In Charitable Solicitation Calls, what does the TSR Prohibit Misrepresentations about?

In Charitable Solicitation Calls, what does the TSR Prohibit Misrepresentations about?

1. The Nature, Purpose, or Mission of the Entity on Whose Behalf the Solicitation is Made

The TSR prohibits telefunders from misrepresenting the nature, purpose, or mission of any entity on whose behalf a charitable contribution is being solicited. It would violate the TSR for a telefunder to claim, expressly or by implication, that a charitable contribution is being requested on behalf of a charity that seeks to protect endangered species if the purpose of the charity is to support a local petting zoo of barnyard animals. And a telefunder may not represent that a charitable organization engages in cancer research if the organization simply educates the public about cancer through its fundraising calls.

2. Tax Deductibility

Whether a contribution is tax deductible — or an organization is tax exempt — may be an important consideration when potential donors are deciding whether or how much to contribute. The TSR therefore prohibits telefunders from misrepresenting, expressly or by implication, that any charitable contribution is partly or fully tax deductible, or falsely implying that an organization on whose behalf a contribution is solicited is “tax exempt.”

3. Purpose of a Contribution

The TSR prohibits telefunders from misrepresenting how the requested contribution will be used. This includes not only how a donation will be spent, but also the locality where the direct effect of the donation will be felt. The purpose for which a contribution is sought usually is important to a donor, and any misrepresentations about that would be likely to mislead a consumer. It would violate the TSR for you to state or imply that a donation will benefit sick children in the local area if the money collected is not spent to benefit sick children or is not spent to benefit sick kids in the donor’s local area. You also cannot claim that a donation will be used to pay for bullet-proof vests for local law enforcement officers if the money goes to some other purpose. The charitable purpose described to potential donors may not be peripheral or incidental to the primary purpose for which the donation will be used.

4. Percentage or Amount of Contribution that Goes to the Charitable Organization or Program

The TSR prohibits telefunders from misrepresenting the percentage or amount of the contribution that goes to a charitable organization or program. This prohibition covers statements made in response to the questions of potential donors, as well as unprompted standalone statements. Even though the TSR does not require you to affirmatively disclose the percentage or amount of the contribution that goes to a charitable organization or program, if a potential donor raises the question, you must answer truthfully and must not misrepresent this information in any way.

5. Material Aspects of Prize Promotions

The TSR prohibits telefunders from misrepresenting any material aspects of a prize promotion in conjunction with a charitable solicitation. You may not make a false statement about any aspect of a prize promotion that could affect a donor’s decision to make a charitable contribution in conjunction with the prize promotion.

6. Affiliations, Endorsements, or Sponsorship

The TSR prohibits telefunders from misrepresenting their own or a charitable organization’s affiliation with, or endorsement or sponsorship by, any person, organizations, or government entity. For example, you cannot falsely claim that the organization on whose behalf you are calling is affiliated with, sponsored by, endorsed by, or otherwise approved by any other entity or organization. Nor could you falsely claim to be endorsed or “approved by” the local police. In addition, you cannot falsely claim — or create the impression — that you are related to or affiliated with a charity that the donor has heard of or contributed to in the past.

 

Payment Methods Other than Debit and Credit Cards

The TSR requires “express verifiable authorization” when the payment is made by a method other than a credit card (subject to the Truth in Lending Act and Regulation Z), or a debit card (subject to the Electronic Fund Transfer Act (EFTA) and Regulation E). Because many novel payment methods lack protection against unauthorized charges and dispute resolution rights should the customer be unhappy with the goods or services, the TSR requires that when customers in telemarketing transactions pay by such methods, sellers and telemarketers must meet a higher standard for proving authorization. This provision, the prohibition on sharing unencrypted account numbers, and the requirement that a consumer’s express informed consent be obtained in every telemarketing transaction, are in place to protect consumers from unauthorized charges.

What about remotely created payment orders, remotely created checks, cash-to-cash money transfers, and cash reload mechanisms? The use of these four payment methods in both inbound and outbound telemarketing is prohibited by the TSR. Remotely created payment orders and checks create an unreasonable risk of consumer loss by allowing fraudulent merchants to create unsigned checks that debit a consumer’s bank account without authorization. Cash-to-cash money transfers and cash reload mechanisms likewise allow anonymous fraudsters to disappear with money paid by consumers for undelivered goods and services.

What about cash, checks, and money orders? The “express verifiable authorization” requirement does not apply to conventional checks that the consumer writes, signs, and mails, or to payments by postal money order, cash, gift certificates, or direct billing (where the customer or donor receives a written bill or statement before having to pay). These payment methods have been used for years, and consumers are familiar with the advantages and relative risks of each. But there are payment methods that consumers may be unfamiliar with and that lack fundamental protections. In the latter instance, the TSR requires more proof of authorization to protect consumers from unauthorized charges: If payment is made by mortgage or utility billing (where goods or services other than the mortgage or utility payment is billed on these accounts), or a similar unconventional method, a telemarketer must obtain the customer or donor’s “express verifiable authorization.”

Who is responsible for obtaining verifiable authorization? Under the TSR, sellers and telemarketers that receive payment by methods other than credit or debit cards are responsible for obtaining verifiable authorization in those transactions. Even if you use the services of a third party to process or submit billing information other than credit or debit card information, you are responsible for ensuring that the disclosure requirements of the TSR for verifying authorization are met. Under the TSR, a third party also can be held liable for violating the TSR if the third party substantially assists a seller or telemarketer and knows — or consciously avoids knowing — that the seller or telemarketer is violating the TSR by failing to obtain verifiable authorization.

Processing and submitting account information constitutes substantial assistance to a seller or telemarketer. Therefore, if a third party is processing account information for a seller or telemarketer, the third party should ensure that whoever is obtaining consumers’ account information obtains verifiable authorization in accordance with the TSR’s requirements. A third party who processes and submits bank account information cannot avoid liability by not asking questions about whether authorization procedures comply with the TSR. Indeed, a third party can be held liable under the TSR if it knows that the authorization procedures do not comply with the TSR and it processes or submits account information for payment anyway.

Does the TSR apply if I only supply the software to process or submit bank account information for payment? Maybe. Providing the means to submit a consumer’s account information for payment constitutes substantial assistance to a seller or telemarketer. If the seller or telemarketer who is using the software is violating the TSR, a law enforcement agency may ask about the extent to which the software provider ensured that authorization procedures were in place to comply with the TSR. A software provider cannot sell its product with its “eyes closed” to the business practices used by the software purchaser, consciously avoiding any knowledge of the wrongdoing. Deceptive telemarketers favor novel payment methods, like remotely created payment orders or checks. Therefore, third parties should know who they’re doing business with — and whether the people they do business with are complying with the TSR.

Under the TSR, authorization is considered verifiable if it is obtained in one of three ways:

  • advance written authorization from the consumer;

  • an audio recording of the consumer giving express oral authorization; or

  • written confirmation of the transaction sent to the consumer before you submit the charge for payment.

Here are the requirements for each type of authorization.

 

Written Authorization

Any form of written authorization from a consumer is acceptable, as long as it has the consumer’s signature. For example, a consumer may transmit written authorization to the seller or telemarketer by facsimile or may send a “voided” signed check as written authorization. An electronic signature also is valid, provided it would be recognized as a valid signature under applicable federal or state contract law.

 

Oral Authorization

Any audio recording of an oral authorization payment must clearly demonstrate that the consumer has received each of eight specific pieces of information about the transaction and that the consumer has authorized that funds be taken from (or charged to) his or her account based on the required disclosures by the seller or telemarketer. A general question like, “Do you understand all the terms of the sale?” followed by a consumer’s “uh-huh” or “yeah” is not enough to demonstrate authorization. The tape recording must show that the consumer received each piece of information below and that, based on this information, the consumer understood and acknowledged each term of the transaction and authorized the transaction.

State laws vary on permitting the recording of telephone conversations and the requirements to obtain consent of the recorded party. Consult an attorney for guidance on these issues.

The seller or telemarketer must clearly and conspicuously state, and the consumer must acknowledge:

  • the goods and services being purchased, or the charitable contribution for which payment authorization is sought.

  • the number of debits, charges, or payments (if more than one).

  • the date the debits, charges, or payments will be submitted for payment.

  • the amount of the debits, charges, or payments.

  • the customer or donor’s name.

  • the customer or donor’s billing information, identified in specific enough terms that the consumer understands which account will be used to collect payment for the transaction.

  • a telephone number that is answered during normal business hours by someone who can answer the consumer’s questions.

  • the date of the consumer’s oral authorization.

The TSR also requires that the audio recording of the oral authorization must be made available upon request to the customer or donor, as well as to the customer or donor’s bank or other billing entity.

The Electronic Fund Transfer Act (EFTA)

Other laws, such as the EFTA (15 U.S.C. § 1693 et seq.), may impose different obligations about obtaining a consumer’s authorization of a charge. It is the responsibility of each seller and telemarketer to determine how to comply with all applicable laws and rules. Compliance with the TSR requirements for obtaining authorization does not eliminate the obligation to comply with EFTA and other applicable laws.

 

Authorization by Written Confirmation

If sellers and telemarketers choose verifiable authorization through written confirmation, they must send the confirmation to the consumer via first class mail — and identify it clearly and conspicuously as confirmation of payment — before submitting the consumer’s billing information for payment. That does not mean that you must wait to submit this information until a consumer receives the confirmation: The TSR requires only that you send it before you submit the billing information for payment.

The written confirmation must contain all the information required in an audio recording of an oral authorization. In addition, if you choose to use the written confirmation method of authorization, you must have a refund policy in place and must disclose in the written confirmation how to obtain a refund if the consumer disputes the written confirmation. The TSR’s prohibition on misrepresenting a refund policy applies in the context of obtaining verifiable authorization by means of written confirmation.

The TSR leaves it to sellers and telemarketers to determine what procedures are necessary to ensure that confirmations are sent prior to submission, to put these procedures in place, and to ensure that records are generated and maintained to document that confirmations are sent at the appropriate time and required refunds are provided.

Note: In transactions involving pre-acquired account information combined with a free-to-pay conversion, sellers and telemarketers may not use the written confirmation method of obtaining authorization. In these transactions, written confirmation does not constitute “express verifiable authorization.”

 

Date the debit, charge, or payment will be submitted for payment

This disclosure ensures that consumers know when to expect the charge or debit. To comply with this requirement, it makes good sense to provide an actual date on which payment will be submitted: “This debit from your checking account will occur on April 14, 2016.” However, it is acceptable for you to disclose an approximate date if you don’t — or can’t — know the actual date, provided the approximate date gives the consumer reasonable notice of when to expect the debit or charge. For example, you could tell a consumer, “The charge will appear on your next mortgage statement,” or “Your account will be charged within two weeks from today.”

Similarly, in a transaction involving a continuity plan, it would be sufficient for you to note when any initial charge will be submitted for payment, and then at what intervals each successive payment would be submitted, should the customer opt not to decline to purchase additional goods or services. For example, in a book club plan, you could tell a customer that the initial $4.95 charge would be debited from his or her bank account on May 15, and that each month after that, his or her account will be billed one week from the date of each successive shipment.

 

Billing information in specific enough terms that the consumer understands what account will be used to collect payment for the transaction

To identify the account with sufficient specificity for the customer or donor to understand what account will be charged, you must state the name of the account and enough other distinguishing information about the account to ensure that the customer understands which account will be charged.

For example, telling the consumer that the charge will be placed on his mortgage account is not specific enough information. It would be necessary to identify the account further, perhaps by the name of the lender and the property address, or a reference to some portion of the account number or expiration date. It is your obligation to ensure that the consumer knows specifically what account will be charged for the goods or services.

 

For more information, see here:  https://www.ftc.gov/tips-advice/business-center/guidance/complying-telemarketing-sales-rule

 

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