Concurring Statement of Commissioner Orson Swindle
in Telemarketing Sales Rule Review, File No. R411001

Telemarketing calls can provide consumers with valuable information about goods and services. On the other hand, telemarketing calls also can be deceptive or can be an unwanted intrusion into the homes of consumers -- an intrusion that many consumers find difficult to prevent or remedy. The challenge for government, therefore, is to strike a balance that allows consumers, if they wish, to receive telemarketing calls with useful information without being deceived or abused.

In 1994, Congress passed the Telemarketing Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), giving the Commission the authority to promulgate rules to prohibit "deceptive" or "abusive" telemarketing practices. In 1995, the Commission issued the Telemarketing Sales Rule ("TSR"), which declared a number of telemarketing practices to be deceptive or abusive. In light of technological developments and changes in the marketplace since 1995 as well as our law enforcement experience with telemarketing fraud, the Commission now proposes to declare additional practices to be deceptive or abusive. I wholeheartedly support the proposed changes to the TSR, because they appear to strike the right balance by protecting consumers without unduly restricting the practices of legitimate telemarketers.

I want to emphasize two points concerning the Telemarketing Act and the TSR, however. The first point is that the Commission's regulatory scheme would be more effective if it covered the entire spectrum of entities engaged in telemarketing.⁽¹⁾ Under the Telemarketing Act and the TSR, however, the Commission lacks jurisdiction in whole or in part over the calls of entities such as banks, telephone companies, airlines, insurance companies, credit unions, charities,⁽²⁾ political campaigns, and political fund raisers. In addition, the Commission also proposes to exempt from the TSR calls made on behalf of certain religious organizations.

A major objective of the Telemarketing Act and the TSR is to protect consumers' "right to be let alone" in their homes, which is the "most comprehensive of rights and the right most valued by civilized men." Olmstead v. U.S., 277 U.S. 438, 478 (1928) (Brandeis, J., dissenting). From the perspective of consumers, their right to be let alone is invaded just as much by an unwanted call from an exempt entity (e.g., a bank or a telephone company) as it is by such a call from a covered entity (e.g., a sporting goods manufacturer). The Commission's regulatory scheme would be more effective in protecting the right of consumers to be let alone if the Telemarketing Act and the TSR covered the entire spectrum of entities that make telemarketing calls to consumers.

Covering the entire spectrum of entities also would result in a more equitable regulatory scheme. For example, telephone companies currently are exempt in whole or in part from the Telemarketing Act and the TSR because they are common carriers, yet some vendors that compete with them apparently are not exempt from these regulatory requirements, see Notice of Proposed Rulemaking at 16, which may confer a competitive advantage in marketing on telephone companies. It would be more equitable if companies that compete with each other had to comply with the same regulatory requirements when they engage in telemarketing.

The second point that I want to raise concerns how the Commission determines whether a practice is "abusive" under the Telemarketing Act. For the most part, the Commission has used the examples of abusive practices that Congress provided in the Telemarketing Act and principles drawn from these examples to determine whether we can declare a practice to be abusive. I think that this is an appropriate means of determining the metes and bounds of abusive practices.

The Commission, however, also concludes that the transfer of pre-acquired account information and certain other telemarketing practices are "abusive" for purposes of the Telemarketing Act and the TSR, because they meet the Commission's standards for "unfairness" under Section 5 of the FTC Act. The Commission's interjection of unfairness principles into the determination of which telemarketing practices are abusive is designed to provide greater certainty and to limit the scope of what will be considered abusive. Although these are laudable objectives, I have reservations about using unfairness principles under Section 5 to determine what is abusive for purposes of the Telemarketing Act. Nothing in the language of the Telemarketing Act or its legislative history indicates that Congress intended the Commission to use unfairness principles to determine which practices are abusive. Given that it amended the FTC Act to define unfairness the same year that it passed the Telemarketing Act, Congress presumably would have given some indication if it wanted us to employ unfairness principles to decide which telemarketing practices are abusive.⁽³⁾

Accordingly, I would ask for public comment addressing the legal, factual, and policy issues implicated by the use of unfairness principles under Section 5 of the FTC Act to determine whether telemarketing practices are abusive for purposes of the Telemarketing Act. I would also seek comment specifically addressing whether the transfer of pre-acquired account information meets the standard for unfairness under Section 5 of the FTC Act.

Endnotes:

1. I have expressed concern in the past that the Commission's effectiveness in regulating telemarketing is significantly limited by our inability to reach the practices of entities that are exempt in whole or in part from the Telemarketing Act and the TSR. See Concurring Statement of Commissioner Orson Swindle in Miscellaneous Matters -- Director (BCP), File No. P004101 (June 13, 2000) (statement issued in conjunction with Commission testimony on The Telemarketing Victims Protection Act (H.R. 3180) and The Know Your Caller Act (H.R. 3100), before the Subcommittee on Telecommunications, Trade and Consumer Protection of the Committee on Commerce, United States House of Representatives).

2. As discussed in the Notice of Proposed Rulemaking, Congress recently enacted the USA PATRIOT Act of 2001, which gives the Commission new authority to regulate [under the Telemarketing Act and the TSR] for-profit companies that make telephone calls seeking charitable donations. I applaud Congress for taking this important step to protect consumers.

3. In fact, when the Commission issued the TSR in 1995, it did not use unfairness principles to determine whether telemarketing practices are abusive under the Telemarketing Act. Statement of Basis and Purpose, Prohibition of Deceptive and Abusive Telemarketing Practices; Final Rule, 60 Fed. Reg. 43842 (Aug. 23, 1995).