A telemarketer’s worst nightmare, a national do-not-call list accompanied by a passel of new regulations, was announced today by the Federal Trade Commission.
The most important feature of the amended Telemarketing Sales Rule is the establishment of a national do-not-call registry. Marketers would be required to "scrub" their lists using the registry every three months and also to honor company-specific do-not-call requests. Fines for noncompliance could total $11,000 per day.
The Direct Marketing Association said that the proposed list is unlawful, and that the FTC is acting prematurely at a time when the Federal Communications Commission is also considering revising its rules. The DMA also threatened to take legal action.
But FTC chairman Timothy J. Muris argued at a press conference that the FTC is giving consumers "the option to protect their privacy in their homes. I believe the constitution protects that right."
Other new measures include a 3% call abandonment rate for automatic dialers and tough requirements on billing authorization, which some critics say would inhibit impulse buying.
Most of the provisions in the amended rule will take effect immediately. However, the do-not-call list will not be up and running for four months after Congressional funding approval, and it will take at least another two months before telemarketers will be able access the registry.
Muris said the FTC needs $16 million to set up the system, and that no taxpayer dollars will be used. The DMA argued that the FTC's original cost projection was $5 million.
Muris added that the FTC will be able to enforce compliance seven months after Congressional approval, which he expects will occur as part of the appropriations process. The FTC is now looking for a contractor to maintain the do-not-call list.
There will be no charge for consumers, who can register their phone number via a toll-free telephone number or a dedicated Web site (www.ftc.gov.donotcall). Registration will be phased in by region.
But there are several exemptions. Charitable fundraisers would be exempt from using the national registry, but they would be required to maintain entity-specific do-not-call requests if they use for-profit teleservices vendors. Survey calls are also exempt from the rule.
In addition, companies with an existing relationship can call a customer up to 18 months after a sale. Firms responding to inquiries have three months to call.
Asked how much an individual firm would pay for the do-not-call registry, Muris answered that the fee structure will require a separate rulemaking process.
"Right now, a national telemarketer that complies with every state (do-not-call law) will pay over $10,000," he said. "Our fee will be substantially less than that."
Muris was iffy about whether the new rule will preempt state laws. The FTC has talked to several states about sharing its do-not-call list with them, and using information from theirs, he said. He expects that many states will pass do-not-call laws to allow them to enforce the TSR in state court.
Still, some state officials are skeptical.
"The board principle of a national registry, and the FTC’s reassurance that State no-call laws will not be preempted is encouraging, but the devil will be in the details implementing a national no-call rule," said Colorado Attorney General Ken Salazar in a statement.
Salazar added that the FTC’s rule "may very well not cover intrastate calls or commercial telemarketing activities by common carriers, telephone companies and financial institutions because of lack of FTC jurisdiction over those industries. Colorado’s law does."
Muris also wasn’t sure about how the FTC rule will coincide with new rulemaking by the Federal Communications Commission, which is expected next spring. An FCC rule would cover the banking and telecommunications industries and other sectors not covered by the FTC.
"If the FCC rule was in place, about 80% of the calls would be covered," Muris said. "If the world was frozen today, a very high percentage of that 80% would be covered."
He added that he expects the FCC will not create a separate do-not-call list. "I hope they develop a rule that conforms with ours," he said.
Advance Consent
Also of concern to marketers are the new rules governing billing authorization. Companies will be prohibited from receiving unencrypted consumer account numbers except for the purposes of processing payment.
In addition, the amended rule bans unauthorized billing. And telemarketers would be prohibited from processing any billing information without the consent of the consumer.
This follows a series of notorious cases in which consumers’ credit and bank cards were debited without permission. Muris mentioned an $8 million-plus settlement with Triad Marketing last year.
"I think we have a very tough and appropriate solution," Muris said.
Express consent must be obtained when the telemarketer has the ability to charge the consumer’s account without being told the account number, and when there is a conversion from free to paid status. The telemarketer must obtain from the consumer the last four digits of the account number to be charged, and the entire transaction must be recorded.
This strikes some observers as excessive. Elissa Matulis Myers, CEO of the Electronic Retailing Association, argued that the rule will require telemarketers to elicit the numbers for every purchase and upsell made on a call.
"We think that’s paternalistic," she said. "We think consumers are smarter than that."
She added that this measure will also inhibit impulse spending by consumers.
The amended rule also requires clear disclosure of all material terms of an offer involving a free trial period after which charges are incurred. And it requires up the provisions for payment by "demand drafts," in which a consumer’s checking account is debited automatically. Consumers must give their "express verifiable authorization" for such debiting.
However, the provisions do not cover payment by credit cards subject to the Fair Credit Billing Act or debit cards subject to the Electronic Funds Transfer Act.
Automatic Dialing
The enhanced rule also effectively abolishes abandoned calls by automatic dialers, Muris said. Going forward, firms must have an abandonment rate of 3% or less per day per campaign.
They must also allow a consumer’s telephone to ring for at least 15 seconds—or four rings—before disconnecting. Each call must be connected with a sales representative or with a recorded message stating the name and telephone number of the seller within two second of the consumer’s greeting.
Finally, telemarketing will be required to transmit caller-ID information so that consumers who have the capability will know who is calling.
Muris said he expects to assign a dozen people to enforcement, and many additional staffers to track complaints.
Industry Comment
Trade groups had mixed views on the package of regulations.
"Clearly, there are some things we don’t object to," said DMA spokesperson Louis Mastria. "The advance consent stuff, the caller ID, those are things that will be good for the industry long-term."
But the DMA feels that the FTC has jumped the gun.
"Muris’s comments throughout that press conference were peppered with the word ‘hope,’" Mastria said. "We ‘hope’ the FCC goes along. We ‘hope’ Congress gives authority. Why not wait until you have the stuff in place?
Mastria added that the states will not allow themselves to be preempted by the federal government.
"For some states, this do-not-call thing has become a little bit of a revenue generator," he said.
The ERA’s Myers questioned whether the 18-month cutoff is reasonable for a company selling a "serial or continuity product with a duration of more than 18 months."
Marketers also had mixed views.
"The FTC was very receptive to industry comments," said Jim Lehrburger, managing counsel for HSN, St. Petersburg, FL. "I think we are going to find we are in compliance."
Asked about the billing disclosure provisions, Lehrburger said, "It’s not likely to have a significant impact on us. Full disclosure and authorization are both essential elements of any fair sales relationship."
Even consumer advocates were not totally pleased.
"The telemarketing industry must love this because it will give them a list of people who don't want to be solicited," said Bob Bulmash, president of Private Citizen, a Naperville, IL advocacy organization.
Bulmash questioned whether Congress will quickly authorize the funding setup.
"We have a Republican president and Republican Congress and you can bet that companies like AT&T, Verizon and SBC will be lobbying hard against this," he said.
