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From Banking and Finance Law Daily, November 25, 2014

State AGs urge FTC to strengthen telemarketing rules

By Charles A. Menke, J.D.

State attorneys general from 38 states and territories have urged the Federal Trade Commission to expand the consumer protections of the federal Telemarketing Sales Rule (TSR), which defines and prohibits deceptive and abusive telemarketing practices, Pennsylvania Attorney General Kathleen G. Kane announced. In a comment letter to the FTC that was co-sponsored by Kane and Florida Attorney General Pam Bondi, the state officials requested the FTC to address areas of frequent consumer complaints, including protecting consumer information from being passed on to third parties; expanding restrictions on negative option marketing and sales; improving requirements for record keeping; and banning or restricting non-traditional payment methods.

“Updating the Telemarketing Sales Rule will further protect our consumers from unscrupulous telemarketers who will use any means necessary to exploit consumers, especially senior citizens,” Bondi said. She noted that her office and the FTC recently shut down two multi-million dollar schemes where telemarketers sold tech support services to consumers nationwide to exploit the consumers’ fears of viruses, malware, and other security threats to their computers.

Massachusetts Attorney General Martha Coakley urged the FTC to strengthen its guidelines, expressing concern over “the number of unwarranted telephone calls seeking personal or financial information.” New York Attorney General Eric T. Schneiderman added that “the FTC’s rules must contain protections for consumers that reflect the most abusive and common types of fraud and abuse.”

Background. In August 2014, the FTC published a notice seeking public comments on the effectiveness of the rule, and its potential expansion or modification to address changes in the marketplace. (Banking and Finance Law Daily, Aug.1, 2014) The TSR was enacted in 1995 and applies to virtually all “telemarketing” activities, both U.S. calls and sales calls from abroad to U.S. citizens. With some exceptions, the rule generally applies only to outbound calls made by telemarketers to consumers.

Concerns. While the attorneys general emphasized the continued need for the TSR, they contended that several areas of concern require attention, including:

  • an increase in the number of fraud complaints from consumers who are contacted by telephone;

  • the pervasiveness of general media solicitations and advertisements that have resulted in the growth of inbound telemarketing;

  • the use of certain payment methods that allow retrieval of funds with little meaningful scrutiny of the recipient’s identity; and

  • telemarketers' use of consumers' debit and credit card account information obtained prior to telemarketing sales calls.

Pre-acquired account telemarketing. The comments urged the FTC to prohibit the use of pre-acquired account telemarketing which allows a business to pass on a consumer’s payment information to a third party, who, in turn, offers a product or service to the consumer. The state attorneys general believe that consumers are often unaware that a third party has their financial information, and after agreeing to accept a “free trial,” learn later that the third party vendor has billed the consumer for the product or service.

Negative option plans. Consumers often are enrolled in negative option plans where the consumer continually receives and is charged for products or services unless affirmative steps are taken to opt-out of the purchase. Unless a consumer fully understands consents to the recurring charges, the consumer may find it difficult or impossible to stop them, the state officials contended.

Records. The attorneys general suggested that telemarketers be required to create and maintain records of the calls they place. This would enhance the ability of law enforcement agencies to identify and stop deceptive or abusive telemarketing practices.

Payment methods. The letter also urged the FTC to restrict or prohibit certain novel payment methods in telemarketing transactions, such as wire transfers, that provide fewer consumer protections and little oversight.

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