The Federal Trade Commission (FTC) has finalized changes to its telemarketing sales rule (TSR) that will prohibit sellers and telemarketers from creating or accepting remotely created payment orders or checks, cash-to-cash money transfers, and cash reload mechanisms as payment in inbound and outbound telemarketing transactions. The new prohibitions will be effective 180 days after the final rule's publication in the Federal Register while other TSR changes made by the final rule will be effective 60 days after publication.

The TSR implements the Telemarketing and Consumer Fraud and Abuse Prevention Act, which authorizes the FTC to prescribe rules prohibiting deceptive and “other abusive” telemarketing acts or practices. In the supplementary information accompanying the final rule, the FTC states that it found the banned payment methods to be “abusive” because their use met the test for an “unfair” act or practice in Section 5 of the FTC Act.

As defined by the final rule, a “remotely created payment order” means “any payment instruction or order drawn on a person’s account that is (a) created by the payee or the payee’s agent and (b) deposited into or cleared through the check clearing system.” While the FTC’s proposal separately defined the term “remotely created check,” the final rule provides that a “remotely created payment order” includes a “remotely created check” as defined in Regulation CC (which implements the Expedited Funds Availability Act), but does not include a payment order cleared through the Automated Clearinghouse (ACH) Network or that is subject to the Truth in Lending Act (TILA). (The FTC’s proposal defined both terms to only include “unsigned” payment orders or checks.  In the supplementary information, the FTC states that it deleted the signature reference from the final rule’s definition due to concerns about the use of signature images to circumvent the prohibition.)

The final rule also prohibits the use of cash-to-cash money transfers and cash reload mechanisms. A “cash-to-cash money transfer” is defined as “the electronic…transfer of the value of cash received from one person to another person in a different location that is sent by a money transfer provider and received in the form of cash.” The term does not include transactions that are electronic fund transfers as defined in the Electronic Fund Transfer Act, covered by Regulation E gift card provisions, or subject to TILA.  (The TILA reference in the definitions of “remotely created payment order” and “cash-to-cash money transfer” appears intended to cover transactions that are subject to the billing error and unauthorized use provisions of TILA and Regulation Z.) A “money transfer provider” is “any person or financial institution that provides cash-to-cash money transfers for a person in the normal course of its business” whether or not such person is an accountholder.

A “cash reload mechanism” is defined as a “device, authorization code, personal identification number or other security measure that makes it possible for a person to convert cash into an electronic…form that can be used to add funds to a general-use prepaid card, as defined in Regulation E…or an account with a payment intermediary.” The final rule’s definition includes language not found in the proposal which, according to the supplementary information, was added by the FTC to make clear that the “cash reload mechanism” prohibition does not apply to telemarketing transactions in which a consumer uses a general-purpose reloadable debit card, swipe reload process “or similar method in which funds are added directly onto a person’s own general-use prepaid card or account with a payment intermediary.”

The final rule adopts the FTC’s proposal to apply the prohibitions to both outbound and inbound telemarketing calls. It requires sellers and telemarketers that qualify for the TSR’s exemptions for inbound calls from consumers in response to certain general media advertisements or direct mail solicitations to comply with the new prohibitions, including in such inbound calls. In the supplementary information, the FTC states that although non-compliance with the prohibitions will subject such a seller or telemarketer to a TSR enforcement action for the violation, the violator remains exempt from other TSR requirements.

The final rule expands the TSR’s ban on advance fees for recovery services to include services relating to losses incurred in any prior transaction, instead of just losses incurred in telemarketing transactions.  It also includes various TSR clarifications, including:

  • Revised language to indicate that a recording made to memorialize a consumer’s express verifiable oral authorization of a charge for a telemarketing transaction must include “an accurate description, clearly and conspicuously stated of the goods or services or charitable contribution for which payment authorization is sought.”
  • Revised language to indicate that the business-to-business exemption only applies to calls to solicit purchases by or charitable contributions from the business itself rather than personal purchases by or contributions from employees.
  • Revisions to various do-not-call requirements, including the addition of language intended to make clear that a seller or telemarketer has the burden of demonstrating the seller’s eligibility for the existing business relationship or express written agreement carve outs from the prohibition against calls to persons on the National Do Not Call Registry, and examples of practices that violate the prohibition on denying or interfering with a consumer’s right to be placed on an entity specific do-not-call list.

Ballard Spahr attorneys are available to advise sellers and telemarketers on compliance with the TSR, as well as other applicable consumer financial services laws. The firm’s attorneys can also review internal rules and provide guidance in conducting periodic audits to ensure the TSR is being followed. The firm’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

If you have any questions about this alert, please contact CFS Practice Leader Alan S. Kaplinsky, Practice Leader Jeremy T. Rosenblum, John L. Culhane, Jr., or Mark J. Furletti.

 

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