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FTC Proposes New Rules to Protect Consumers From Being Scammed

The Federal Trade Commission is proposing new rules to help protect consumers and is opening a public comment period in which anyone can offer feedback and the ability to comment on the proposed rules.

The proposed changes in the Telemarketing Sales Rule, or TSR as many call it, is partially created because of some recent scams that have involved how entities take money from consumers.

The proposed amendments would: bar sellers and telemarketers from accepting remotely created checks, remotely created payment orders, cash-to-cash money transfers (like Western Union or MoneyGram), and cash reload mechanisms as payment in inbound or outbound telemarketing transactions; expand the scope of the advance fee ban on “recovery” services, now limited to recovery of losses in prior telemarketing transactions, to include recovery of losses in any previous transaction; and clarify other TSR provisions.

The instances that comes to mind I’ve written about that these rules appear to cover are those involving payment over the phone by check or when consumers have been directed to go out and purchase pre-loaded debit cards, like Green Dot Cards, and then give the card information to the scammer who quickly drains the card.

As the proposed rules say, “Several additional proposed amendments are designed to clarify the language of certain existing TSR requirements to reflect Commission enforcement policy.”

New TSR Rules That Impact the Debt Relief Industry

These amendments would:

  1. specify that the recording of a consumer’s express verifiable authorization must include a description of the goods or services being purchased;
  2. state expressly that a seller or telemarketer bears the burden of demonstrating that the seller has an existing business relationship with, or has obtained an express written agreement from, a person whose number is listed on the Do Not Call Registry;
  3. clarify that the business-to-business exemption extends only to calls to induce a sale to or contribution from a business entity, and not to calls to induce sales to or contributions from individuals employed by the business;
  4. emphasize that the prohibition against sellers sharing the cost of Do Not Call Registry fees, which are nontransferrable, is absolute; and
  5. illustrate the types of impermissible burdens that deny or interfere with a consumer’s right to be placed on a seller’s or telemarketer’s entity-specific do-not-call list. A related amendment would specify that a seller’s or telemarketer’s failure to obtain the information necessary to honor a consumer’s request to be placed on a seller’s entity-specific do-not-call list pursuant to section 310.4(b)(1)(ii) will disqualify it from relying on the safe harbor for isolated or inadvertent violations in section 310.4(b)(3).

These new proposed rules and rules and existing rules need to be familiar to any debt relief entity which uses any type of telemarketing service. As the FTC states, “The TSR prohibits any person from providing substantial assistance or support to a seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates sections.”

The FTC proposes amending the TSR to prohibit the use of these novel payment methods – remotely created checks, remotely created payment orders, cash-to-cash money transfers, and cash reload mechanisms – in all telemarketing transactions.

The remotely created check can be as simple as a using the consumers bank routing and account number to print something that looks like a check and does not even need to have the consumers signature on the check itself. It may not be printed with special ink and as unbelievable as it sounds, a simple laser printed facsimile can be deposited into a bank. But consumers are generally unaware that when they give their routing number and account number to entities over the phone and the payment is taken by a remotely created check instead of an electronic ACH, there are virtually no federal consumer protection laws or regulations apply to remotely created checks deposited into the check clearing system. And there is no way for a consumer to dispute or withhold payment before the funds are withdrawn from her account.

Recently, the United States Attorney for the Eastern District of Pennsylvania obtained a $15 million civil penalty against First Bank of Delaware, based on its origination of remotely created checks, remotely created payment orders, and ACH debits on behalf of merchants and payment processors engaged in fraud, including the defendants in FTC v. Landmark.

First Bank of Delaware also processed payments for the defendants, who allegedly used fake news websites to promote their products, made deceptive weight-loss claims, and misrepresented the terms of their “free trial” offers.

An OCC investigation revealed that over 60 percent of these remotely created checks were returned to the bank by or on behalf of individuals who said they never authorized the checks or that they had never received the products or services promised by the telemarketers or merchants.

Consumer need to be particularly aware that they have a degree of confidence and trust in who they give their bank account information to. As the FTC notes, “consumers cannot reasonably avoid the injury. When consumers give their bank account numbers to a telemarketer to make a purchase, they have little or no ability to control whether the telemarketer will process the charge via the ACH system, which is monitored for fraud and provides EFTA and Regulation E protections, or as a remotely created check or remotely created payment order.”

The cash-to-cash prohibition to the TSR would certainly be a welcome addition. Over the past few years I’ve observed a number of scams, and especially advanced fee loan scams, that require a consumer to make payment via Western Union or MoneyGram. But the “pay in advance for a loan” is not the only use of this payment method, alleged lottery winners have been fleeced with this payment method as well.

It seems most of the money taken in such scams has been sent to foreign countries which make the recovery nearly impossible.

Cash-to-cash money transfers offer individuals a fast and convenient method for sending funds to someone they know and trust in a different location. This speed and ease, however, make these money transfers a preferred payment method in telemarketing to perpetrate crossborder fraud. To initiate a cash-to-cash money transfer, a sender provides currency to a money transfer provider (such as Western Union or MoneyGram), fills out a “send form” designating the name and address of the recipient to whom the money transfer is to be sent, and pays a transaction fee. The money transfer provider’s employee or agent inputs the transaction information into a computer network, whereupon the value of the money the sender paid is made available within minutes to the recipient. At that point, the recipient can claim the funds in cash at any of the money transfer provider’s locations, with little or no need to provide any personal identification or identifying information in order to do so.124 For example, when initiating money transfers of less than $900 at MoneyGram, the sender has the option of using a “Test Question and Answer,” which enables the recipient to claim the funds without presenting photo identification by instead correctly answering the sender’s test question.

An FTC survey demonstrated that at least 79 percent of all MoneyGram transfers of $1,000 or more from the United States to Canada over a four-month period in 2007 were fraud-induced. A similar survey of Western Union customers, conducted by Attorneys General in several states, concluded that approximately one-third of the person-to-person transfers of over $300 to Canada were fraud-induced.138 The Western Union survey revealed that fraud-induced transfers represented 58 percent of the total dollars transferred by the surveyed consumers, and that the average transfer by a defrauded consumer was $1,500.

Some Related Past Stories I’ve Covered

In addition to the observations above, the BBB and AARP have noticed “a significant increase in the number of scams involving cash reload mechanisms. These schemes have involved payments made to cover taxes on purported lottery winnings, settle phony debts, pay for advertised goods and services, and obtain advance fee loans. Consumers have reported that telemarketers required them to purchase a cash reload mechanism from a local retailer and provide the authorization code as payment for the promised goods or services. With the authorization code in hand, the scam artist can quickly load the funds to existing prepaid card and withdraw the money at an ATM or by spending down the balance.

Items for Debt Relief Companies to Watch

Under the new proposed rule companies would need to make certain they were not calling any number that might be on the Do Not Call Registry. “A seller or telemarketer bears the burden of demonstrating that the seller has an existing business relationship with a customer whose number is listed on the Do Not Call Registry, or has obtained an express written agreement from such a customer.”

A very important section is the recording of calls where “a customer’s or donor’s express verifiable authorization…must include an accurate description, clearly and conspicuously stated, of the goods or services or charitable contribution for which payment authorization is sought.” It will be interesting to watch and see how accurate of a description that might include for debt relief services. Does that mean that performance data and success rates will need to be disclosed to give consumers the ability to make an informed decision before entering into an agreement?

There are some exemptions to the TSR, for example “consumer-initiated calls responding, respectively, to general media advertisements (such as ads appearing in newspapers or on radio, television, or the Internet), or to direct mail solicitations that clearly, conspicuously, and truthfully disclose all material information required.”

But “each of these exemptions, however, excludes several types of offers that have been susceptible to fraud – advance fee loans, credit card loss protection plans, credit repair services, investment opportunities, business opportunities other than business arrangements covered by the Franchise or Business Opportunity Rules, debt settlement services, and prize promotions.”

The FTC Wants to Hear From You

General Questions for Comment

The Commission invites members of the public to comment on any issues or concerns they believe are relevant or appropriate to the Commission’ consideration of proposed amendments to the TSR. The Commission requests that comments provide factual data upon which they are based. In addition to the issues raised above, the Commission solicits public comment on the costs and benefits to industry members and consumers of each of the proposals as well as the specific questions identified below. These questions are designed to assist the public and should not be construed as a limitation on the issues on which public comment may be submitted.

1. What would be the impact (including any benefits and costs), if any, of the proposed amendments on consumers?

2. What would be the impact (including any benefits and costs), if any, of the proposed amendments on individual firms (including small businesses) that must comply with them?

3. What would be the impact (including any benefits and costs), if any, on industry, including those who may be affected by the proposed amendments but not obligated to comply with the Rule?

4. What changes, if any, should be made to the proposed amendments to minimize any costs to consumers or to industry and individual firms (including small businesses) that must comply with the Rule?

5. How would each change suggested in response to Question 4 affect the benefits that might be provided by the proposed amendment to consumers or to industry and individual firms (including small businesses) that must comply with the Rule?

6. How would the proposed amendments impact small businesses with respect to costs, profitability, competitiveness, and employment? What other burdens, if any, would the proposed amendments impose on small businesses, and in what ways could the proposed amendments be modified to reduce any such costs or burdens?

7. How many small businesses would be affected by each of the proposed amendments?

8. With respect to each of the proposed amendments, are there any potentially duplicative, overlapping, or conflicting federal statutes, rules, or policies that are currently in effect?

Questions on Specific Issues

In response to each of the following questions, please provide: (1) detailed comment, including data, statistics, consumer complaint information, and other evidence, regarding the issue referred to in the question; (2) comment as to whether the proposed amendment adequately solves the problem it is intended to address, and why or why not; and (3) suggestions for additional changes that might better maximize consumer protections or minimize the burden on industry and on small businesses within the industry.

Novel Payment Methods: Remotely Created Checks, Remotely Created Payment Orders,
Cash-to-Cash Money Transfers, and Cash Reload Mechanisms

9. Does the proposed definition of “remotely created check” adequately, precisely, and correctly describe this payment alternative? If not, please provide alternative language or suggestions as to how the Commission could improve the definition.

10. Does the proposed definition of “remotely created payment order” adequately, precisely, and correctly describe this payment mechanism? If not, please provide alternative language or suggestions as to how the Commission could improve the definition.

11. Does the proposed definition of “cash-to-cash money transfer” adequately, precisely, and correctly describe this payment mechanism? If not, please provide alternative language or suggestions as to how the Commission could improve the definition.

12. Does the proposed definition of “cash reload mechanism” adequately, precisely, and correctly describe this payment mechanism? If not, please provide alternative language or suggestions as to how the Commission could improve the definition.

13. Should the Commission amend the TSR to prohibit the use in telemarketing of remotely created checks, remotely created payment orders, cash-to-cash money transfers, and cash reload mechanisms as payment options?

14. What, if any, systematic fraud monitoring exists for remotely created checks, remotely created payment orders, cash-to-cash money transfers, and cash reload mechanisms?

15. What, if any, dispute resolution rights for consumers are provided in connection with remotely created checks, remotely created payment orders, cash-to-cash money transfers, and cash reload mechanisms?

16. Are there widely available payment alternatives to remotely created checks, remotely created payment orders, cash-to-cash money transfers, and cash reload mechanisms sufficient for use in telemarketing by consumers who lack access to credit or traditional debit cards? If not, please describe the reasons why these novel payment methods are necessary and the types of telemarketing transactions for which these novel payment methods are necessary, including the types of products or services involved, whether the telemarketing calls are inbound or outbound, etc.

17. What, if any, adverse effect would a prohibition on the use of remotely created checks and remotely created payment orders in telemarketing have on legitimate electronic bill payment transactions?

18. Do banks have any feasible way of distinguishing among traditional checks, remotely created checks, images of remotely created checks and remotely created payment orders flowing through the check clearing system?

19. Is it feasible to obtain systematic, centralized monitoring of the volume, use, or return rates of remotely created checks and remotely created payment orders flowing through the check clearing system?

20. Do payment processors and depositary banks typically receive additional fees when processing payments and returns for merchants with high return rates? Do they incur additional costs in dealing with merchants with high return rates? Please describe the nature and amount of any such fees and costs, including how the additional fees charged compare to the increased costs incurred by the payment processors and banks.

21. Do consumers generally understand the differences among different payment options for purchases with regard to their dispute resolution rights and ability to recover payments procured by fraud?

22. Are there legitimate uses for cash-to-cash money transfers and cash reload mechanisms in telemarketing? If so, please describe the reasons why such transfers are necessary and the types of telemarketing transactions for which such transfers are necessary, including the types of products involved, whether the telemarketing calls are inbound or outbound, and whether the need is limited to certain groups of consumers – e.g., those who do not have bank accounts. In addition, please provide information as to why these transactions could not be conducted using alternative payment mechanisms such as electronic fund transfers or debit or credit cards, including what additional costs, if any, would result from using such payment alternatives.

23. What specific costs and burdens would the proposed prohibition on the use of remotely created checks, remotely created payment orders, cash-to-cash money transfers, and cash reload mechanisms in telemarketing impose on industry and individual firms (including small businesses) that would be required to comply with the prohibition, or on consumers?

24. Is the harm caused by remotely created checks, remotely created payment orders, cash-to-cash money transfers, and cash reload mechanisms in telemarketing outweighed by countervailing benefits to consumers or competition? If so, please identify and quantify the countervailing benefits.

25. Are there other payment mechanisms used in telemarketing that cause or are likely to cause unavoidable consumer harm without countervailing benefits to consumers or competition that the Commission should consider prohibiting or restricting?

Advance Fees for Recovery Services

26. Is there any material difference between telemarketing sales and Internet sales that would require the use of advance fees for recovery services aimed at victims of Internet fraud?

27. What, if any, specific costs and burdens would the proposed expansion of the advance fee ban on recovery services impose on industry and individual firms (including small businesses)?

28. Please describe the types of businesses that seek advance fees for recovery services, and whether these businesses require significant capital or labor outlays prior to providing the services.

General Media Exemption

29. How many sellers and how many telemarketers that accept payment by remotely created checks, remotely created payment orders, cash-to-cash money transfers, or cash reload mechanisms solicit calls from consumers by means of general media advertisements?

30. What specific costs or burdens, if any, would the proposed exclusion from the general media exemption for calls to sellers or telemarketers that accept payment by remotely created checks, remotely created payment orders, cash-to-cash money transfers, or cash reload mechanisms impose on industry, on individual firms (including small businesses) that would be required to comply with the prohibition, or on consumers?

31. Does the TSR’ general media exemption have so many exclusions that the Commission should consider eliminating the exemption entirely?

Direct Mail Exemption

32. How many sellers and how many telemarketers that accept payment by remotely created checks, remotely created payment orders, cash-to-cash money transfers, or cash reload mechanisms solicit calls from consumers by means of direct mail offers?

33. What specific costs or burdens, if any, would the proposed amendment to the direct mail exemption impose on industry, on individual firms (including small businesses) that would be required to comply with the prohibition, or on consumers?

34. Should the proposed changes to the direct mail exemption be limited to certain types of industries (or goods or services) that are susceptible to abuse?

Anyone who wishes to provide a public comment on the rules may do so by July 29, 2013.

ADDRESSES: Interested parties may file, online or on paper, a comment by following the
instructions in the Request for Comment part of the SUPPLEMENTARY INFORMATION
section below. Write ATelemarketing Sales Rule, 16 CFR Part 310, Project No. R411001,@ on
your comment, and file your comment online by following the instructions on the web-based form. If you prefer to file your comment on paper, mail or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex B), 600 Pennsylvania Avenue, NW, Washington, DC 20580.

If you would like to read the full proposed rule, you can click here.

FTC Proposes New Rules to Protect Consumers From Being Scammed
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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