the envelope with the disclosure, and, for 
prize promotions, what may appear on the face of the envelope. Are 
these specifications necessary to ensure the clarity of the disclosures 
and to ensure that consumers pay attention to them, or would a more 
general standard (e.g., clear and conspicuous) be equally or more 
effective? How would the costs of complying with the requirements of 
this Section be affected if the more general standard were employed?
    g. Section 310.4(e)(2)(iii) of the proposed rule requires, for the 
sale of any investment opportunity involving tangible assets sold on 
credit or leverage, the written disclosure of the percentage of the 
purchaser's down payment that would be devoted to fees and costs by the 
end of both the first six months and the first year after the 
investment is made. Are these time frames useful and appropriate? Would 
it be better not to have a time frame in this disclosure requirement?
    h. What will be the economic impact, and the costs and benefits, of 
requiring these disclosures? Of requiring a written acknowledgement 
prior to payment?
    i. What are the current practices of telemarketers regarding the 
disclosures required in Sec. 310.4(e)? Regarding written 
acknowledgement prior to payment? [[Page 8327]] 
    j. What will be the economic impact, and the costs and benefits, of 
requiring that the written disclosures be provided in duplicate? Will 
this requirement ensure that consumers retain a copy of the required 
disclosure, or are there other approaches to achieve this goal? What 
are the costs and benefits of these alternative approaches?
    k. How many telemarketing campaigns per year will be required to 
comply with the written disclosure requirements? How many prize 
promotions per year are conducted as part of telemarketing campaigns? 
How many people participate in the average prize promotion conducted 
via telemarketing?
    l. How many telemarketing campaigns per year involve sales of 
investment goods? What particular investment goods are sold via 
telemarketing by legitimate sellers? On average, how many people buy 
investments as a result of a telemarketing campaign?
    38. Section 310.4(f) of the proposed rule prohibits any person who 
is subject to any federal court order resolving a case in which the 
complaint alleged a violation of certain sections of the rule, and the 
court did not dismiss or strike all such allegations from the case, to 
sell, rent, publish, or distribute any list of customer contacts from 
that person.
    a. Is this prohibition appropriate? Is the description of the 
prohibited activities clear, meaningful, and appropriate?
    b. What will be the economic impact, and the costs and benefits, of 
prohibiting the sale of lists by such persons?
    c. What are the current practices of telemarketers regarding the 
sale of lists? Specifically, under what circumstances do sellers or 
telemarketers sell or otherwise distribute lists to others?
    d. What would be the effect if this prohibition only applied for a 
certain period of time after the court order was entered? How would 
this limitation hinder law enforcement efforts? What would be an 
appropriate period of time following the entry of an order to prohibit 
list sales?
    e. Should this prohibition extend to a broader class of rule 
violations than that currently proposed? A narrower class?
    39. In addition to or in lieu of some of the provisions in 
Sec. 310.4 of the proposed rule, would it be more appropriate that 
telemarketing sales be subject to a cooling-off rule, or a period of 
time in which the purchaser can cancel a transaction? How would such a 
rule be structured? Should all telemarketing sales be subject to such a 
rule? What is an appropriate ``cooling-off'' time period? Should 
payment be permitted at the time of sale, or should payment be 
prohibited until the end of the cooling-off period? Would it be more 
appropriate to impose a mandatory right to a refund in all 
telemarketing sales? How long of a period would be appropriate for 
consumers to examine a product before returning it?

Section 310.5  Recordkeeping Requirements

    40. Section 310.5(a) of the proposed rule requires sellers or 
telemarketers to keep certain records relating to their telemarketing 
activities for a period of 24 months from the date the record is 
produced.
    a. Are the specified records appropriate to verify compliance with 
the rule? Are any of the required records unnecessary to verify 
compliance with the rule? Should any additional records be required? 
Specifically, should sellers and telemarketers keep copies of any 
consumer complaints they receive? How burdensome would it be to 
maintain such complaints? How many consumer complaints will the average 
legitimate firm have involving its telemarketing sales?
    b. Is the 24-month record retention period appropriate? Why or why 
not? If not, what period is appropriate?
    c. Are there other approaches to recordkeeping requirements that 
would be more useful?
    d. What are the current record retention policies and practices of 
sellers and telemarketers with respect to the records listed in 
Sec. 310.5? Specifically, what records, required to be maintained by 
Sec. 310.5(a), currently are maintained by sellers or telemarketers? 
How long are they maintained?
    e. What will be the economic impact, and the costs and benefits, of 
these recordkeeping requirements?
    f. If the records listed are not required to be retained, how would 
rule compliance be verified?
    g. What has been the experience of State and local law enforcement 
agencies with respect to record retention requirements? Have such 
requirements been useful? If yes, how? If no, why not? What types of 
enforcement issues could arise if recordkeeping were not required?
    h. What volume of records will have to be maintained to comply with 
the requirements of Sec. 310.5(a)? In particular, how many 
telemarketing campaigns will the average firm conduct on an annual 
basis? How many different scripts are used during an average campaign? 
How many consumers are called during an average telemarketing campaign, 
and what percentage of the persons called agree to buy goods or 
services? How many employee records will have to be maintained by the 
average firm engaged in telemarketing?
    41. Under Section 310.5(b) of the proposed rule, a seller and a 
telemarketer calling on behalf of that seller need not keep duplicative 
records, but can enter into a written agreement allocating 
recordkeeping responsibilities between themselves. Section 310.5(c) of 
the proposed rule sets forth the recordkeeping requirements in the 
event of the dissolution, termination, or change in ownership of a 
seller or telemarketer.
    a. Are these provisions clear, meaningful, and appropriate?
    b. What are the advantages or disadvantages to these provisions?
    c. What are the current practices of sellers and telemarketers 
regarding the distribution of responsibility for maintaining records? 
Regarding the maintenance of records in the event of the dissolution, 
termination, or change in ownership of a seller or telemarketer?

Section 310.6  Exemptions

    42. The proposed rule exempts the solicitation of sales by any 
person who engages in fewer than ten telephone sales per year.
    a. Is this proposed exemption clear, meaningful, and appropriate?
    b. Is the scope of the proposed rule sufficiently limited to exempt 
those persons who do not regularly engage in telemarketing?
    c. Are there other approaches to limiting the scope of the rule 
that would be more useful?
    d. Does this exemption pose problems for law enforcement efforts to 
stop deceptive or abusive telemarketing acts or practices?
    43. The proposed rule also exempts telephonic contacts between 
businesses, except such contacts involving the sale of office or 
cleaning supplies or certain charitable solicitations.
    a. Is this proposed exemption clear, meaningful, and appropriate?
    b. Are there other types of goods or services sold in business-to-
business contacts which should not be exempted from the rule?
    c. Are there other approaches to limiting the scope of the rule 
that would be more useful?
    d. Does this exemption pose problems for law enforcement efforts to 
stop deceptive or abusive telemarketing acts or practices?
    44. Finally, the proposed rule exempts a telephonic contact made 
solely by a person when there has been no initial sales contact 
directed to that particular person by the seller or 
[[Page 8328]] telemarketer, except for such contacts related to certain 
employment services, business ventures, investment opportunities, prize 
promotions, or credit-related programs.
    a. Is this proposed exemption clear, meaningful, and appropriate?
    b. Is the scope of the proposed rule sufficiently limited to exempt 
businesses, such as restaurants, car rental companies, travel agents, 
and providers of services, such as plumbers, that rely on the telephone 
for the taking of orders or the scheduling of appointments?
    c. Is it appropriate to exclude from this exemption contacts 
related to employment services, business ventures, investment 
opportunities, prize promotions, or credit-related programs? Are there 
other types of goods or services sold through these types of contacts 
that should not be exempted from the rule?
    d. Is this exemption appropriate for on-line computer information 
services? How would this exemption affect advertising on computer 
bulletin boards? Is it more appropriate to include all contacts made 
over computer information services in the rule?
    e. Are there other approaches to limiting the scope of the rule 
that would be more useful?
    f. Does this exemption pose problems for law enforcement efforts to 
stop deceptive or abusive telemarketing?
    45. Are there other telemarketing activities, such as the sale of 
particular products or other particular kinds of telemarketing, 
currently covered by the proposed rule but which should be exempted? 
How would the exemption of these firms or activities affect the ability 
of law enforcement to stop deceptive or abusive telemarketing acts or 
practices? How would such exemptions affect consumers? How would they 
benefit the firms exempted from the rule's coverage? How many firms 
would be exempted from the coverage of the rule if any proposed change 
were adopted?
    46. How many firms in the United States sell their products, either 
in whole or in part, through telemarketing, as that term is defined in 
the proposed rule? How many of these firms engage in telemarketing on 
their own behalf? How many employ others to engage in telemarketing for 
them? How would the number of firms subject to the rule be changed if 
one or more of the exemptions in Sec. 310.6 were eliminated?

Section 310.8  Federal Preemption

    47. Under Sec. 310.8 of the proposed rule, State laws are preempted 
only when they are in direct conflict with any provision of the rule. 
Is this preemption standard clear, meaningful, and appropriate?
Other
    48. Is it appropriate for the proposed rule to take effect 30 days 
after its date of publication in the Federal Register?
    a. Would 30 days be sufficient time to come into compliance with 
the rule? Why or why not?
    b. For which specific provisions of the rule would compliance be 
possible within 30 days, and for which specific provisions would 
compliance take longer? Would a staggered effective date be more 
appropriate?
    c. If 30 days is an insufficient period of time, what time period 
would be sufficient?
    49. One of the findings which led Congress to pass the 
Telemarketing Act was that telemarketing differs from other sales 
activities because it can be carried out across State lines without 
direct, face-to-face contact with the consumer. Are there new types of 
technology by which sales can be made without direct contact between 
the buyer and seller? Is the proposed rule broad enough to encompass 
such forms of technology? Will the proposed rule requirements be 
appropriate and/or feasible for such other technology?
    50. What kinds of technological changes may be anticipated in the 
area of telemarketing? Will the proposed rule requirements be 
appropriate and/or feasible after these technological changes are 
implemented?
    51. As already noted in Section F, comment is invited on the effect 
of the proposed rule with regard to costs, profitability, 
competitiveness, and employment of small business entities.
    52. To the extent not otherwise addressed by the questions above, 
are there any regulatory alternatives that would reduce any adverse 
economic impact of the proposed rule, yet fully implement the 
Telemarketing Act?
    53. What are the aggregate costs and benefits of the proposed rule? 
Are there any provisions in the proposed rule that are not necessary to 
implement the statute or that impose costs not outweighed by benefits? 
Who will benefit and who will bear the cost? Can we expect either the 
costs or benefits of the rule to dissipate over time?
    54. Does the proposed rule overlap or conflict with other Federal, 
State, or local government laws or regulations?

List of Subjects in 16 CFR Part 310

    Telemarketing, Trade practices.

    Accordingly, it is proposed that chapter I of 16 CFR be amended by 
adding a new part 310 to read as follows:

PART 310--TELEMARKETING SALES RULE
Sec.
310.1  Scope of regulations in this part.
310.2  Definitions.
310.3  Deceptive telemarketing acts or practices.
310.4  Abusive telemarketing acts or practices.
310.5  Recordkeeping requirements.
310.6  Exemptions.
310.7  Actions by states and private persons.
310.8  Federal preemption.
310.9  Severability.

    Authority: 15 U.S.C. 6101-6108.
Sec. 310.1  Scope of regulations in this part.

    This part implements the Telemarketing and Consumer Fraud and Abuse 
Prevention Act (15 U.S.C. 6101-6108).
Sec. 310.2  Definitions.
    (a) Acquirer means a business organization, financial institution, 
or an agent of a business organization or financial institution that 
has authority from an organization that operates or licenses a credit 
card system to authorize merchants to accept, transmit, or process 
payment by credit card through the credit card system for money, goods 
or services, or anything else of value.
    (b) Attorney General means the chief legal officer of a State.
    (c) Business venture means any written or oral business 
arrangement, however denominated, including but not limited to a 
``franchise,'' as that term is defined in the ``Franchise Rule,'' 16 
CFR 436.2(a), which consists of the payment of any consideration for:
    (1) The right or means to offer, sell, or distribute goods or 
services (whether or not identified by a trademark, service mark, trade 
name, advertising, or other commercial symbol); and
    (2) The promise of more than nominal assistance to any person or 
entity in connection with or incidental to the establishment, 
maintenance, or operation of a new business or the entry by an existing 
business into a new line or type of business.
    The term ``business venture'' does not include any business 
arrangement in which persons acquire, or purportedly acquire, 
government-issued licenses or interests in one or more businesses 
derived from the possession of such licenses.
    (d) Cardholder means a person to whom a credit card is issued or 
who is authorized to use a credit card on behalf of or in addition to 
the person to whom the credit card is issued.
    (e) Commission means the Federal Trade Commission.
    (f) Credit card means any instrument or device, whether known as a 
credit [[Page 8329]] card, credit plate, bank service card, banking 
card, check guarantee card, charge card, or debit card, or by any other 
name, issued with or without a fee for the use of the cardholder in 
obtaining money, goods, services, or anything else of value.
    (g) Credit card sales draft means any record or evidence of a 
credit card transaction, including but not limited to any paper, sales 
record, instrument, or other writing, or any electronic or magnetic 
transmission or record.
    (h) Credit card system means any method or procedure used to 
generate, transmit, or process for payment a credit card sales draft.
    (i) Customer means any person who is or may be required to pay for 
goods or services offered through telemarketing.
    (j) Goods or services means any goods or services, including but 
not limited to: Any investment opportunity; any business venture; any 
certificate or coupon which may be later exchanged for a product or 
service; any membership; any license right; any timeshare or campground 
interest; any offer to list a timeshare or campground interest for 
sale; any real property interest; any offer to improve a person's 
credit record, history, rating, or to obtain an extension of credit; 
any charitable service promoted in conjunction with an offer of a 
prize, chance to win a prize, or the opportunity to purchase any other 
goods or services; any service promoted by an employment agency; any 
multi-level marketing service; and any offer of advice or assistance to 
a person.
    (k) Investment opportunity means anything, tangible or intangible, 
excluding a business venture, that is offered, offered for sale, sold, 
or traded (1) to be held, wholly or in part, for purposes of profit or 
income; or (2) based wholly or in part on representations, either 
express or implied, about past, present or future income, profit, or 
appreciation. The term ``investment opportunity'' includes, but is not 
limited to, any business arrangement where persons acquire, or 
purportedly acquire, government-issued licenses or interests in one or 
more businesses derived from the possession of such licenses.
    (l) Material means likely to affect a person's choice of, or 
conduct regarding, goods or services.
    (m) Merchant means a person who is authorized under a written 
contract with an acquirer to honor or accept, transmit, or process 
credit cards in payment for goods or services.
    (n) Merchant agreement means a written contract between a merchant 
and an acquirer authorizing the merchant to honor or accept, transmit, 
or process credit cards in payment for goods or services.
    (o) Person means any individual, group, unincorporated association, 
limited or general partnership, corporation, or other business entity.
    (p) Premium means anything offered or given, independent of chance, 
to customers as an incentive to purchase goods or services offered 
through telemarketing.
    (q) Prize means anything offered, or purportedly offered, to a 
person at no cost and with no obligation to purchase goods or services 
and given, or purportedly given, by chance.
    (r) Prize promotion means:
    (1) A sweepstakes or other game of chance; or
    (2) An oral or written representation that a person has won, has 
been selected to receive, or may be eligible to receive a prize or 
purported prize.
    (s) Seller means any person who, in connection with telemarketing, 
provides or offers to provide goods or services in exchange for 
consideration or a donation.
    (t) State means any State of the United States, the District of 
Columbia, Puerto Rico, the Northern Mariana Islands, and any territory 
or possession of the United States.
    (u) Telemarketer means any person who, in connection with 
telemarketing, initiates or receives a telephonic communication from a 
customer.
    (v) Telemarketing means a plan, program, or campaign which is 
conducted to induce payment for goods or services by use of one or more 
telephones (including the use of a facsimile machine, computer modem, 
or any other telephonic medium) and which involves more than one 
interstate telephone call or connection. The term includes, but is not 
limited to, calls initiated by persons in response to postcards, 
brochures, advertisements, or any other printed, audio, video, 
cinematic or electronic communications by or on behalf of the seller. 
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 material or 
illustrations; and has been issued not less frequently than once a 
year, when 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. For purposes of the previous sentence, 
the term ``further solicitation'' does not include providing the 
customer with information about, or attempting to sell, any other item 
included in the same catalog which prompted the customer's call.
    (w) Telephone solicitation means the initiation of a telephone call 
by a telemarketer to induce payment for goods or services.
    (x) Verifiable retail sales price means the actual, bona fide price 
at which one or more retailers, in the area of the seller's principal 
place of business, has made a substantial number of sales, which the 
seller has documented.


Sec. 310.3  Deceptive telemarketing acts or practices.

    (a) Prohibited deceptive telemarketing acts or practices.
    It is a deceptive telemarketing act or practice and a violation of 
this Rule for any seller or telemarketer to engage in the following 
conduct:
    (1) Before payment is requested for goods or services offered, 
failing to disclose any of the following information in the same manner 
and form as the payment request:
    (i) The total costs, terms, and material restrictions, limitations, 
or conditions of receiving any goods or services;
    (ii) The quantity of any goods or services; and
    (iii) All material terms and conditions of the seller's refund, 
cancellation, exchange, or repurchase policies, including, if 
applicable, a statement that no such policies exist;
    (2) Misrepresenting, directly or by implication, any of the 
following:
    (i) The total costs, terms, or material restrictions, limitations, 
or conditions of receiving any goods or services;
    (ii) The quantity of any goods or services;
    (iii) Any material aspect of the performance, efficacy, or central 
characteristics of any goods or services;
    (iv) The duration of any offer made;
    (v) The nature or terms of the seller's refund, cancellation, 
exchange, or repurchase policies;
    (vi) That any person has been selected to receive a prize;
    (vii) That a premium is a prize;
    (viii) The odds of winning any prize;
    (ix) That a seller or telemarketer is in compliance with any 
Federal, State, or local law, statute, regulation, or ordinance;
    (x) That compliance with any Federal, State, or local law, statute, 
regulation, or ordinance constitutes an endorsement or approval of the 
seller's or telemarketer's business or conduct;
    (xi) Any affiliation, association, connection, or relationship with 
law [[Page 8330]] enforcement, a public safety organization, or any 
Federal, State, or local government agency;
    (xii) The purpose for which the seller or telemarketer will use a 
person's checking, savings, share, or similar account number, credit 
card account number, social security number, or related information;
    (xiii) The nonprofit, tax-exempt, or charitable status, purpose, 
affiliation, or identity of the seller or telemarketer;
    (xiv) A person's eligibility or likelihood to receive a tax 
deduction, loan, or other benefit if the person pays money to the 
seller or telemarketer;
    (xv) The nature, terms, or existence of any prior affiliation, 
association, connection, or relationship with any person;
    (xvi) The nature, terms, or existence of any prior purchase or 
agreement to purchase by any person;
    (xvii) The level of risk, liquidity, markup over acquisition costs, 
past performance, or earnings potential of any investment opportunity;
    (xviii) The market value of any investment opportunity;
    (xix) The likelihood that the market value for an investment 
opportunity will either increase or decrease;
    (xx) The seller's success in assisting persons to liquidate goods 
or services they purchased from the seller, or the profit derived from 
such liquidation;
    (xxi) That goods or services can or are likely to improve a 
person's credit history, credit record, or credit rating, or result in 
a person obtaining credit;
    (xxii) The eligibility of, or likelihood that, a person, regardless 
of that person's credit history, will obtain a loan or other credit-
related service;
    (xxiii) That a seller or telemarketer can recover or otherwise 
effect or assist in the return of money or any other item of value to a 
person; or
    (xxiv) Any other information required to be provided under this 
Rule;
    (3) Misrepresenting, directly or by implication, in connection with 
the offer, offer for sale, or sale of any business venture, any of the 
following:
    (i) The level of earnings;
    (ii) The extent or nature of the market for the goods or services 
to be sold;
    (iii) The nature or availability of any territory;
    (iv) The existence, availability, or provision of retail outlets or 
accounts for the sale of goods or services;
    (v) The existence, availability, or provision of locations or sites 
for vending machines, rack displays, or any other sales display;
    (vi) The nature or availability of any services offered to secure 
any retail outlets, accounts, sites, locations, or displays;
    (vii) That any person owns or operates a business venture purchased 
from the seller; or
    (viii) That a person can give an accurate, independent, description 
of his or her experience as an owner or operator of a business venture 
purchased from the seller;
    (4) Obtaining or submitting for payment from a person's checking, 
savings, share, or similar account, a check, draft, or other form of 
negotiable paper without the person's express written authorization; or
    (5) Obtaining any amount of money from a person through any means, 
unless such an amount is expressly authorized by the person.
    (b) Assisting and facilitating. (1) It is a deceptive telemarketing 
act or practice and a violation of this Rule for a person to provide 
substantial assistance or support to any seller or telemarketer when 
that person knows or should know that the seller or telemarketer is 
engaged in any act or practice that violates this Rule.
    (2) Substantial assistance or support to telemarketing for purposes 
of Sec. 310.3(b)(1) includes, but is not limited to, the following:
    (i) Providing lists of customer contacts to a seller or 
telemarketer;
    (ii) Receiving consideration in exchange for providing a 
testimonial, endorsement, certification, appraisal, or financing, or 
for serving as a reference, with respect to any business venture or 
investment opportunity offered by a seller;
    (iii) Securing retail outlets or accounts for the sale of goods or 
services, or locations or sites for vending machines, rack displays, or 
any other sales displays, used in connection with any business venture;
    (iv) Providing any certificate or coupon which may later be 
exchanged for goods or services; or
    (v) Providing any script, advertising, brochure, promotional 
material, or direct marketing piece to be used in telemarketing.
    (c) Credit card laundering. It is a deceptive telemarketing act or 
practice, and a violation of this Rule, for:
    (1) A merchant to present to or deposit into, or cause another to 
present to or deposit into, the credit card system for payment, a 
credit card sales draft generated by a telemarketing transaction that 
is not the result of a telemarketing credit card transaction between 
the cardholder and the merchant;
    (2) Any person to employ, solicit, or otherwise cause a merchant or 
an employee, representative, or agent of the merchant, to present to or 
deposit into the credit card system for payment, a credit card sales 
draft generated by a telemarketing transaction that is not the result 
of a telemarketing credit card transaction between the cardholder and 
the merchant; or
    (3) Any person to obtain access to the credit card system through 
the use of a business relationship or an affiliation with a merchant, 
when such access is not authorized by the merchant agreement.


Sec. 310.4  Abusive telemarketing acts or practices.

    (a) Abusive conduct generally. It is an abusive telemarketing act 
or practice and a violation of this Rule for any seller or telemarketer 
to engage in the following conduct:
    (1) Threats or intimidation;
    (2) Providing for or directing a courier to pick up payment from a 
customer;
    (3) Requesting or receiving payment of any fee or consideration for 
goods or services represented to improve a person's credit history, 
credit record, or credit rating until:
    (i) The term of the contract, or time frame in which the seller has 
represented all of the goods or services will be provided to that 
person, has expired; and
    (ii) The seller has provided the person with documentation:
    (A) From the original furnisher or provider of the information to 
the consumer reporting agency, confirming that the promised results 
have been achieved; or
    (B) In the form of a consumer report from the consumer reporting 
agency demonstrating that the promised results have been achieved, such 
report having been issued more than six months after the results were 
achieved. Nothing in this Rule alters the requirement in the Fair 
Credit Reporting Act, 15 U.S.C. 1681, that a consumer report may only 
be obtained for a specified permissible purpose.
    (4) Requesting or receiving payment of any fee or consideration for 
goods or services represented to recover or otherwise assist in the 
return of money or any other item of value to a person until three (3) 
days after such money or other item is delivered to that person. This 
provision shall not apply to goods or services provided to a person by 
a licensed attorney or licensed private investigator pursuant to a 
written agreement with that person;
    (5) Requesting or receiving payment of any fee or consideration in 
advance of obtaining a loan or any credit service when the seller or 
telemarketer has guaranteed or represented a high likelihood of success 
in obtaining or [[Page 8331]] arranging a loan or credit service for a 
person;
    (6) Failing to distribute all prizes or purported prizes offered in 
a prize promotion, within 18 months of the initial offer to any person;
    (7) Offering or selling goods or services through a telephone 
solicitation to a person who previously has paid the same seller for 
goods or services, until all terms and conditions of the initial 
transaction have been fulfilled, including but not limited to the 
distribution of all prizes or premiums offered in conjunction with the 
initial transaction; or
    (8) Identifying a person as a reference for a business venture 
unless:
    (i) Such person has actually purchased the business venture;
    (ii) Such person has operated that business venture for a period of 
at least six (6) months, or the seller or telemarketer discloses the 
length of time the person has operated such business venture; and
    (iii) Such person does not receive consideration for any statements 
made to prospective business venture purchasers.
    (b) Pattern of calls. (1) It is an abusive telemarketing act or 
practice and a violation of this Rule for a telemarketer to engage in, 
or for a seller to cause a telemarketer to engage in, the following 
conduct:
    (i) Without a person's prior consent, calling that person's 
residence to offer, offer for sale, or sell, on behalf of the same 
seller, the same or similar goods or services more than once within any 
three (3) month period. This requirement does not apply to attempted 
calls which do not reach a person or to calls made solely to verify a 
previous telephone sale; or
    (ii) Calling a person's residence when that person previously has 
stated that he or she does not wish to receive telephone solicitations 
made by or on behalf of the seller whose goods or services are being 
offered.
    (2) A seller or telemarketer will not be liable for violating 
Sec. 310.4(b)(1) once in any calendar year per person called if:
    (i) It has established and implemented written procedures to comply 
with Sec. 310.4(b)(1) (i) and (ii);
    (ii) It has trained its personnel in the procedures established 
pursuant to Sec. 310.4(b)(2)(i);
    (iii) The seller, or the telemarketer acting on behalf of the 
seller, has maintained and recorded lists of persons who may not be 
contacted, in compliance with Sec. 310.4(b)(1) (i) and (ii); and
    (iv) Any subsequent call is the result of administrative error.
    (c) Calling time restrictions. Without the prior consent of a 
person, it is an abusive telemarketing act or practice and a violation 
of this Rule for a telemarketer to engage in telephone solicitations to 
a person's residence at any time other than between 8 a.m. and 9 p.m. 
local time at the called person's location.
    (d) Required oral disclosures. It is an abusive telemarketing act 
or practice and a violation of this Rule for a telemarketer to fail to 
make any oral disclosures set forth in this section.
    (1) All telephone solicitations shall begin by disclosing:
    (i) The caller's true first and last name, the seller's name, and 
that the purpose of the call is to sell goods or services; or
    (ii) If a telephone solicitation includes a charitable 
solicitation, the caller's true first and last name, the telemarketer's 
name, the telemarketer's status as a paid professional fundraiser, the 
seller's name, that the purpose of the call is to solicit charitable 
donations, and if other goods or services are offered, that the purpose 
of the call is also to sell goods or services.
    (2) If a caller verifies a telemarketing sale, the caller verifying 
the sale must repeat the disclosures required under Sec. 310.3(a)(1).
    (3) Any telemarketing which includes a prize promotion must 
disclose, in addition to all other disclosures required under this 
Section, the following information:
    (i) That no purchase or payment is necessary to win;
    (ii) The verifiable retail sales price of each prize offered or a 
statement that the retail sales price of the prize offered is less than 
$20.00; and
    (iii) The odds of winning each prize offered.
    (4) Any telemarketing which includes an offer of a premium must 
disclose, in addition to all other disclosures required under this 
Section, the verifiable retail sales price of such premium or 
comparable item, or a statement that the retail sales price of the 
premium is less than $20.00.
    (e) Written disclosures/acknowledgements. It is an abusive 
telemarketing act or practice and a violation of this Rule for a seller 
or telemarketer to fail to make any written disclosures set forth in 
this section.
    (1) Prize promotions. If a seller or telemarketer conducts a prize 
promotion, the seller or telemarketer may not request that a person pay 
for goods or services, or accept a payment in any form from a person, 
without first providing the person with a written disclosure, in 
duplicate, and receiving from the person a written acknowledgement that 
the person has read the disclosure. The information shall be disclosed 
on one page, in not less than 10-point type (unless otherwise noted), 
and of a color or shade that readily contrasts with the background of 
the notice. This disclosure shall be sent in an envelope that contains 
no writing representing that the person to whom the envelope is 
addressed has been selected or may be eligible to receive a prize and 
shall contain no other enclosures except for a return envelope, if the 
seller or telemarketer wishes to include such an envelope. This 
disclosure must contain the following information:
    (i) The seller's legal name and telephone number, and the complete 
street address of the seller's principal place of business;
    (ii) If the seller has been in operation under any other name(s), 
each such name and the length of time the seller has operated under 
each name;
    (iii) The verifiable retail sales price of each prize offered or a 
statement that the retail sales price of the prize offered is less than 
$20.00;
    (iv) The odds of winning each prize offered and the number of 
persons who will receive each prize;
    (v) The total amount and description of any shipping or handling 
fees or any other charges that must be paid to receive or use a prize;
    (vi) A complete description of any restrictions, conditions, or 
limitations on eligibility to receive or use a prize, including all 
steps a person must take to receive the most valuable prize offered;
    (vii) The statement: ``No purchase or payment is necessary to 
win,'' with a description of the no-purchase entry method;
    (viii) A statement that a list of winners is available and the 
address to which a person may write to obtain such a list;
    (ix) A statement that it is a violation of this Rule for the seller 
to accept payment in any form unless the seller has received from the 
person the written disclosure acknowledgment required pursuant to 
Sec. 310.4(e)(1); and
    (x) The statement: ``I have read and understand this disclosure,'' 
in at least 12-point bold face type immediately preceding a signature 
block.
    (2) Investment opportunities. (i) If a seller or telemarketer 
offers for sale any investment opportunity, the seller or telemarketer 
may not request that a person pay, or accept a payment in any form from 
a person, for that investment opportunity without first providing the 
person with a written disclosure, in [[Page 8332]] duplicate, and 
receiving from the person a written acknowledgement that the person has 
read the disclosure. The information shall be disclosed in not less 
than 10-point type (unless otherwise noted), of a color or shade that 
readily contrasts with the background of the notice, and segregated 
from all other information. This disclosure shall be sent in an 
envelope that contains no other enclosures except for a return 
envelope, if the seller or telemarketer wishes to include such an 
envelope. This disclosure must contain the following information:
    (A) The seller's legal name and telephone number, and the complete 
street address of the seller's principal place of business;
    (B) If the seller has been in operation under any other name(s), 
each such name and the length of time the seller has operated under 
each name;
    (C) The complete cost to make the investment and a detailed list of 
all present charges and any anticipated future charges;
    (D) A description of all known risks associated with the investment 
opportunity, including the possibility that additional payments might 
be required for a person purchasing the investment opportunity to 
retain that person's interest in the investment opportunity, to realize 
the projected or stated returns of the investment opportunity, to 
prevent total loss of the investment opportunity, or for any other 
reason;
    (E) The length of time the seller has been in business and has 
offered the particular investment opportunity;
    (F) A statement disclosing whether or not the seller is licensed 
and, if so, with whom, the type of license, and the length of time the 
seller has held such license;
    (G) A statement that it is a violation of this Rule for the seller 
to effect an investment transaction unless the seller has received from 
the person the written disclosure acknowledgement required pursuant to 
Sec. 310.4(e)(2); and
    (H) The statement: ``I have read and understand this disclosure,'' 
in at least 12-point bold face type immediately preceding a signature 
block.
    (ii) If a seller or telemarketer offers for sale any investment 
opportunity involving tangible assets, the following additional 
information must be included in the written disclosure set forth in 
Sec. 310.4(e)(2)(i):
    (A) The percentage markup that the seller places on the item above 
its own cost in acquiring the item; and
    (B) An estimate of the value that persons are likely to receive if 
they were to liquidate the asset through a market sale immediately 
following the purchase. All such estimates must be substantiated by 
competent and reliable evidence.
    (iii) If a seller or telemarketer offers for sale any investment 
opportunity involving tangible assets sold on credit or leverage, the 
following additional information, as well as the information set forth 
in Sec. 310.4(e)(2)(ii), must be included in the written disclosure set 
forth in Sec. 310.4(e)(2)(i):
    (A) The percentage of a person's down payment that would be devoted 
to fees and costs by the end of the first six months after the 
investment is made;
    (B) The percentage of a person's down payment that would be devoted 
to fees and costs by the end of the first year after the investment is 
made; and
    (C) A statement that all such investment opportunities are 
extremely risky.
    (iv) If a seller or telemarketer offers for sale any investment 
opportunity involving the acquisition of government-issued licenses or 
interests in businesses derived from the possession of such licenses, 
the following additional information must be included in the written 
disclosure set forth in Sec. 310.4(e)(2)(i):
    (A) All material terms and limitations of any government-issued 
license(s) that serve as the basis for the investment opportunity, 
including but not limited to whether and to whom the license or 
licenses have been issued;
    (B) The percentage of the person's payment that will be used to 
acquire any applicable license(s) from the licensee(s) or from any 
person or entity not affiliated in any way with the seller; and
    (C) The percentage of the person's payment that will be used to 
capitalize any business derived from such license(s).
    (f) Distribution of lists. It is an abusive telemarketing act or 
practice and a violation of this Rule for any person who is subject to 
any federal court order resolving a case in which the complaint alleged 
a violation of Secs. 310.3, 310.4(a) or 310.4(e) of this Rule, and the 
court did not dismiss or strike all such allegations from the case, to 
sell, rent, publish, or distribute any list of customer contacts from 
that person.


Sec. 310.5  Recordkeeping requirements.

    (a) Any seller or telemarketer shall keep, for a period of 24 
months from the date the record is produced, the following records 
relating to its telemarketing activities:
    (1) All advertising, brochures, telemarketing scripts, and 
promotional materials;
    (2) The name and address of each prize recipient and the prize 
awarded;
    (3) The name and address of each customer, the goods or services 
purchased, the date such goods or services were shipped or provided, 
and the amount paid by the customer for the goods or services;
    (4) The name, home address and telephone number, and job title(s) 
for all current and former employees directly involved in telephone 
sales; and
    (5) Any written notices, disclosures, and acknowledgements required 
to be provided or received under this Rule.
    (b) Failure to keep all records required by Sec. 310.5(a) shall be 
a violation of this Rule. The seller and telemarketer calling on behalf 
of the seller are not required to keep duplicative records if the 
seller and telemarketer have entered into a written agreement 
allocating responsibility for the recordkeeping required by this 
Section. When a seller and telemarketer have entered into such an 
agreement, the terms of that agreement shall govern. If the agreement 
is unclear as to whom must maintain any required record(s), the seller 
shall be responsible for keeping such record(s).
    (c) In the event of any dissolution or termination of the seller's 
or telemarketer's business, the principal of that seller or 
telemarketer shall maintain all records as required under this Section. 
In the event of any sale, assignment, succession, or other change in 
ownership of the seller's or telemarketer's business, the successor 
business shall maintain all records required under this Section.


Sec. 310.6  Exemptions.

    The following acts or practices are exempt from this Rule:
    (a) The solicitation of sales by any person who engages in fewer 
than ten (10) sales each year through the use of the telephone;
    (b) Telephonic contacts between businesses, except such contacts 
involving the sale of office or cleaning supplies or the inducement of 
payment for any charitable service promoted in conjunction with an 
offer of a prize, chance to win a prize, or the opportunity to purchase 
any goods or services; and
    (c) A telephonic contact made solely by a person when there has 
been no initial sales contact directed to that particular person, by 
telephone or otherwise, from the seller or telemarketer; provided, 
however, that this exemption does not apply to such 
[[Page 8333]] contacts related to employment services where the seller 
or telemarketer requests or receives payment prior to providing the 
promised services, business ventures, investment opportunities, prize 
promotions, or credit-related programs.


Sec. 310.7  Actions by States and private persons.

    Any attorney general or other officer of a State authorized by the 
State to bring an action under the Telemarketing and Consumer Fraud and 
Abuse Prevention Act, and any private person who brings an action under 
that Act, shall serve written notice of its action on the Commission, 
if feasible, prior to its initiating an action under this Rule. The 
notice shall be sent to the Office of the Director, Bureau of Consumer 
Protection, Federal Trade Commission, Washington, D.C. 20580, and shall 
include a copy of the State's or private person's complaint and any 
other pleadings to be filed with the court. If prior notice is not 
feasible, the State or private person shall serve the Commission with 
the required notice immediately upon instituting its action.


Sec. 310.8  Federal preemption.

    Nothing in this Rule shall be construed to preempt any State law 
that is not in direct conflict with any provision of this Rule.


Sec. 310.9  Severability.

    The provisions of this Rule are separate and severable from one 
another. If any provision is stayed or determined to be invalid, it is 
the Commission's intention that the remaining provisions shall continue 
in effect.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 95-3537 Filed 2-13-95; 8:45 am]
BILLING CODE 6750-01-P