United States: New TSR Regulations Ban Certain Telemarketing Payment Methods

Last Updated: December 2 2015
Practice Guide by Klein Moynihan Turco LLP

This November, the Federal Trade Commission (the “FTC” or “Commission”) amended its Telemarketing Sales Rule (“TSR”) regulations to, among other things, add new outbound and inbound telemarketing payment method prohibitions.

TSR Regulations Include Ban on Remotely Created Payment Orders

With the FTC’s recent rulemaking, it is now an abusive telemarketing practice under the TSR regulations to create a “remotely created payment order” as a telemarketing payment method.  The Commission defines “remotely created payment order” as “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.”  The definition is meant to include remotely created checks.

Referencing scams for phony medical discount products, advance fee loans, credit card interest rate reduction services and magazine subscriptions, the FTC found that remotely created payment orders create a “persistent, ongoing and substantial harm” to consumers when used as a telemarketing payment method.  Because remotely created payment orders are initiated by the merchant (and not the consumer), perpetrators of fraud frequently use this payment method to extract money from consumers without permission.

Ban on Cash-to-Cash Money Transfers and Cash Reload Mechanisms

Additionally, the TSR regulations now ban the acceptance of “cash-to-cash money transfers” or “cash reload mechanisms” as payment for goods or services offered or sold through telemarketing.  The FTC was particularly concerned with the anonymity and irrevocability of these telemarketing payment methods.

“Cash-to-cash money transfers” are a type of wire transfer defined by the Commission as an “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 includes remittance transfers, but does not include electronic fund transfers or gift cards. 

The FTC defines “cash reload mechanism” 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, or an account with a payment intermediary.”  Under the express terms of the rulemaking, please note that the TSR’s new cash-to-cash money transfer and cash reload mechanism prohibitions do not extend to Internet-based transactions.

Expanded Advance Fee Ban

The TSR previously prohibited collecting advanced fees for services promising to recover losses incurred by consumers in a previous telemarketing transaction.  Last week’s revisions expanded the coverage of the existing advance fee ban on recovery services to include losses incurred in any prior transaction, not just telemarketing transactions.

The Commission’s expanded advance fee ban is meant to address the widespread migration of frauds to other communication channels made possible by new technologies, including Internet websites and email.

Telemarketers Should Comply with New Telemarketing Payment Method Prohibitions

The speed and convenience of newer payment methods may appeal to certain operators in the telemarketing space.  However, before initiating telemarketing phone calls or delivering commercial SMS text messages that encourage consumers to use a novel payment method, inbound and outbound telemarketers should ensure that they are compliant with the recently amended Telemarketing Sales Rule and other application regulations.

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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In 2012, the FCC revised its TCPA rules regarding the use of robocalls by telemarketers.
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