New TSR Regulations Ban Certain Telemarketing Payment Methods

Recently, 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.