REPORT TITLE:
Telemarketing Fraud


DESCRIPTION:
Creates a new chapter to regulate telemarketing fraud.  Requires
telephone solicitors to keep records of telemarketing activities
in the State.  (SD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        947
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO TELEMARKETING FRAUD. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The Hawaii Revised Statutes is amended by adding
 
 2 a new chapter to be appropriately designated and to read as
 
 3 follows:
 
 4                             "CHAPTER
 
 5                TELEMARKETING FRAUD PREVENTION ACT
 
 6      §    -1  Definitions.  As used in this chapter, unless the
 
 7 context otherwise requires:
 
 8      "Consumer" or "purchaser" means a person who is, or may be,
 
 9 required to pay for goods or services offered by a telephone
 
10 solicitor through telemarketing and includes but is not limited
 
11 to consumers as defined in section 480-1.
 
12      "Express verifiable authorization" means written express
 
13 authorization by the consumer, including but not limited to the
 
14 consumer's signature on a negotiable instrument that specifically
 
15 authorizes the telephone solicitor to obtain payment from the
 
16 consumer's checking, savings, or bankcard account.
 
17      "Goods or services" means any real property or any tangible
 
18 or intangible personal property or services of any kind provided
 
19 or offered to a consumer.
 
20      "Investment opportunity" means anything tangible or
 

 
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 1 intangible that is offered for sale, sold, or traded based wholly
 
 2 or in part on representations, either express or implied, about
 
 3 past, present, or future income, profit, or appreciation.
 
 4      "Material" means any factor likely to affect a person's
 
 5 choice of, or conduct regarding, goods or services.
 
 6      "Outbound telephone call" means a telephone call initiated
 
 7 by a telephone solicitor to induce the purchase of goods or
 
 8 services.
 
 9      "Payment" means anything of value, including any interest,
 
10 benefit, privilege, claim, or right with respect to anything of
 
11 value, whether real or personal, tangible or intangible.
 
12      "Premium" means anything offered or given, independent of
 
13 chance, to consumers as an incentive to purchase goods or
 
14 services offered through telemarketing.
 
15      "Prize" means anything offered or purportedly offered and
 
16 given or purportedly given to a consumer by chance.
 
17      "Prize promotion" means a sweepstakes or other game of
 
18 chance or an oral or written representation that a consumer has
 
19 won, has been selected to receive, or is eligible to receive a
 
20 prize or purported prize.
 
21      "Recovery service" means any business or other practice in
 
22 which a person represents or implies that, for a fee, any amount
 
23 a consumer has paid out to a telephone solicitor may be
 

 
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 1 recovered.
 
 2      "Seller" means any person who, in connection with a
 
 3 telemarketing transaction, solicits or arranges for a telephone
 
 4 solicitor to solicit funds or contributions, or provides, offers
 
 5 to provide, or arranges for others to provide goods or services
 
 6 to a consumer in exchange for consideration.
 
 7      "Telemarketing" means a plan, program, or campaign,
 
 8 including a prize promotion or investment opportunity, that is
 
 9 conducted to induce the purchase of goods or services or to
 
10 solicit funds or contributions by use of one or more telephones
 
11 and which involves more than one telephone call.
 
12      "Telephone solicitor" means any person who in connection
 
13 with telemarketing, initiates telephone calls to a consumer,
 
14 where either or both parties to the telephone call are located in
 
15 this State.
 
16      §    -2  Deceptive acts or practices prohibited.(a)    It
 
17 is an unfair or deceptive act or practice and a violation of this
 
18 chapter for any seller or telephone solicitor, in an outbound
 
19 telephone call to a consumer, to:
 
20      (1)  Fail to state before payment is requested and prior to
 
21           any telemarketer solicitation:
 
22           (A)  The true purpose of the telephone call;
 
23           (B)  The telephone solicitor's name or the seller's
 

 
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 1                name and the company or entity on whose behalf the
 
 2                solicitation is being made; and
 
 3           (C)  The goods or services being offered;
 
 4      (2)  Misrepresent or fail to disclose, in a clear,
 
 5           conspicuous, and intelligible manner, and before
 
 6           payment is received from the consumer, the following
 
 7           information:
 
 8           (A)  Total purchase costs to the consumer of the goods
 
 9                to be received;
 
10           (B)  Any restrictions, limitations, or conditions to
 
11                purchase or to use the goods that are the subject
 
12                of any offer;
 
13           (C)  Any material term or condition of the seller's
 
14                refund, cancellation, or exchange policy,
 
15                including, if applicable, that none of these
 
16                policies exist;
 
17           (D)  All material costs or conditions related to
 
18                receiving a prize including the odds of winning
 
19                the prize, and if the odds are not calculable in
 
20                advance, the factors used in calculating the odds,
 
21                the nature and value of a prize, no purchase is
 
22                necessary to win the prize, and the "no purchase"
 
23                method of entering the contest;
 

 
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 1           (E)  Any material aspect of an investment opportunity
 
 2                being offered, including but not limited to risk,
 
 3                liquidity, earnings potential, market value, and
 
 4                profitability; and
 
 5           (F)  The quantity of any goods or services offered;
 
 6      (3)  Misrepresent any material aspect of the quality or
 
 7           basic characteristics of any goods or services offered;
 
 8      (4)  Represent that the telephone solicitor or seller is
 
 9           registered as a telephone solicitor in the State or has
 
10           in any way received an endorsement or approval by any
 
11           governmental agency of the State;
 
12      (5)  Make a false or misleading statement with the purpose
 
13           of inducing a consumer to pay for goods or services;
 
14      (6)  Request or accept payment from a consumer or make or
 
15           submit any charge to the consumer's credit or bank
 
16           account until the telephone solicitor or seller
 
17           receives from the consumer an express verifiable
 
18           authorization, provided that no express verifiable
 
19           authorization is required if the seller adopts and
 
20           complies with a policy that:
 
21           (A)  Affords a consumer at least seven days after the
 
22                receipt of goods or services to review goods or
 
23                services and return undamaged or unused goods or
 

 
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 1                provide a cancellation of services notice;
 
 2           (B)  Requires the seller to process the full refund
 
 3                within thirty days after receipt of returned
 
 4                merchandise or the cancellation of services notice
 
 5                from the consumer; and 
 
 6           (C)  Requires the disclosure of the seller's return and
 
 7                refund policy to the consumer, orally by telephone
 
 8                and in writing with advertising or promotional
 
 9                material or with delivery of the goods or
 
10                services;
 
11      (7)  Fail to include on any express verifiable authorization
 
12           in clear and conspicuous language:  "YOU ARE NOT
 
13           OBLIGATED TO MAKE ANY PAYMENT UNLESS YOU SIGN THIS
 
14           CONFIRMATION AND RETURN IT TO THE SELLER";
 
15      (8)  Procure the services of any professional delivery,
 
16           courier, or other pick-up service to obtain immediate
 
17           receipt or possession of a consumer's payment;
 
18      (9)  Offer to consumers in the State any prize promotion in
 
19           which a purchase or payment is necessary to obtain the
 
20           prize; or
 
21     (10)  Fail to comply with the recordkeeping requirements of
 
22           this chapter.
 
23      (b)  It is a violation of this chapter for any person to
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1 assist, support, or provide substantial assistance to any seller
 
 2 or telephone solicitor where that person knows or should have
 
 3 known that the seller or telephone solicitor is engaged in any
 
 4 unlawful or deceptive practice defined within this chapter.
 
 5      (c)  Engaging in any other unfair or deceptive telemarketing
 
 6 conduct that will create a likelihood of confusion or
 
 7 misunderstanding is a violation of this chapter.
 
 8      §    -3  Abusive telemarketing acts or practices.  It is an
 
 9 abusive telemarketing act or practice and a violation of this
 
10 chapter for any seller or telephone solicitor to engage in the
 
11 following conduct:
 
12      (1)  Threaten, intimidate, or use profane or obscene
 
13           language to a consumer;
 
14      (2)  Request a fee to remove derogatory information from or
 
15           improve a consumer's credit history or credit record
 
16           until:
 
17           (A)  The time frame in which the seller or telephone
 
18                solicitor has represented all of the goods or
 
19                services will be provided to that person has
 
20                expired; and 
 
21           (B)  The seller or telephone solicitor has provided the
 
22                consumer with documentation in the form of a
 
23                consumer report from a consumer reporting agency
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1                demonstrating that the promised results have been
 
 2                achieved, the report having been issued more than
 
 3                six months after the results were achieved.  
 
 4           Nothing in this chapter shall be construed to affect
 
 5           the requirement of the Fair Credit Reporting Act, title
 
 6           15 U.S.C. section 1681, that a consumer report may only
 
 7           be obtained for a specified permissible purpose;
 
 8      (3)  Request or receive payment from a consumer to recover
 
 9           or otherwise aid in a return of money or any other item
 
10           lost by the consumer in a telemarketing transaction,
 
11           until seven business days after the money or other item
 
12           is delivered to the consumer;
 
13      (4)  Request or receive payment of any fee in advance of
 
14           obtaining a loan or other extension of credit for a
 
15           consumer when a high likelihood of success has been
 
16           represented to the consumer by the telephone solicitor
 
17           or seller;
 
18      (5)  Use an automatic dialer to initiate an outbound
 
19           telephone call;
 
20      (6)  Engage any consumer repeatedly or continuously with
 
21           telemarketing behavior a reasonable person would deem
 
22           to be annoying, abusive, or harassing;
 
23      (7)  Initiate an outbound telephone call to a consumer, when
 

 
Page 9                                                     947
                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1           that consumer has stated previously that the consumer
 
 2           does not wish to receive telephone calls from that
 
 3           seller or telephone solicitor; provided that the seller
 
 4           or telephone solicitor shall not be in violation of
 
 5           this subsection if:
 
 6           (A)  It has established and implemented written
 
 7                procedures to comply with this subsection, which
 
 8                procedures meet the minimum standards set forth in
 
 9                title 47 C.F.R. 64, 1200(e)(2);
 
10           (B)  It has trained all telephone solicitors,
 
11                employees, or agents in the procedures established
 
12                pursuant to subparagraph (7)(A);
 
13           (C)  The seller, or the telephone solicitor acting on
 
14                behalf of the seller, has maintained and recorded
 
15                lists of persons who may not be contacted, in
 
16                compliance with this subsection; and
 
17           (D)  The call is the result of error; or
 
18      (8)  Initiate an outbound telephone call to a consumer's
 
19           residence at any time other than between 8:00 a.m. and
 
20           9:00 p.m. local time at the consumer's residence.
 
21      §   -4  Recordkeeping.  Every telephone solicitor and every
 
22 seller shall keep true and accurate records of all telemarketing
 
23 activities initiated in this State or directed to consumers
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1 located in this State.  Upon demand, these records shall be made
 
 2 available to the department of commerce and consumer affairs, the
 
 3 attorney general, or any other governmental entity with authority
 
 4 to enforce this chapter.  These records shall be retained for a
 
 5 period of two years after the date of any telephone call from or
 
 6 into this State.  The records shall include but are not limited
 
 7 to the following information:
 
 8      (1)  The location of the telephone solicitor or seller and
 
 9           the street addresses of any locations from which
 
10           outbound telephone calls originated;
 
11      (2)  Copies of any injunction, temporary restraining order,
 
12           judgment, consent judgment, or assurance of voluntary
 
13           compliance in any civil or administrative action,
 
14           including a pending action, involving a violation or
 
15           alleged violation by the telephone solicitor or seller
 
16           of any state or federal telemarketing law;
 
17      (3)  The true name, any fictitious name used, last known
 
18           home address, telephone number, job title, date of
 
19           birth, and social security number of all telephone
 
20           solicitors who place or placed outbound telephone calls
 
21           on behalf of a seller and all other employees or agents
 
22           who participate in or are responsible for the
 
23           management of the business of the seller; however, if
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1           the seller permits fictitious names to be used by its
 
 2           telephone solicitors, employees, or agents, each
 
 3           fictitious name must be traceable to only one specific
 
 4           telephone solicitor, employee, or agent.  Where one or
 
 5           more telephone solicitor is employed by or otherwise
 
 6           acting on behalf of a seller, the reporting
 
 7           requirements of this chapter may be assumed by the
 
 8           seller on behalf of itself and its staff, but only to
 
 9           the extent the records comply with the requirements of
 
10           this chapter;
 
11      (4)  Copies of all scripts, outlines, or presentation
 
12           materials the seller requires a telephone solicitor to
 
13           use when soliciting as well as all information to be
 
14           provided by a telephone solicitor to a consumer in
 
15           connection with any telemarketing;
 
16      (5)  All written consents to utilize the name or names of
 
17           any person, including any business or charitable
 
18           organization, in any endorsements;
 
19      (6)  Materials to substantiate any claim about the
 
20           performance, efficacy, nature, or characteristics of
 
21           health, nutrition, or diet related goods or services
 
22           that are the subject of telemarketing;
 
23      (7)  A copy of the refund, cancellation, exchange, or
 

 
Page 12                                                    947
                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1           repurchase policies or any good or product offered by a
 
 2           seller or telephone solicitor, unless the seller or
 
 3           telephone solicitor offers and provides an
 
 4           unconditional satisfaction guaranteed policy and
 
 5           provides a full refund for returned goods or canceled
 
 6           services;
 
 7      (8)  Copies of all written confirmations of telemarketing
 
 8           transactions;
 
 9      (9)  Copies of all express verifiable authorizations and
 
10           signed order confirmations;
 
11     (10)  Copies of all training instructions, handbooks, or
 
12           other guidelines distributed by sellers to their
 
13           telephone solicitors, employees, or agents;
 
14     (11)  Procedures for maintaining a list of persons who do not
 
15           wish to receive outbound telephone calls made by or on
 
16           behalf of the seller or telephone solicitor, which
 
17           procedures shall meet the minimum standards set forth
 
18           in title 47 C.F.R. section 64.1200(e)(2), as well as
 
19           the do not call lists maintained pursuant to those
 
20           procedures; and
 
21     (l2)  Copies of written contracts and agreements between the
 
22           telephone solicitor or seller and any other telephone
 
23           solicitor or seller.
 

 
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 1      §    -5  Exemptions.  This chapter shall not apply to the
 
 2 following:
 
 3      (1)  A person who initiates telephone calls to a residential
 
 4           customer for the sole purpose of polling or soliciting
 
 5           the expression of ideas, opinions, or votes, or a
 
 6           person soliciting solely for a political or religious
 
 7           cause or purpose;
 
 8      (2)  A securities broker-dealer, salesperson, investment
 
 9           advisor, or investment advisor representative who is
 
10           registered with this State to sell securities or who is
 
11           authorized to sell securities in this State pursuant to
 
12           federal securities laws, when soliciting over the
 
13           telephone within the scope of the person's
 
14           registration;
 
15      (3)  A financial institution that is authorized to accept
 
16           deposits under its chartering or licensing authority
 
17           and the deposits are insured by the Federal Deposit
 
18           Insurance Corporation or the National Credit Union
 
19           Administration, such as a bank, savings bank, savings
 
20           and loan association, depository financial services
 
21           loan company, or credit union, or a non-depository
 
22           financial services loan company that is licensed or
 
23           authorized to conduct business in this State by the
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1           commissioner of financial institutions, or an affiliate
 
 2           or subsidiary of a financial institution as defined in
 
 3           chapter 412;
 
 4      (4)  An insurance company, individual, or other organization
 
 5           that is licensed or authorized to conduct business in
 
 6           this State by the insurance commissioner;
 
 7      (5)  A college or university accredited by an accrediting
 
 8           organization recognized by the United States Department
 
 9           of Education;
 
10      (6)  A person who publishes a catalog of at least fifteen
 
11           pages, four times a year with circulation of at least
 
12           100,000, where the catalog includes clear disclosure of
 
13           sale prices, shipping, handling, and other charges;
 
14      (7)  A political subdivision or instrumentality of the
 
15           United States, or any state of the United States;
 
16      (8)  The sale of goods or services for which the terms and
 
17           conditions of the offering or sale are subject to
 
18           regulation by the public utilities commission or the
 
19           Federal Communications Commission; provided that
 
20           nothing herein shall be construed to preclude or
 
21           preempt actions brought under other laws including
 
22           chapter 480;
 
23      (9)  A real estate broker or salesperson who is licensed by
 

 
Page 15                                                    947
                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1           this State to sell real estate, when soliciting within
 
 2           the scope of the license;
 
 3     (10)  A travel agency that is registered with this State,
 
 4           when engaging in the business of selling or advertising
 
 5           to sell travel services; or
 
 6     (11)  An entity that operates on a worldwide or national
 
 7           basis and is subject to the oversight of governmental
 
 8           agencies, for telephone calls to and from consumers
 
 9           with whom the business has an existing business
 
10           relationship.
 
11      §    -6  Unfair or deceptive act or practice.  Any person
 
12 who violates this chapter shall be deemed to have engaged in an
 
13 unfair method of competition or unfair and deceptive act or
 
14 practice in the conduct or any trade or commerce within the
 
15 meaning of section 480-2.
 
16      §    -7  Violations and penalties.(a)  The attorney
 
17 general, the director of the office of consumer protection, or
 
18 the prosecuting attorney may bring an action in the name of the
 
19 State against any person to restrain and prevent any violation of
 
20 this chapter.
 
21      (b)  Any person that violates any provision of this chapter
 
22 shall be assessed a civil penalty of not more than $1,000 for
 
23 each violation, and may in addition be ordered to forfeit to the
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1 State any interest in property used, acquired, or maintained in
 
 2 violation of this chapter.
 
 3      (c)  Any person that knowingly violates any provision of
 
 4 this chapter shall be guilty of a class C felony as defined by
 
 5 section 701-107 and, in addition to the penalties provided for a
 
 6 class C felony, shall forfeit to the State any interest in
 
 7 property used, acquired, or maintained in violation of this
 
 8 chapter.
 
 9      (b)  The following periods of limitations shall apply to
 
10 prosecutions for violations of this chapter:
 
11      (1)  Prosecution under this chapter shall be commenced
 
12           within five years after the offense is committed; and 
 
13      (2)  If the period described in paragraph (1) has expired,
 
14           prosecution for a felony under this chapter may be
 
15           commenced within two years after the discovery of the
 
16           offense; provided that no prosecution under this
 
17           chapter shall be commenced more than ten years after
 
18           the offense is committed.
 
19      §  -8  Other relief available.  The relief provided in
 
20 this chapter is in addition to remedies otherwise available
 
21 against the same conduct under the common law or other state or
 
22 federal statutes or rules.
 
23      §    -9  Contracts voidable.  A contract or agreement made
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1 as a result of telemarketing activity that violates this chapter
 
 2 is voidable by the consumer for any reason at any time.  No debt
 
 3 arising therefrom shall be reported to a credit reporting
 
 4 agency."
 
 5      SECTION 2.  This Act shall take effect on June 31, 1999.