Telemarketing Disclosure Compliance Guide

When endeavoring to engage in a sale with a consumer over the telephone, it is important that sellers and telemarketers comply with traditional state and federal contracting laws. Equally, if not more, important is that sellers and telemarketers comply with applicable state and federal telemarketing sales rules. This Practice Guide addresses compliance issues associated with the federal Telemarketing Sales Rule (the "TSR"), as promulgated by the Federal Trade Commission ("FTC").

Material Information

The TSR requires sellers and telemarketers, both on outbound and inbound calls, to provide certain "material information" before consumers order/pay for the applicable goods or services that are the subject of the telemarketing calls. Material information is information that a consumer needs in order to make an informed decision about whether to purchase the applicable seller's or telemarketer's goods or services. Failure to provide this material information before the consumer pays for the goods or services is a deceptive telemarketing practice that violates the TSR and subjects the seller or telemarketer to civil penalties of up to $16,000 for each violation.

When to Disclose

When making outbound calls, sellers and telemarketers must promptly disclose certain types of information in their presentation. This required information must be provided prior to asking for any credit card or payment information from the consumer.

In addition, where the seller or telemarketer has "pre-acquired account information," it must provide the required disclosures before the consumer provides his or her express informed consent to purchase the applicable product or service. Pre-acquired account information is any information that enables the seller/telemarketer to charge a consumer's account without obtaining the account information directly from the consumer during the telemarketing call.

General Disclosures

The TSR specifies several broad categories of information that sellers and telemarketers must provide to consumers before obtaining their consent to purchase products or services during a given telemarketing call including, but not limited to, the following:

• The TSR requires the disclosure of the total cost to purchase the offered goods or services. This includes disclosing, where applicable, the total number of installment payments and the amount of each such payment, among other things.
• The TSR requires that sellers and telemarketers disclose all "material restrictions, limitations or conditions" to purchase the goods or services that are offered to the consumer. A material restriction, limitation or condition is one that, if known to the consumer, would likely affect the decision to purchase.
• If there is a policy of honoring requests for refunds or cancelations, this must be disclosed fully if sellers/telemarketers make a statement about this policy during their sales presentations. If the sales presentation includes a statement about such policy, it must also include a clear and conspicuous disclosure of the terms and conditions of the policy that are likely to affect a consumer's decision on whether to purchase.
• A seller or telemarketer that offers a prize promotion must provide consumers with several items of information before the consumer pays for any associated goods or services that are offered in connection with the promotion, including: (1) the odds of winning the prize(s); (2) that no purchase is necessary and that any purchase or payment will not increase the odds of winning; (3) how to enter the promotion without paying any money or making a purchase; and (4) any material costs or conditions to receive or redeem any prize(s).

Negative Option Features

Under the TSR, any seller or telemarketer whose offer of a product or service involves a negative option feature (for example, a free-to-pay conversion or free-trial offer) must truthfully, clearly and conspicuously disclose three pieces of information:

1. The fact that the consumer's account will be charged unless he or she takes
2. affirmative action (such as cancelling) to avoid the charge;
3. The date(s) on which the charges(s) will be submitted for payment; and
4. The specific steps the customer must take to avoid the charge(s).

Outbound Sales Calls

A number of disclosures must be promptly made in all outbound sales calls, including:

• The identity of the seller (i.e., its corporate name or registered d/b/a);
• That the purpose of the call is to sell goods or services;
• The nature of the goods or services offered; and
• In the case of a prize promotion, that no purchase or payment is necessary to participate and that a purchase or payment will not increase the odds of winning.

Other Disclosure Requirements

The foregoing contains just some of the TSR disclosure requirements that sellers and telemarketers must comply with when engaging in sales calls in the United States. In addition, operators in this space should also observe applicable state-specific telemarketing sales regulations when telemarketing in certain jurisdictions.