What Lead Buyers & Lead Generators Need to Know – The Telemarketing Sales Rule

By Richard NewmanFebruary 12, 2015

Recent changes to Federal Communication Commission rules under the Telephone Consumer Protection Act (“TCPA”) have slowly evolved into what seems to be an industry-wide epidemic of disregarding the Telemarketing Sales Rule (“TSR”).  The TSR covers a wide variety of telemarketing transactions, including, but not limited to, the sale of credit repair services, products with a negative option feature, prize promotions, advance fee loans and inbound calls in response to advertising.    

Similar to the TCPA, the TSR includes the Federal Trade Commission’s version of Do Not Call (“DNC”) rules and restrictions on the use of prerecorded message calls.  However, unlike the TCPA, the TSR imposes various requirements for inbound and outbound calls, including disclosure and upsell requirements.

Most of the provisions of the TSR apply to seller product/service providers, lead generators and telemarketers.  Lead purchasers and lead generators alike are responsible for ensuring that TSR compliance requirements (as well as state laws regulating telemarketing) are met.    

DNC violations, the failure of service providers and lead generators to meaningfully assess each other’s compliance protocols, the absence of proper internal and external compliance policies, poorly drafted telemarketing scripts, in sufficient marketing contracts, improperly addressed negative option issues, unverified authorization and improper disclosures are increasingly becoming the subject of inquiry.  Also potentially relevant is the structure by which telemarketers are compensated.  Incentivized compensation plans will necessarily draw increased scrutiny.

Material disclosures, whether verbal or written, must be made clear and conspicuously.  They must be capable of being understood by a reasonable consumer and be made prior to signing people up for a product or service.  Misrepresentations about any aspect of the relevant product or services are prohibited.  Regulators will carefully scrutinize business practices, advertising copy and scripts for any false or unsubstantiated claims. 

There are numerous areas of risk for lead purchasers utilizing lists acquired from lead generators that fail to consider the manner by which the lists were compiled.  Lead purchasers are obligated to take reasonable measures to ensure that lead generators supplying lists have secured prior  express consent to receive telemarketing calls and that leads were not otherwise obtained via illegal methods.  A lead purchaser with knowledge of a lead generator’s unlawful telemarketing practices, whether actual or willfully blind, may very well result in liability.

Everyone in the stream of telemarketing commerce is responsible for diligently investigating third party marketing practices.  A consumer whose number is on the DNC Registry may not be called, unless there exists written permission to make the call or an established business relationship with the consumer.  Similarly, calling a consumer who has previously expressed the desire not to be called again is prohibited.

Various aspects of the TSR apply to those that provide “substantial assistance” or support to telemarketers.  Thus, lead generators must understand that possessing actual knowledge or consciously avoiding such knowledge is risky proposition.  The FTC has utilized this “assisting and facilitating” theory against lead generators in the past. 

So, if you do not directly sell or provide a product or service, you may still have obligations under the TSR if you deliberately ignore the actions of lead purchaser.  What amounts to “substantial assistance” depends on the facts.  However, third parties that do business with sellers and telemarketers should be aware that their dealings may provide a factual basis to support an inference that they knew, or deliberately remained ignorant of, the TSR violations of these sellers and telemarketers.

In other words, a lead generator that provides sellers or telemarketers with customer lists, helps in creating sales scripts or any other “substantial assistance,” while knowing or deliberately avoiding knowing that the seller or telemarketer is engaged in a TSR violation, may itself be violating the TSR.

Conducting proactive external compliance efforts is a must, especially when comparing the low cost of doing with the high costs of failing to read the regulatory tea leaves.  When your efforts to police both internal and external telemarketing compliance are thoroughly documented they can be provided in response to a regulatory inquiry with confidence, rather than apprehension.

While by no means exhaustive, what follows are a few key provisions of the Telemarketing Sales Rule:

  • Prohibits calling consumers who have put their phone numbers on the National Do Not Call Registry. 

The TSR prohibits sellers and telemarketers from engaging in certain abusive practices that infringe on a consumer’s right to be left alone.  Privacy protections include prohibitions on, without limitation, calling a person whose number is on the National DNC  Registry or a person who has asked not to receive telemarketing calls from a particular company, misusing a DNC list, denying or interfering with a person’s DNC rights, calling outside the permissible hours, abandoning an outbound telephone call, placing an outbound telephone call delivering a prerecorded message to a person without that person’s express written agreement to receive such calls and without providing an automated interactive opt-out mechanism, failing to transmit Caller ID information, using intimidation or obscene language, and causing any telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to

Generally speaking, sellers and telemarketers may call a consumer with whom a seller has an established business relationship, provided the consumer has not asked to be on the seller’s entity-specific DNC list.  There is also a written permission to call exemption that allows sellers and telemarketers to call any consumer who expressly agrees, in writing, to receive calls by or on behalf of the seller, even if the consumer’s number is in the National DNC Registry. The consumer’s express, affirmative agreement must be in writing and must include the number to which calls may be made and the consumer’s signature. The signature may be a valid electronic signature, if the agreement is reached online.

Sellers and telemarketers are responsible for maintaining their individual DNC lists of consumers who have asked not to receive calls placed by, or on behalf of, a particular seller.  Calling a consumer who has asked not to be called potentially exposes a seller and telemarketer to a civil penalty of $16,000 per violation.

Lastly, if a seller or telemarketer can establish that as part of its routine business practice, it has, without limitation, established and implemented written procedures to honor consumers’ requests that they not be called and trained its personnel in these procedures, potential civil penalties or sanctions may perhaps be mitigated significantly. 

  • Requires disclosures of specific information and prohibits misrepresentations. 

The TSR requires sellers and telemarketers, whether making outbound calls to consumers or receiving inbound calls from consumers, to provide certain material information before the consumer pays for the goods or services that are the subject of the sales offer. 

The identity of the seller, the purpose of the call and the nature of the goods or services being offered should be promptly disclosed, up front.  Sellers and telemarketers must also provide to consumers, without limitation, non-misleading information regarding cost and quantity, negative option and continuity offer features, material restrictions and conditions, and the refund and cancellation policy.  Under the TSR, any seller or telemarketer of a debt relief service must also truthfully, clearly, and conspicuously disclose numerous, clearly delineated categories of information. 

Failure to provide any of the required information truthfully and in a “clear and conspicuous” manner, before the consumer pays for the goods or services offered, is a deceptive telemarketing act or practice that violates the TSR and subjects a seller or telemarketer to a civil penalty of $16,000 for each violation.  When disclosures are verbal, “clear and conspicuous” means at an understandable speed and pace, and in the same tone and volume as the sales offer.

The TSR prohibits misrepresentations regarding any material aspect of the performance, efficacy, nature, or central characteristics of the goods or services offered to the consumer.  The TSR also prohibits sellers and telemarketers from misrepresenting affiliations with – or endorsements or sponsorships by – any person, organization, or government entity. 

  • Prohibits unauthorized billing. 

Sellers and telemarketers are required to obtain express verifiable authorization and informed consent prior to submitting billing information for payment.  “Express verifiable authorization” is required 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 and Regulation E).  Because many 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. 

Both sellers and telemarketers are responsible for obtaining verifiable authorization.  A consumer must be told and must acknowledge the number of charges, the date the charges will be submitted for payment, the amount of the charges, the customer’s name and billing information, a customer service telephone number and the date of authorization.  Where pre-acquired account information is used and the offer included a free-to-pay conversion feature, additional rules apply.  Lawful recordings of verbal authorizations must be made available upon request. 

  • Prohibits misrepresenting any material aspect of a negative option feature of an offer.

The TSR prohibits sellers and telemarketers from misrepresenting any material aspect of a negative option feature of an offer, including the fact that the consumer’s account will be charged unless the consumer takes an affirmative action to avoid the charges, the dates the charges will be submitted for payment, and the specific steps the customer must take to avoid the charges.  

  • Prohibits deceptive and abusive practices associated with debt relief services. 

Sellers and telemarketers are prohibited from misrepresenting any material aspect of a debt relief service, either explicitly or by implication, including the amount of money or the percentage of the debt someone may save, the amount of time necessary to get the represented results, the amount of money or the percentage of each outstanding debt the customer must accumulate before beginning attempts to modify terms with creditors will be made, the effect on the customer's creditworthiness, the effect on the collection efforts of any creditors or debt collectors, and the percentage or number of customers who have obtained the represented results. 

  • Prohibits debt relief sellers and telemarketers from charging illegal advance fees.

Federal regulators continue to actively enforce this prohibition and serve civil investigative demands upon student loan debt relief companies.  The TSR strictly prohibits sellers and telemarketers from requesting or receiving payment for providing debt relief services unless and until certain requirements are satisfied.  It is also illegal for a lead generator to provide “substantial assistance” to another company if it knows a debt relief company is violating the TSR, or if it remains deliberately ignorant.

  • Requires that specific business records be kept for two (2) years.

The TSR requires most sellers and telemarketers to keep certain records that relate to their telemarketing activities.  Records must be maintained for two (2) years from the date that the record is produced and include advertising and promotional materials (including scripts), information about prize recipients, sales records, employee records and all verifiable authorizations or records of express informed consent or express agreement. 

Written agreements by and between sellers and telemarketers should properly allocate recordkeeping responsibility.  It is also wise to maintain records of any refunds provided to consumers who claim that written confirmation was inaccurate.  Such records are often the subject of inquiry following consumer complaints about unauthorized billing.


Both lead purchasers and lead generators must always carefully consider the landmines associated with how lists are compiled.  Both must be sure not to ignore warning signs, and to consider respective TSR requirements and compliance obligations. 

“Substantial assistance” theories and “established business relationship” issues are regulatory favorites in the lead generation space.  You will likely not be aware of which marketing partners of yours, past or present, that are currently the subject of a regulatory investigation.

Consult with an experienced lead generation law attorney in an effort to critically examine the policies, procedures and operations of your marketing partners and telemarketing campaigns. 

Disclaimer: This article is intended for informational purposes only and does not constitute legal advice on any specific facts or circumstances. This article is not intended to create, and receipt of it does not constitute, an attorney-client relationship.

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