FTC Proposes Expansion of TSR That May Impact SMB Lending

Financial Services Law

On April 28, 2022, the Federal Trade Commission (FTC) issued a press release announcing a notice of proposed rulemaking (NPRM) and an advance notice of proposed rulemaking (ANPR) seeking public comment on possible changes to the Telemarketing Sales Rule (TSR) “extending protections against telemarketing tricks and traps to small businesses” and addressing other concerns. The TSR implements the Telemarketing and Consumer Fraud and Abuse Prevention Act (Act) that targets deceptive and abusive practices in telemarketing.

The TSR was first promulgated in 1995 and has been amended four times since, most recently in 2015, to address developments in the telemarketing space. “Telemarketing” is defined for purposes of the Act and the TSR as “a plan, program, or campaign which is conducted to induce the purchase of goods or services or a charitable contribution, by use of one or more telephones and which involves more than one interstate telephone call.”

Although the NPRM and ANPR include a range of proposals to address recent telemarketing trends, changes that should be of particular concern to small and medium-sized business (SMB) lenders are those that would expand the reach of the TSR beyond consumer transactions to more types of business-to-business (B2B) transactions. Various provisions of the TSR and past FTC and other agency actions confirm that “credit products” are within the scope of the TSR.

Specifically, the NPRM would amend Section 310.6 of the TSR to narrow the existing exemption for B2B transactions to provide that such transactions are subject to the requirements of Sections 310.3(a)(2) and 310.3(a)(4) of the TSR. Section 310.3(a)(2) prohibits “[m]isrepresenting, directly or by implication, in the sale of goods or services” several specific items of “material information,” including among others “[t]he total costs to purchase, receive, or use, and the quantity of, any goods or services that are the subject of a sales offer” and “[a]ny material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer.” Section 310.3(a)(4) broadly prohibits a seller or telemarketer from “[m]aking a false or misleading statement to induce any person to pay for goods or services…”

The ANPR would go even further, and the FTC seeks comment on, among other things, “whether the TSR should continue to exempt B2B telemarketing at all.” In this regard, the FTC stated that its “law enforcement experience with deceptive business-to-business telemarketing along with changing market forces influencing where consumers perform their jobs and the nature of those jobs raise the question whether the TSR should continue to exempt such calls,” noting elsewhere in the ANPR that “[t]he digital marketing landscape has become increasingly complex and rife with opportunities for sellers or telemarketers to defraud small businesses by selling them services to help them advertise their businesses online.”

Compliance with the TSR is challenging, and an expansion to cover more B2B transactions would increase marketing compliance, disclosure, servicing and other obligations of SMB lenders. Accordingly, SMB lenders should consider submitting comments to the FTC on the proposed expansion of the TSR with respect to B2B transactions. Comments on the NPRM and the ANPR will be due 60 days from publication in the Federal Register.

If you have any questions about these new developments and how they may impact your company, please contact any of the authors or the Manatt professional with whom you work.



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