August 29, 1991
TO: BROKER/DEALER ADVISORY COMMITTEE NO. 29-91
DIRECT MARKETING COMMITTEE NO. 30-91
OPERATIONS COMMITTEE NO. 26-91
SALES FORCE MARKETING COMMITTEE NO. 30-91
SEC RULES COMMITTEE NO. 51-91
SHAREHOLDER COMMUNICATIONS COMMITTEE NO. 26-91
RE: PROPOSED TELEMARKETING LEGISLATION
__________________________________________________________
The Institute is currently monitoring several bills pending
before Congress that concern telemarketing activities. We bring
these items to your attention because they could result, for
example, in restrictions on telephone calls to fund shareholders
or potential investors who have not expressly requested to be
called. In addition, certain types of investment company
marketing activities might be subjected to regulation by the
Federal Communications Commission and/or the Federal Trade
Commission. Set forth below are brief descriptions of certain
provisions of these bills that may affect the activities of
Institute members. Copies of the complete bills are attached for
your review.
H.R. 1304, the "Telephone Advertising Consumer Rights Act,"
provides for the regulation of certain telemarketing activities
by the Federal Communications Commission. The proposed
legislation requires the FCC to hold a rulemaking proceeding
concerning the need to protect residential telephone subscribers'
privacy rights from unwanted telephone solicitations and to adopt
regulations to implement methods and procedures to protect such
privacy rights. One such method specifically mentioned in the
bill is the possible establishment of a national database
containing a list of telephone numbers of residential subscribers
who object to receiving telephone solicitations. The legislation
provides that if the FCC determines to require a database of
objecting persons, regulations must be adopted to, among other
things, "prohibit any person from making or transmitting a
telephone solicitation to the telephone number of any subscriber
included in such database."
The bill defines "telephone solicitation" as "the
initiation of a telephone call or message for the purpose of
encouraging the purchase or rental of, or investment in,
property, goods, or services, which is transmitted to any person
(A) without that person's prior express invitation or permission,
or (B) with whom the caller does not have an established business
relationship." It is not clear whether this definition would
encompass, for example, a follow-up call made to a person who has
called or written previously to request a fund prospectus.
A similar bill on the Senate side, S. 1410, would prohibit
the use of a telephone to make any "unsolicited telephone
solicitation" in violation of regulations issued by the FCC
pursuant to a required rulemaking proceeding "concerning the need
to protect residential subscribers' privacy rights to avoid
receiving unsolicited telephone solicitations to which they
object." The term "unsolicited telephone solicitation" is
defined as "a telephone call by a live person for the purpose of
encouraging the purchase or rental of, or investment in,
property, goods, or services, or for other commercial purposes,
which is transmitted to any person without that person's prior
express invitation or permission." This definition is narrower
than the definition of "telephone solicitation" contained in H.R.
1304 as discussed above. Thus, under S. 1410, even a call to a
person with whom the caller has an established business
relationship could be deemed an "unsolicited telephone
solicitation" absent the prior express invitation or permission
of the person called. The legislation directs the FCC through
its rulemaking proceeding to further define "unsolicited
telephone solicitation."
Based on an informal survey, we believe that the
telemarketing activities of our members generally are directed at
existing shareholders or people who have contacted a fund
organization by telephone or mail to request information. Please
let me know if this is not the case.
H.R. 3203, the "Consumer Protection Telemarketing Act,"
requires the Federal Trade Commission to prescribe rules
prohibiting deceptive and abusive telemarketing activities.
Among other things, such rules must provide that "telemarketers
may not undertake a pattern of unsolicited telephone calls which
the reasonable consumer would consider coercive or abusive of a
consumer right to privacy." In addition, the FTC must consider
requiring that goods or services be shipped or provided within a
specified period (or a refund will be required) and permitting
persons who order goods or services through telemarketing to
cancel their order within a specified period. The bill also
contains detailed enforcement provisions.
The term "telemarketing" is defined in H.R. 3203 as "a
plan, program, or campaign which is conducted to induce purchases
of goods or services by significant use of one or more telephones
and which involves more than one interstate telephone call."
Solicitation of sales through the mailing of a catalog meeting
certain conditions is excluded from the definition of
"telemarketing."
S. 1579, the "900 Services Consumer Protection Act of
1991", provides for regulation of the "pay-per-call" industry by
the FTC and the FCC. A pay-per-call service is defined as "any
information service, provided by telephone, which receives
payment, directly or indirectly, from each person who calls that
service by telephone." The bill requires the FCC to adopt
regulations specifying the types of information services that are
covered. The legislation directs the FTC and the FCC to hold
coordinated rulemaking proceedings "to establish a consistent
system for oversight and regulation of pay-per-call services."
Any rules or regulations adopted pursuant to such proceedings
must require, among other things, that a pay-per-call service (1)
include an introductory message that describes the service being
provided and the maximum charge per minute or per call and other
charges, and that informs the caller that the call will begin at
the end of such message, (2) allow the caller to hang up before
the end of the introductory message without incurring charges and
(3) not be aimed at children under age 12 (unless it is a bona
fide educational service).
The bill provides for the issuance of advertising
restrictions that would require that certain disclosures be
included in any advertisement for a pay-per-call service. There
are also detailed enforcement provisions authorizing the FTC and
FCC to assess penalties and authorizing state attorneys general
to bring actions for damages on behalf of state residents for
alleged violations of rules or regulations under the Act.
Finally, the bill calls for an FTC study to identify abuses by
providers of pay-per-call services in the acquisition and use of
callers' telephone numbers.
H.R. 2829, the "Telephone Disclosure and Dispute Resolution
Act," directs the Federal Trade Commission to prescribe rules
"for any advertisement for services or products procured through
the use of a telephone number with a 900 prefix or any other
prefix under which liability for the service or product provided
attaches to the telephone bill of the individual calling such
number." Such rules must require, among other things, disclosure
of the cost of using the telephone number.
To our knowledge, only one Institute member is currently
using a 900 number; however, others may choose to do so in the
future. It is difficult to tell exactly what types of activities
or services would be covered either intentionally or
inadvertently by the proposed legislation. The Institute will be
seeking clarification on this point.
* * *
The proposed legislation described above may move quickly
when Congress returns to session after Labor Day. Therefore, if
you have any concerns about the potential impact of the proposed
legislation on your business and/or comments as to additional
issues that the Institute should consider, please contact me at
(202) 955-3514 by Friday, September 13.
Frances M. Stadler
Assistant General Counsel