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5-03_MBC Alert_Telemarket-2

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  • 1. Mortgage Banking Commentary MAY 2003 Telemarketing: The FTC’s Nationwide Do-Not-Call Registry by Melanie Brody On January 29, 2003, the Federal Trade Commission1 published an extensive set of amendments2 to its Telemarketing Sales Rule.3 The linchpin of the amendments is a new, nationwide do-not-call registry that will enable consumers to register their phone numbers in a national database of telephone numbers that most telemarketers will be prohibited from calling. On April 3, 2003, the FTC announced that the do-not-call registry requirements will become effective on October 1, 2003.4 Accordingly, all covered parties will need to access the registry for the first time between September 1 and September 30, 2003. A summary of the do-not-call registry requirements follows. 5 I. BACKGROUND INFORMATION Congress enacted the Telemarketing and Consumer Fraud and Abuse Prevention Act6 in 1994, primarily as a mechanism to protect consumers against telemarketing fraud. The Telemarketing Act directed the FTC to issue regulations generally prohibiting deceptive and abusive telemarketing acts and practices, and specifically (1) prohibiting certain patterns of unsolicited phone calls, (2) establishing time of day restrictions on unsolicited calls to consumers, and (3) requiring certain disclosures in consumer sales calls. The Commission finalized its original TSR in August 1995. The original Rule became effective on December 31, 1995, and, among other matters, prohibited telemarketers from calling consumers who had indicated that they did not wish to receive calls from the company whose goods or services were being offered. The Telemarketing Act directed the FTC to review the TSR’s effect on deceptive telemarketing acts and practices five years after the Rule became effective. In accordance with this directive, in 2000, the Commission conducted public forums – one focused on the Rule’s “do-not-call” provision and another considering its other provisions – to examine the effectiveness of the Rule. As a result of these proceedings, the Commission decided to amend the TSR to address “recurring abuses” and “emerging problem areas” in telemarketing. In January 2002, the Commission proposed a number of revisions to the TSR,7 including the creation of a national do-not-call registry. After reviewing the comments received on its proposal and conducting another forum to discuss the issues raised by the comments, in December 2002, the Commission issued its final amendments to the TSR. With a few exceptions, the final amendments are substantially similar to the Commission’s proposal. II. COVERAGE OF THE TSR The TSR applies to “telemarketers,” i.e., “any person who, in connection with telemarketing, initiates or receives calls from a customer or donor.”8 Thus, the Rule applies to most companies that engage in telemarketing, including most residential mortgage lenders and servicers. Kirkpatrick & Lockhart LLP
  • 2. There are, however, certain exceptions. First, intrastate calls are not subject to the TSR. The TSR defines the term “telemarketing” as “a plan, program or campaign which is conducted to induce the purchase of goods or services or a charitable contribution, by use of one or more telephones and which involves more than one interstate call.” 9 Second, certain entities, including banks, credit unions and savings and loans, are not covered by the TSR, because they are specifically exempt from the Telemarketing Act.10 Note, however, that subsidiaries and affiliates of exempt entities, and non-exempt companies that provide services to exempt entities, are subject to the Rule.11 In other words, although a national bank is not subject to the Rule, its mortgage company subsidiary would be subject to it, as would any third party service provider that the bank hired to perform telemarketing services on the bank’s behalf. Third, we note that the TSR generally does not apply to telephone calls in which the sale of goods or services or charitable solicitation is not completed, and payment or authorization of payment is not required, until after a face-to-face sales or donation presentation by the seller or charitable organization.12 Because most residential mortgage loan transactions are not completed prior to at least one face-to-face meeting, this exception appears to apply to the telemarketing of residential mortgage loans. Unfortunately, the exception for face-to-face transactions is expressly inapplicable to certain provisions of the TSR, including the provision establishing the do-not-call registry. Accordingly, residential mortgage loan telemarketing remains subject to the registry requirements (unless otherwise exempt). Finally, we note that the Rule does not apply to calls made to businesses (except for sellers or telemarketers of nondurable office or cleaning supplies).13 Accordingly, calls made to mortgage brokers, for example, are not subject to the Rule. III. SUMMARY OF THE TSR’S DO-NOT-CALL REQUIREMENTS The amended TSR contains two main “do-not-call” provisions: (i) the company-specific do-not-call requirements carried over from the original TSR, and (ii) the new, nationwide do-not-call registry. A. Company-Specific Do-Not-Call Requirements Both the original and the amended TSR provide that it is an abusive telemarketing practice and a violation of the Rule to initiate an outbound telephone call to a person when that person has stated that he/she does not wish to receive an outbound telephone call made by or on behalf of the seller whose goods or services are being offered.14 This prohibition is commonly referred to as the “company-specific” do-not-call requirement. B. The Nationwide Do-Not-Call Registry 1. General Rule The amended TSR adds an additional, more comprehensive do-not-call prohibition to the existing, company- specific provision. Under the amended TSR, it is an abusive telemarketing practice and a violation of the Rule to initiate an outbound telephone call to a person when that person’s telephone number is on the FTC’s do-not-call registry (the “Registry”) of persons who do not wish to receive outbound telephone calls to induce the purchase of goods or services.15 2. Exceptions The amended Rule sets forth two exceptions to the foregoing prohibition. First, a telemarketer may initiate an outbound call to a person whose telephone number is on the Registry if the seller of the goods and services in question has obtained the express agreement, in writing, of such person to place calls to him/her. Such written agreement must: (1) clearly evidence the person’s authorization that calls made by or on behalf of a specific party may be placed to him/her, (2) include the telephone number to which the calls may be placed, and (3) set forth the signature of the person (for purposes of this provision, a “signature” includes an Kirkpatrick & Lockhart LLP 2
  • 3. electronic or digital signature to the extent that such form of signature is recognized as a valid signature under applicable federal law or state contract law).16 The preamble to the amended TSR notes that because the consumer’s signature is required, it will be more difficult for sellers and telemarketers to bury the consent in the fine print of a document, where the consumer might not notice it.17 The preamble also states that the express agreement is effective only as long as the consumer has not asked to be placed on the seller’s company-specific do-not-call list. 18 Second, a telemarketer may initiate an outbound call to a person whose telephone number is on the Registry if: (1) the seller of the goods and services in question has an “established business relationship” with such person, and (2) such person has not asked to be included on the seller’s company-specific do-not-call list.19 (If such person asks to be placed on the seller’s company-specific do-not-call list, the seller may not call the consumer again, regardless of whether the consumer continues to do business with the seller.) For purposes of this exception, an “established business relationship” means a relationship between a seller and a consumer based on the consumer’s: (1) purchase, rental or lease of a seller’s goods or services or a financial transaction between the consumer and seller within the 18 months immediately preceding the date of the telemarketing call; or (2) inquiry or application regarding a product or service offered by the seller within three months immediately preceding the date of the telemarketing call.20 The preamble to the amended TSR provides additional guidance regarding the exception for established business relationships. First, for purposes of the 18 month limitation, the preamble clarifies that the 18 months time limit “runs from the last payment or transaction, not from the first payment.”21 Furthermore, the preamble indicates that the established business relationship exception does not encompass all affiliates of a seller. Rather, in determining whether affiliates or subsidiaries should be encompassed in the established business relationship, the Commission will look to consumer expectations. The Commission intends that the affiliates that fall within the exemption will be only those that the consumer would reasonably expect to be included given the nature and type of goods or services offered and the identity of the affiliate. The consumer’s expectations of receiving the call are the measure against which the breadth of the exemption must be judged.22 As an illustration to this point, the preamble indicates that if a consumer purchased aluminum siding from Company A’s subsidiary, the consumer would likely not be surprised to receive a call from a kitchen remodeling service also owned by, and operating under the name of, Company A. 23 3. Interfering with a Person’s Right to be Placed on a Registry The amended TSR provides that it is an abusive telemarketing act or practice in violation of the Rule to deny or interfere in any way, directly or indirectly, with a person’s right to be placed on a company-specific do-not- call list or the nationwide Registry.24 4. Safe Harbor The amended TSR provides a safe harbor for compliance with its do-not-call requirements. In particular, under the TSR, a seller or telemarketer will not be held liable for violating TSR Sections 310.4(b)(1)(ii) and (iii) (i.e., the prohibitions on interfering with a person’s right to be placed on a do-not-call list or registry, calling a telephone number on a company-specific do-not-call list or calling a telephone number on the Registry) if it can demonstrate that, as part of its routine business practice: (1) it has established and implemented written procedures to comply with such prohibitions, (2) it has trained its personnel, and any entity assisting in its compliance, in such procedures, Kirkpatrick & Lockhart LLP 3
  • 4. (3) the seller, or a telemarketer or other person acting on behalf of the seller, has maintained and recorded a list of telephone numbers the seller may not contact in accordance with the company-specific do-not-call requirements, (4) the seller or a telemarketer uses a process to prevent telemarketing to any telephone number on the applicable company-specific do-not-call list or the Registry, using a version of the Registry obtained from the Commission no more than three months prior to making the call, and maintains records documenting this process, (5) the seller or a telemarketer or another person acting on behalf of the seller monitors and enforces compliance with the procedures, and (6) any subsequent call otherwise violating Section 310.4(b)(1)(ii) or (iii) is the result of error.25 5. Implementation The Commission has indicated that consumers will be able to add their telephone numbers to the Registry through a toll-free telephone call or over the Internet. Consumer registrations will remain valid for five years, and the Registry will be periodically purged of all numbers that have been disconnected or reassigned.26 Telemarketers and sellers will need to access the telephone numbers in the Registry and scrub their call lists to eliminate the numbers of consumers who do not want to receive calls. The FTC plans to develop a “fully automated, secure website” that will provide this information. The first time a telemarketer or seller accesses the list, it will need to provide certain limited identifying information. If a telemarketer is accessing the Registry on behalf of a client, it will need to identify the client. 27 The telephone numbers in the Registry will be sorted by area code. Telemarketers and sellers will be able to access as many area codes as desired by, for example, selecting all of the area codes in a particular state. They also will be able to select the entire Registry, if they desire. When a seller or telemarketer first accesses the Registry, it will be required to pay an annual fee (via credit card or electronic funds transfer) for that access, based on the number of area codes selected. Once the annual fee is paid, the telemarketer or seller will be able to access the Registry as often as they desire (as discussed above, they must access the Registry at least every three months).28 On April 3, 2003, the FTC published a revised notice of proposed rulemaking addressing the fees to be imposed for accessing the Registry.29 Under the Revised Proposal, to access the Registry, sellers would be required to pay an annual fee of $29 per area code, with a maximum annual fee of $7,250. The Revised Proposal would allow access to up to five area codes for free. According to the Revised Proposal, once a seller pays the required fee, the FTC will provide it with a unique account number that can be used to access the Registry. The seller can provide the account number to any telemarketer with which it does business (telemarketers that solely engage in telemarketing for others and are not also sellers would not be required to pay a separate fee to access the Registry). The only consumer information that companies will receive from the Registry is each registrant’s telephone number. The FTC emphasizes that the Registry may be used only to comply with the do-not-call requirements. Comments on the Revised Proposal are due on May 1, 2003. IV. INTERACTION WITH OTHER DO-NOT-CALL REQUIREMENTS More than half of the states have enacted do-not-call legislation, and the amended TSR does not preempt these laws.30 This means that telemarketers will need to comply with both the national Registry and all applicable state do-not-call laws. The Commission intends, however, to work with the states and the Federal Communications Commission (which itself is considering the establishment of a national do-not-call registry) to establish a single Kirkpatrick & Lockhart LLP 4
  • 5. “harmonized” do-not-call registry and a single set of compliance obligations. 31 The Commission anticipates that some states will be able to transfer their do-not-call registry information to the national Registry (and will cease requiring telemarketers to access their registry) by the time the national Registry is operational. Other states could take up to three years to become part of the national system. 32 V. OTHER REVISIONS TO THE TSR In addition to establishing the national Registry, the amended TSR also: § Sets forth a definition of the term “upselling,” requires disclosures in upsell transactions and excludes upselling transactions from certain exemptions; § requires sellers and telemarketers that accept payment by methods other than credit and debit cards to obtain their customers’ express verifiable authorization; § imposes requirements on the use of predictive dialers; § requires disclosures and prohibits misrepresentations in the sale of credit card loss protection plans; § requires an additional disclosure for prize promotions; § requires disclosures and prohibits misrepresentations in connection with offers involving negative option features; § removes the general media and direct mail exemptions for telemarketing credit card loss protection plans and certain business opportunities; § requires telemarketers to transmit caller identification information; § removes post-transaction written confirmation as a means of obtaining a customer’s express verifiable authorization in transactions involving “free-to-pay conversion;” § prohibits the disclosure or receipt of a customer’s unencrypted billing information for consideration (subject to certain exceptions); and § requires that the seller or telemarketer obtain the customer’s express informed consent to all transactions, and imposes specific requirements for transactions involving “free-to-pay conversions” and preacquired account information. VI. COMPLIANCE DEADLINE Full compliance with the amended TSR is required on: § October 1, 2003, for the provisions relating to the do-not-call Registry, prohibition on abandoned calls, safe harbor for abandoned calls, and recordkeeping requirements related to the safe harbor; § January 29, 2004, for the caller identification provisions; and § March 31, 2003, for all other provisions.33 * * * * * If you have any questions about the amended TSR, please give us a call. Kirkpatrick & Lockhart LLP 5
  • 6. Endnotes 1. Herein, the “FTC” or the “Commission.” 2. 68 Fed. Reg. 4580 (Jan. 29, 2003). 3. 16 C.F.R. Part 310 (the “TSR” or the “Rule”). 4. 68 Fed. Reg. 16,238 (April 4, 2003). 5. This summary is limited to a discussion of the national registry and certain other requirements. Please note, however, that the TSR amendments address a wide variety of issues. 6. 15 U.S.C. §§ 6101-6108 (the “Telemarketing Act” or the “Act”). 7. 67 Fed. Reg. 4492 (Jan. 30, 2002). 8. 16 C.F.R. §3 10.2(bb). 9. 16 C.F.R. § 310.2(cc) (emphasis added). See also 15 U.S.C. § 6106(4). 10. 15 U.S.C. § 45(a)(2). 11. 68 Fed. Reg. 4586 (Jan. 29, 2003). 12. 16 C.F.R. § 310.6(b)(3). 13. 16 C.F.R. § 310.6(b)(3). 14. 16 C.F.R. § 310.4(b)(1)(iii)(A). 15. 16 C.F.R. § 310.4(b)(1)(iii)(B). 16. 16 C.F.R. § 310.4(b)(1)(iii)(B)(i). 17. 68 Fed. Reg. 4634 (Jan. 29, 2003). 18. 68 Fed. Reg. 4634 (Jan. 29, 2003). 19. 16 C.F.R. § 310.4(b)(1)(iii)(B)(ii). 20. 16 C.F.R. § 310.2(n). 21. 68 Fed. Reg. 4593 (Jan. 29, 2003). 22. 68 Fed. Reg. 4594 (Jan. 29, 2003). 23. 68 Fed. Reg. 4594 (Jan. 29, 2003). 24. 16 C.F.R. § 310.4(b)(1)(ii). 25. 16 C.F.R. § 310.4(b)(3). 26. 68 Fed. Reg. 4,639-4,640 (Jan. 29, 2003). 27. 68 Fed. Reg. 4,640 (Jan. 29, 2003). 28. 68 Fed. Reg. 4,640-4,641 (Jan. 29, 2003). 29. 68 Fed. Reg. 16,238 (April 4, 2003) (the “Revised Proposal”). 30. 68 Fed. Reg. 4,638 (Jan. 29, 2003). 31. 68 Fed. Reg. 4,638 (Jan. 29, 2003). 32. 68 Fed. Reg. 4,641 (Jan. 29, 2003). 33. 68 Fed. Reg. 16,415 (April 4, 2003). Kirkpatrick & Lockhart LLP 6
  • 7. MORTGAGE BANKING/CONSUMER FINANCE GROUP Kirkpatrick & Lockhart LLP was founded in 1946, and, with more than 650 lawyers, is one of the 50 largest law firms in the United States. K&L attorneys are based in ten offices in key U.S. cities—Boston, Dallas, Harrisburg, Los Angeles, Miami, Newark, New York, Pittsburgh, San Francisco, and Washington. Our firm represents a broad range of clients in a wide variety of matters, including corporate and securities, e-commerce, investment management, insurance coverage, financial institutions, mortgage banking and consumer finance, creditors’ rights, intellectual property, tax, labor, environmental, antitrust, health care, and government contracts. More than half our attorneys are litigators. We litigate class actions on a range of financial issues, generally defending financial institutions, broker- dealers, public companies, and investment companies and their officers and directors against claims of violations of securities laws, consumer credit laws, and common law tort and contract claims. You can learn more about our firm by visiting our Internet website at www.kl.com. The Mortgage Banking/Consumer Finance Group provides legal advice and licensing services to the consumer lending industry. We counsel clients engaged in the full range of mortgage banking activities, including the origination, processing, underwriting, closing, funding, insuring, selling, and servicing of residential mortgage loans and consumer loans, from both a transactional and regulatory compliance perspective. Our focus includes both first- and subordinate- lien residential mortgage loans, as well as open-end home equity, property improvement loans and other forms of consumer loans. We also have experience in multi-family and commercial mortgage loans. Our clients include mortgage companies, depository institutions, consumer finance companies, investment bankers, insurance companies, real estate agencies, homebuilders, and venture capital funds. Members of the Mortgage Banking/Consumer Finance Group and their telephone numbers and e-mail addresses are listed below: ATTORNEYS DIRECTOR OF LICENSING Laurence E. Platt 202.778.9034 lplatt@kl.com Stacey L. Riggin 202.778.9202 sriggin@kl.com Phillip L. Schulman 202.778.9027 pschulman@kl.com REGULATORY COMPLIANCE ANALYSTS Costas A. Avrakotos 202.778.9075 cavrakotos@kl.com Dana L. Lopez 202.778.9383 dlopez@kl.com Melanie Brody 202.778.9203 mbrody@kl.com Nancy J. Butler 202.778.9374 nbutler@kl.com Steven M. Kaplan 202.778.9204 skaplan@kl.com Joelle Myers 202.778.9093 jmyers@kl.com Irene C. Freidel 617.261.3115 ifreidel@kl.com Marguerite T. Frampton 202.778.9253 mframpton@kl.com Jonathan Jaffe 415.249.1023 jjaffe@kl.com Jeffrey Prost 202.778.9364 jprost@kl.com R. Bruce Allensworth 617.261.3119 ballensworth@kl.com Patricia E. Mesa 202.778.9219 pmesa@kl.com Daniel J. Tobin 202.778.9074 dtobin@kl.com Kanasha Scott 202.778.9384 kscott@kl.com H. John Steele 202.778.9489 jsteele@kl.com Heidi M. Evans 202.778.9241 hevans@kl.com Anthony P. La Rocco 973.848.4014 alarocco@kl.com David L. Beam 202.778.9026 dbeam@kl.com LEGAL ASSISTANTS Emily J. Booth 202.778.9112 ebooth@kl.com Carol A. Carson 415.249.1091 ccarson@kl.com Eric J. Edwardson 202.778.9387 eedwardson@kl.com Mera C. Choi 202.778.9415 mchoi@kl.com Suzanne F. Garwood 202.778.9892 sgarwood@kl.com Tara L. Goebel 202.778.9261 tgoebel@kl.com Laura A. Johnson 202.778.9249 laura.johnson@kl.com Kristie D. Kully 202.778.9301 kkully@kl.com Sam A. Ozeck 202.778.9085 sozeck@kl.com Krista Patterson 202.778.9257 kpatterson@kl.com Nanci L. Weissgold 202.778.9314 nweissgold@kl.com ® Kirkpatrick & Lockhart LLP Challenge us.® www.kl.com BOSTON n DALLAS n HARRISBURG n LOS ANGELES n MIAMI n NEWARK n NEW YORK n PITTSBURGH n SAN FRANCISCO n WASHINGTON .................................................................................................................................................... This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. © 2003 KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED.

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