Federal Register, Volume 70 Issue 19 (Monday, January 31, 2005)

[Federal Register Volume 70, Number 19 (Monday, January 31, 2005)]
[Rules and Regulations]
[Pages 5022-5037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-1678]

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Part VIII

Federal Trade Commission

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16 CFR Parts 642 and 698

Prescreen Opt-Out Disclosure; Final Rule

Federal Register / Vol. 70 , No. 19 / Monday, January 31, 2005 /
Rules and Regulations

[[Page 5022]]

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FEDERAL TRADE COMMISSION

16 CFR Parts 642 and 698

[RIN 3084-AA94]

Prescreen Opt-Out Disclosure

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Fair and Accurate Credit Transactions Act of 2003 (``FACT
Act'' or ``Act'') directs the Federal Trade Commission (``FTC'' or
``Commission''), in consultation with the Federal banking agencies and
the National Credit Union Administration, to adopt a rule to improve
the required notice to consumers regarding their right to opt out of
prescreened solicitations for credit or insurance. This final rule
implements this requirement.

EFFECTIVE DATE: This rule is effective on August 1, 2005.

FOR FURTHER INFORMATION CONTACT: Jeanne-Marie Burke or Kellie Cosgrove
Riley, Attorneys, (202) 326-3224, Division of Financial Practices,
Bureau of Consumer Protection, Federal Trade Commission, 600
Pennsylvania Avenue, NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

I. Background

Section 615(d) of the Fair Credit Reporting Act (``FCRA'') requires
that any person who uses a consumer report in order to make an
unsolicited firm offer of credit or insurance to the consumer
(``prescreened offer'' or ``prescreened solicitation''), shall provide
with each written solicitation a clear and conspicuous statement that:
(A) Information contained in the consumer's consumer report was used in
connection with the transaction; (B) the consumer received the offer of
credit or insurance because the consumer satisfied the criteria for
credit worthiness or insurability under which the consumer was selected
for the offer; (C) if applicable, the credit or insurance may not be
extended if, after the consumer responds to the offer, the consumer
does not meet the criteria used to select the consumer for the offer or
any applicable criteria bearing on credit worthiness or insurability or
does not furnish any required collateral; (D) the consumer has a right
to prohibit information contained in the consumer's file with any
consumer reporting agency from being used in connection with any credit
or insurance transaction that is not initiated by the consumer; and (E)
the consumer may exercise the right referred to in subparagraph (D) by
notifying a notification system established under section 604(e) [of
the FCRA].
Section 615(d)(1) of the FCRA [15 U.S.C. 1681m(d)(1)] \1\
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\1\ Section 604(e) of the FCRA requires that any consumer
reporting agency that provides prescreened lists to marketers shall
maintain a notification system through which consumers may choose to
have their names and addresses excluded from such lists. That
section also requires that consumer reporting agencies that compile
and maintain files on consumers on a nationwide basis establish a
joint notification system. The nationwide consumer reporting
agencies have done so, and the current telephone number for the
joint notification system is 1-888-5-OPT-OUT (1-888-567-8688).
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The Fair and Accurate Credit Transactions Act of 2003, Public Law
108-159, 117 Stat. 1952 (FACT Act or the Act) was signed into law on
December 4, 2003. Section 213(a) of the FACT Act amends FCRA section
615(d) to require that the statement mandated by section 615(d) ``be
presented in such format and in such type size and manner as to be
simple and easy to understand, as established by the Commission, by
rule, in consultation with the Federal banking agencies and the
National Credit Union Administration.''
On September 27, 2004, the Commission issued, and sought comment
on, a proposed Rule implementing the requirements of section 213(a) of
the FACT Act (``the proposed Rule'').\2\ In response to the proposed
Rule, the Commission received approximately 60 comments from a variety
of trade associations, creditors, insurers, consumer advocacy groups,
and individual consumers. After carefully considering the comments
received, the Commission adopts the proposed Rule with some
modifications.
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\2\ The notice of proposed rulemaking and proposed Rule were
published in the Federal Register on October 1, 2004. 69 FR 58861.
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The final Rule carries out the Commission's mandate to improve the
prescreen notice so that it is simple and easy to understand. The FACT
Act specifies that ``simple and easy to understand'' is to be achieved
by establishing a format, type size, and manner for the presentation of
the notice. These three factors indicate that ``simple and easy to
understand'' is meant to include both (1) the content, such as language
and syntax, of the notice so that it effectively conveys the intended
message to readers, and (2) the presentation and format of the notice
such that it calls attention to the notice and enhances its
understandability. Thus, the final Rule establishes certain baseline
requirements for these two components to ensure that the notices meet
the statutory mandate. As stated in the proposed Rule, the
determination of whether a notice meets the ``simple and easy to
understand'' standard is based on the totality of the disclosure and
the manner and format in which it is presented, not on any single
factor. Modifications have been made to the final Rule to make it
clearer that the ``simple and easy to understand'' standard is a
flexible one.
The final Rule: (1) Sets forth the purpose and scope of the Rule;
(2) defines ``simple and easy to understand''; (3) requires a notice
that consists of an initial statement that provides basic opt-out
information (``short notice''), and a separate longer explanation that
offers further information (``long notice''); (4) adds a definition for
``principal promotional document,'' the document in which the short
notice must appear; (5) establishes the effective date for the Rule;
and (6) proposes model notices that may be used for compliance.
Therefore, having consulted with the Office of the Comptroller of
the Currency, Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, Office of Thrift Supervision, and
National Credit Union Administration, the FTC issues the following
Rule.

II. Overview of Comments Received

The Commission received approximately 60 comments concerning the
proposed Rule.\3\ The vast majority of these comments were from
industry trade organizations \4\ and the business community.\5\
Individual consumers, five

[[Page 5023]]

members of Congress,\6\ and consumer advocacy groups \7\ also submitted
comments on the proposed Rule. In addition to considering the comments
received, the Commission reviewed and considered the Board of Governors
of the Federal Reserve System's Report to the Congress on Further
Restrictions on Unsolicited Written Offers of Credit or Insurance
(``FRB Prescreen Report'').\8\
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\3\ The public comments relating to this rulemaking may be
viewed at http://www.ftc.gov/os/comments/prescreenedoptout/index.htm. Citations to comments filed in this proceeding are made
to the name of the organization (if any) or the last name of the
commenter, and the comment number of record.
\4\ These included the Consumer Data Industry Association
(``CDIA'') (the trade association that represents the nationwide
consumer reporting agencies and a variety of other consumer
reporting agencies), America's Community Bankers, American Bankers
Association, American Council of Life Insurers, American Financial
Services Association, the Coalition to Implement the FACT Act
(representing trade associations and companies that furnish, use,
collect, and disclose consumer information), Consumer Bankers
Association, Credit Union National Association, Florida Association
of Mortgage Brokers, Independent Community Bankers of America,
Michigan Credit Union League, Mortgage Bankers Association, National
Association of Federal Credit Unions, National Independent
Automobile Dealers Association, National Retail Federation,
Pennsylvania Credit Union Association, and Property Casualty
Insurers Association of America.
\5\ These included financial institutions, such as Bank of
America Corporation, Countrywide Home Loans, MasterCard
International Incorporated, MBNA America Bank, N.A., Navy Federal
Credit Union, Union Federal Bank, and Visa U.S.A. Inc.; insurers,
such as Progressive; and credit reporting agencies, such as Equifax
Information Services LLC, Experian Information Solutions, Inc., and
TransUnion LLC.
\6\ Congressman Spencer Bachus, Chair of the Subcommittee on
Financial Institutions and Consumer Credit, of the House Financial
Services Committee (R-AL); Congressman Paul Kanjorski (D-PA);
Congressman John Sweeney (R-NY); Senator George Allen (R-VA); and
Senator Jim Bunning (R-KY).
\7\ These included the Consumer Action, National Consumers
League, Consumer Federation of America, and Privacy Rights
Clearinghouse.
\8\ See http://www.federalreserve.gov/boarddocs/rptcongress/.
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The Commission received comments on nearly all of the provisions
contained in the proposed Rule. Most commenters, including consumers,
businesses, trade associations, and consumer groups, expressed general
support for a Rule requiring an improved and more understandable
prescreen notice. However, commenters disagreed on what manner and
format would best accomplish the goals of the FACT Act and what
information should be contained in the notices.
The majority of industry commenters opposed the layered notice
approach, asserting that a layered notice exceeds the FTC's statutory
authority, would overshadow other important notices, and would lead
consumers to make uninformed decisions about whether to opt out.\9\
Some industry members, as well as consumer advocacy groups, supported
the layered notice as an appropriate means of effecting the statutory
directive of providing a simple and easy format for disclosing the
required information.\10\ Commenters also disagreed on whether the
type-size requirements should be larger \11\ or smaller \12\ than
proposed, and whether the notice should include additional information,
such as the benefits of prescreened offers,\13\ or prohibit any
additional information from being included in the notice.\14\
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\9\ See, e.g., Comment, America's Community Bankers OL-
100013; Comment, Discover Bank OL-100016; Comment,
Financial Services Roundtable EREG-000004; Comment, Juniper
Financial Corp., 000009; Comment, MasterCard International
Incorporated 000012; Comment, Visa U.S.A. Inc.
000005; Comment, Wells Fargo & Company 000007;
Comment, Wilmer Cutler Pickering Hale and Dorr LLP OL-
100045.
\10\ See, e.g., Comment, Boeing Employees' Credit Union
000020; Comment, Commerce Bancshares, Inc. OL-
100045; Comment, National Consumers League, et al. OL-
100011; Comment, Pennsylvania Credit Union Association OL-
100024; Comment, Privacy Rights Clearinghouse OL-100015.
\11\ See, e.g., Comment, National Consumers League, et al.
OL-100011; Comment, Privacy Rights Clearinghouse
OL-10015.
\12\ See, e.g., Comment, Commerce Bancshares, Inc. OL-
100045; Comment, Mortgage Bankers Association OL-100036;
Comment, National Independent Automobile Dealers Association
OL-100021; Comment, Union Federal Bank OL-100044.
\13\ See, e.g., Comment, Discover Bank OL-100016;
Comment, Financial Services Roundtable EREG-000004;
Comment, MBNA America Bank OL-100031.
\14\ See, e.g., Comment, Connors OL-100014; Comment,
National Consumers League, et al. OL-100011; Comment,
Privacy Rights Clearinghouse OL-100015.
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In general, commenters also approved of the definition of ``simple
and easy to understand,'' but some expressed concern that the proposed
Rule's list of factors to be considered in determining whether a notice
met this definition might be considered a ``checklist'' rather than
examples.\15\ In addition, commenters generally agreed that the Rule
should also include a definition for ``principal promotional
document.''\16\
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\15\ See, e.g., Comment, Coalition to Implement the FACT Act
OL-100042; Comment, Juniper Financial Corp.
000009; Comment, MasterCard International Incorporated
000012.
\16\ See, e.g., Comment, Commerce Bancshares, Inc. OL-
100045; Comment, Credit Union National Association 000003;
Comment, Mortgage Bankers Association OL-100036; Comment,
National Association of Federal Credit Unions OL-100020;
Comment, National Consumers League, et al. OL-100011;
Comment, Privacy Rights Clearinghouse OL-100015.
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Although commenters generally supported the proposed Rule's
inclusion of model notices,\17\ some commenters suggested changes or
additions to the language of those notices to achieve various goals,
including using more ``neutral'' language for the short notice,\18\
adding language regarding collateral requirements,\19\ and adding
language regarding the benefits of prescreened offers.\20\
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\17\ See, e.g., Comment, Countrywide 000010; Comment,
Visa U.S.A. Inc. 000005.
\18\ See, e.g., Comment, Juniper Financial Corp.
000009; Comment, MasterCard International Incorporated
000012; Comment, Visa U.S.A. Inc. 000005; Comment,
Wells Fargo & Company 000007.
\19\ See, e.g., Comment, Mortgage Bankers Association
OL-100036.
\20\ See, e.g., Comment, JPMorgan Chase Bank OL-100019;
Comment, Juniper Financial Corp. 000009.
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All of these comments, as well as others, are discussed more fully
below.

III. Section-By-Section Analysis

A. Section 642.1: Purpose and Scope

Proposed section 642.1(a) set forth the purpose of the proposed
Rule, which was to implement section 213(a) of the FACT Act. Section
213(a) requires the FTC to establish the format, type size, and manner
in which the notices to consumers regarding the right to opt out of
prescreened solicitations are to be presented. The Commission received
no comments regarding this section and it is adopted as proposed.
Proposed section 642.1(b) set forth the scope of the proposed Rule.
The Rule applies to any person who uses a consumer report on any
consumer in connection with any credit or insurance transaction that is
not initiated by the consumer, pursuant to section 604(c)(1)(B) of the
FCRA. The Commission received no comments regarding this section and it
is adopted as proposed.

B. Section 642.2: Definitions

1. ``Simple and Easy to Understand''
The proposed Rule contained one definition in section 642.2.
``Simple and easy to understand'' was defined to mean ``plain language
designed to be understood by ordinary consumers.'' Proposed section
642.2 also listed eight factors that would be considered in determining
whether a statement is ``simple and easy to understand.''\21\
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\21\ The eight factors to be considered in determining whether a
statement is ``simple and easy to understand'' were: (1) Use of
clear and concise sentences, paragraphs, and sections; (2) use of
short explanatory sentences; (3) use of definite, concrete, everyday
words; (4) use of active voice; (5) avoidance of multiple negatives;
(6) avoidance of legal and technical business terminology; (7)
avoidance of explanations that are imprecise and reasonably subject
to different interpretations; and (8) use of language that is not
misleading.
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The Commission received several comments concerning this
definition. Some commenters noted that they supported the definition,
did not suggest any changes, and encouraged the Commission to retain it
in the final Rule.\22\ Other commenters suggested that the Commission
eliminate the eight factors from the definition. These commenters
expressed various concerns about the factors, including that they
unduly complicate an otherwise uncomplicated definition and could be
interpreted as a checklist of requirements that must each be present in
order to meet the definition.\23\
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\22\ See, e.g., Comment, Discover Bank OL-100016;
Comment, Wells Fargo & Company 000007.
\23\ See, e.g., Comment, Coalition to Implement the FACT Act
OL-100042; Comment, Equifax Information Services LLC
OL-100023; Comment, Juniper Financial Corp.
000009; Comment, MasterCard International Incorporated
000012.
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As the Commission noted in the notice of proposed rulemaking
(``NPRM'') accompanying the proposed Rule, the eight factors are
intended to provide guidance to companies in

[[Page 5024]]

complying with the Rule, while allowing them to maintain flexibility to
determine how best to meet the definition.
The Commission has revised the Rule to clarify that use of clear
and concise sentences, paragraphs, and sections is a mandatory part of
the definition, but the remaining seven factors are simply examples to
be considered in meeting the ``simple and easy to understand''
definition. These factors should neither be considered to be mandatory,
nor to constitute an exhaustive list.
In addition, the Commission has determined to specify in the final
Rule that the layered notice is a required component of the ``simple
and easy to understand'' definition. The Commission has determined that
the layered format makes the prescreen disclosures simpler and easier
to understand, and it is appropriate that it specifically be
incorporated into the definition.\24\
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\24\ The Commission also notes that, in addition to meeting the
``simple and easy to understand'' definition set forth by the Rule,
prescreen opt-out notices must continue to meet the ``clear and
conspicuous'' standard required by the FCRA. One recent case from
the Court of Appeals for the Seventh Circuit noted that, in
determining whether a prescreen notice is ``clear and conspicuous,''
factors to be considered are: ``the location of the notice within
the document, the type size used within the notice as well as the
type size in comparison to the rest of the document * * * whether
the notice is set off in any other way--spacing, font style, all
capitals, etc.'' Cole v. U.S. Capital, Inc., 389 F.3d 719, 731 (7th
Cir. 2004). The court concluded, ``In short, there must be something
about the way the notice is presented in the document such that the
consumer's attention will be drawn to it.'' Id. Thus, the ``simple
and easy to understand'' standard overlaps to some extent with the
``clear and conspicuous'' standard.
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2. ``Principal Promotional Document''
Proposed section 642.3(a)(2) required that the short form of the
layered notice be placed on the first page of the principal promotional
document. The Commission noted in the NPRM that the question of what
constitutes the ``principal promotional document'' is fact specific,
but that, in general, the Commission would consider the cover letter or
the document that is designed to be seen first by the consumer to be
the ``principal promotional document.'' The proposed Rule did not
define ``principal promotional document,'' however, and the Commission
requested comment on whether such a definition was necessary.
The Commission received several comments requesting that the
Commission provide a definition for ``principal promotional document.''
\25\ Some commenters suggested specific definitions for the term, such
as the document intended to be seen first by the consumer, the document
that addresses the consumer directly with the offer, the cover letter
or other document used to introduce the offer, or the cover letter or
other document that the consumer sees first when opening the
solicitation. At least one commenter asserted that the proper location
for the disclosure is in the application or the offer of credit.\26\
Another commenter suggested that factors to be considered in
determining whether a document is the principal promotional document
should include (1) whether the document is the first page of a letter
to a consumer, or (2) whether the document contains the credit terms
being offered.\27\
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\25\ See, e.g., Comment, Commerce Bancshares, Inc. OL-
100045; Comment, Credit Union National Association 000003;
Comment, Mortgage Bankers Association OL-100036; Comment,
National Association of Federal Credit Unions OL-100020;
Comment, National Consumers League, et al. OL-100011;
Comment, Privacy Rights Clearinghouse OL-100015.
\26\ Comment, Michigan Credit Union League OL-100030.
\27\ Comment, Mortgage Bankers Association OL-100036.
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In addition, some commenters expressed concern that the concept of
a principal promotional document would not translate well to an
electronic prescreened offer. Specifically, these commenters were
concerned that a pop-up advertisement that appeared on the consumer's
computer screen would have to contain the short notice.\28\ These
commenters suggested that pop-up advertisements should be considered
similar to envelopes, and therefore not considered the principal
promotional document.
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\28\ See, e.g., Comment, Financial Services Roundtable
EREG-000004; Comment, GE Consumer Finance-Americas
OL-100018.
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The Commission agrees with the commenters that a definition would
help companies to comply with the Rule and has considered all of the
suggested definitions. The final Rule defines principal promotional
document as the document that is designed to be seen first by the
consumer, such as the cover letter. Requiring that the disclosure
appear early in the solicitation enhances the noticeability of the
disclosure, thereby aiding in making the disclosure simple and easy to
understand. The final Rule does not link the definition to the credit
terms or the application, because many different documents within the
solicitation may contain some or all of the credit terms, and those
consumers who are interested in opting out of receiving solicitations
for future offers may not be likely to review the terms and conditions
of the offer at hand. Therefore, linking the definition to credit terms
would not provide guidance to businesses, nor would it ensure that
those interested in opting out could easily locate the notice.
In addition, the Commission has considered the concerns expressed
by the commenters regarding the application of the definition to
electronic offers. The Commission is in agreement with those commenters
who equated a pop-up promotional screen with an envelope. Therefore,
the Commission will consider the principal promotional document in
those circumstances to be the page designed to be seen first by the
consumer who clicks on the pop-up promotional screen.

C. Section 642.3: Prescreen Opt-Out Notices

The proposed Rule required a ``layered'' notice--that is, a notice
that includes both an initial short portion and a longer portion
contained later in the solicitation. The short portion of the notice
informed consumers about the right to opt out of receiving prescreened
solicitations and specified a toll-free number for consumers to call to
exercise that right. No additional information could be included in the
short notice. The long portion of the notice provided consumers with
all of the additional information required by section 615(d) of the
FCRA. The long notice could contain additional information that did not
interfere with, detract from, contradict, or otherwise undermine the
purpose of the opt-out notice. The proposed Rule set forth certain
baseline requirements for the type size of the notice, as well as the
presentation of the notice.
Most of the comments the Commission received focused on various
aspects of this section of the proposed Rule. Commenters addressed
several topics pertaining to this section, including the Commission's
statutory authority to prescribe a layered notice, the Commission's
statutory authority to require the notice to appear in electronic
solicitations, the content of the notice, the type size of the notice,
and the format and manner in which the notice is presented, including
within electronic solicitations. Each of these is addressed in turn
below.
1. Statutory Authority for the Layered Notice
Several commenters questioned whether the Commission had exceeded
its statutory authority by mandating a layered notice.\29\ Many of
these

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commenters stated that the Commission was improperly specifying a
definition of the clear and conspicuous standard contained in section
615(d) of the FCRA, including imposing a prominence requirement.\30\
These commenters argued that Congress did not intend this disclosure to
be more prominent than other disclosures required by law, such as the
so-called ``Schumer box,''\31\ or that any one element of the
disclosure be more prominent than another. One commenter opined that
the layered notice was actually two notices and therefore was contrary
to the language in section 615(d) of the FCRA requiring ``a clear and
conspicuous statement.''\32\
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\29\ See, e.g., Comment, Consumer Bankers Association
OL-100028; Comment, HSBC North American Holdings
000004; Comment, Juniper Financial Corp. 000009;
Comment, MasterCard International 000012; Comment, Visa
U.S.A. Inc. 000005; Comment, Wachovia Corporation
OL-100017.
\30\ See, e.g., Comment, Juniper Financial Corp.
000009; Comment, MasterCard International 000012;
Comment, Wachovia Corporation OL-100017.
\31\ See 12 CFR 226.5a.
\32\ Comment, Visa U.S.A. Inc. 000005.
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The Commission has considered these comments and has decided to
retain the layered notice approach in the final Rule. The FACT Act
requires that the notice be ``presented in a format and in such type
size and manner as to be simple and easy to understand, as established
by the Commission.'' (Emphasis added). Thus, the plain language of the
statute provides that ``simple and easy to understand'' encompasses
presentation of the notice. The Commission has concluded that the
layered notice is an appropriate and effective means of achieving this
goal, and that nothing in the FACT Act or the FCRA prohibits the use of
a layered notice approach.
Under section 615(d) of the FCRA, the prescreen disclosure must be
clear and conspicuous. Section 213(a) of the FACT Act imposed the
additional requirement that the disclosure be ``simple and easy to
understand.'' Therefore, the statutory scheme establishes a different
standard for the prescreen disclosure than it imposes on other
disclosures that must only be clear and conspicuous. There is no
evidence in the record that the layered notice required by this Rule
will compromise the communication of other required disclosures in
prescreened solicitations.
Some commenters stated that, even if the Commission has authority
to require a layered notice, it was improper for the Commission to rely
upon the consumer survey that the Commission undertook as part of
developing the proposed Rule as support for the layered notice
requirement. These commenters criticized the methodology of the survey
as unrepresentative of consumer reactions in a real-world setting.\33\
The Commission recognizes the limitations of any survey testing
methodology because of the artificial setting of the test environment,
but maintains that the study approximated real-world conditions to the
extent feasible.\34\ The Commission believes that the survey provides
probative evidence of the comparative effectiveness of the three
versions of notices it tested (``current,'' ``improved,'' and
``layered'').\35\ The survey found that the layered notice better
communicated the central messages--consumers' right to opt out and how
to exercise the right--than did the current version.\36\
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\33\ See, e.g., Comment, Wilmer Cutler Pickering Hale and Dorr
LLP OL-100046. (For a discussion of the consumer survey,
see 69 FR 58861, 58864.)
\34\ The study used standard consumer testing methodology and
consisted of an initial exposure, in which the test instrument was
presented to the consumer and then removed from view, and a forced
exposure, in which the consumer's attention was focused on specific
information in the test instrument. See Manoj Hastak, Ph.D., The
Effectiveness of ``Opt-Out'' Disclosures in Pre-Screened Credit Card
Offers, at 3-4, located at http://www.ftc.gov/reports/prescreen/040927optoutdiscprecreenrpt.pdf. In the view of the Commission's
consumer research expert consultant, the initial exposure was
designed to simulate ``fairly natural viewing conditions.'' Id. at
4. The FRB Prescreen Report indicates that, for most of those
consumers who actually open and review prescreened solicitations,
this approach may indeed approximate real-world conditions. In a
nationwide survey of consumers, the FRB found that 56% of consumers
throw prescreened solicitations away without opening them, 34%
merely ``glance'' at them, and the remaining 10% read them closely.
See FRB Prescreen Report at 32. The initial exposure may have
simulated the experience of consumers who glance at prescreened
solicitations but do not examine them closely, that is, the
experience of most consumers who actually open prescreened
solicitations.
\35\ The Commission has long recognized that methodological
perfection is not required before a consumer survey can be probative
and reliable; rather, imperfections in methodology affect the weight
that is given to the survey. See, e.g., In re Stouffer Foods Corp.,
118 F.T.C. 746, 799 (1994); In re Bristol-Meyers Co., 85 F.T.C. 688,
743-44 (1975).
\36\ See 69 FR 58861, 58864. In addition, although there was not
a statistical difference between the improved and layered versions
in the communication of the opt-out right, the layered version was
more effective in the initial ``natural'' exposure (as compared to
the second ``forced'' exposure) at communicating how to exercise
that right.
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A layered notice is particularly useful in cases such as this,
where the information that must be disclosed consists of a relatively
simple central proposition accompanied by a larger quantity of
explanatory or ancillary information. The layered approach allows for
clear communication of the central message with a clear reference to
the additional required information. Those consumers interested in the
additional information have the opportunity to view that information in
another location.\37\
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\37\ The results reported in the FRB Prescreen Report indicate
that a layered notice may be a very effective means to ensure that
consumers who open prescreened solicitations will see the prescreen
disclosure. As noted, supra note 34, the FRB Prescreen Report found
that 56% of consumers throw prescreened solicitations away without
opening them, 10% of consumers open the solicitations and examine
them, and the remainder (34%) open the solicitations and ``glance''
at them. Id. Those consumers who immediately throw the solicitation
away are not likely to see the notice wherever it is located; those
who examine the solicitation closely might see any disclosure, even
one on the back of the page or in fine print; but those consumers
who ``glance'' at the solicitation may be more likely to see a
prescreen disclosure located on the first page of the principal
promotional document that is printed in a noticeable type size and
set apart from other text on the page. Thus, a layered notice seems
more likely to be seen by the majority of consumers who open
prescreened solicitations.
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2. Statutory Authority To Require Notice in Electronic Solicitations
Several commenters suggested that the FCRA does not apply to
solicitations that are transmitted electronically because such
documents are not ``written,'' as that term is used in the FCRA.\38\
The Commission believes that ``written'' refers to information that is
capable of being preserved in a tangible form and read, as opposed to
an oral statement that is intangible and transitory. As with
information presented on paper, consumers using electronic media can
read the information and preserve it for possible later review either
by printing it on paper, saving it on disk, or by some other means. The
Commission believes that the purpose of section 213(a) of the FACT Act
was to enhance consumers' awareness of opt-out rights, under section
615(d) of the FCRA, whenever they receive a written solicitation in any
form, regardless of the means of transmission. Therefore, the
Commission has determined that the Rule should apply to all written
solicitations, even if they are transmitted electronically.
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\38\ See, e.g., Comment, American Financial Services Association
OL-100038; Comment, Discover Bank OL-100016.
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3. Content of the Notice
Commenters expressed two primary concerns with the content of the
short portion of the notice: (1) Whether it is appropriate to include a
statement of the opt-out right and the telephone number of the opt-out
system in the short portion of the notice; and (2) whether companies
should be permitted to include additional information, beyond

[[Page 5026]]

that mandated by the statute, in any part of the layered notice.
Inclusion of opt-out right and telephone number in the short
notice.
Several commenters suggested that it was improper for the
Commission in the proposed Rule to require presentation of the opt-out
right and the telephone number to opt out for placement in the short
portion of the notice, while relegating other statutorily-required
information to the long portion of the notice.\39\ Some of these
commenters stated that the Commission did not have the authority to
make certain elements of the disclosure (in particular, the telephone
number) more prominent than others by placing them in the short portion
of the notice. Some were concerned that consumers would not read the
long portion of the notice if they could obtain all of the information
necessary to opt out from the short portion, which might lead them to
make decisions about opting out without the benefit of all pertinent
information.\40\ Other commenters expressed concern that consumers may
mistakenly assume they can use the opt-out telephone number to reply to
the offer itself, leading to frustration and confusion.\41\
---------------------------------------------------------------------------

\39\ See, e.g., Comment, Coalition to Implement the FACT Act
OL-100040; Comment, Direct Marketing Association
OL-100035; Comment, TransUnion LLC 000022;
Comment, Wachovia Corporation OL-100017.
\40\ See, e.g., Comment, American Bankers Association
OL-100040; Comment, Capital One Financial Corporation
OL-100033.
\41\ See, e.g., Comment, American Financial Services Association
OL-100038; Comment, Capital One Financial Corporation
OL-100033.
---------------------------------------------------------------------------

As stated above, Congress has directed the Commission to prescribe
the presentation of the notice, including its manner and format. In
exercising that authority, the Commission has determined to include the
opt-out right and telephone number in the short notice in the final
Rule.\42\ Nothing in the statute prohibits the Commission from
exercising its authority in this manner, and, in fact, the only
legislative history specifically discussing the content of the required
notice supports this result and indicates Congress' interest in
highlighting the opt-out right.\43\
---------------------------------------------------------------------------

\42\ Although the FCRA specifically mentions both the address
and telephone number for the notification system, the Commission has
determined that it is appropriate to require only the telephone
number in the short notice because: (1) the Commission understands
that space is at a premium in prescreened solicitations,
particularly on the first page of the principal promotional
document, and therefore does not want to require more information
than necessary in the short notice; and (2) the communication of the
central message is likely to be more effective with less verbiage in
the short notice. The telephone number requires less space and less
verbiage than the address.
\43\ For example, FACTA section 213(a), amending FCRA section
615(d)(2), is entitled, ``Enhanced Disclosure of the Means Available
to Opt Out of Prescreened Lists.'' Although the title of a statutory
section cannot limit that section, it may assist in explaining what
was intended by that section. See also, e.g., 149 Cong. Rec. S13851-
52 (daily ed. Nov. 4, 2003) (statement of Sen. Sarbanes) (noting
that the amendments to the FCRA ``will require a summary of
consumers'' rights to opt out of prescreened offers.''); 149 Cong.
Rec. S13855 (daily ed. Nov. 4, 2003) (statement of Sen. Johnson)
(noting that the amendments to the FCRA ``take[] important new steps
to empower consumers to reduce unwanted credit solicitations.'');
149 Cong. Rec. S15806-07 (daily ed. Nov. 24, 2003) (statement of
Sen. Sarbanes) (noting that the amendments to the FCRA will ``help
ensure that consumers are aware of how to opt out of the
prescreening process * * *. The FTC * * * will be required to write
rules on the size and prominence of the disclosure of the opt-out
telephone number that is included with offers of credit to
consumers.'')
---------------------------------------------------------------------------

The FRB Prescreen Report seems to confirm Congress' concern that
the existing notice under FCRA section 615(d) has not been especially
effective at communicating to consumers that they have a right to opt
out of prescreened solicitations. The FRB conducted a nationwide survey
of consumers and found that only 20% of consumers were aware of the
opt-out right, and that less than half of those had learned of it
through the section 615(d) notice.\44\ The Report cites the pending
``review of the presentation and the placement of the notice in written
prescreened solicitations' mandated by the FACT Act (that is, the
Commission's rulemaking proceeding), as one basis for its
recommendation that further legislative changes are not necessary at
this time.
---------------------------------------------------------------------------

\44\ FRB Prescreen Report at 32.
---------------------------------------------------------------------------

The Commission has concluded that the statute's purpose is best
accomplished by requiring that the short notice include the essential
information that consumers need if they choose to opt out. Those
consumers who are seeking more information about prescreened offers and
their options are invited by the short notice to obtain further
information from the long notice.
Finally, the Commission is not persuaded that consumers will be
confused about the purpose of the telephone number, given that the
short notice will explicitly state that the number is to be used for
opting out of future prescreened offers.
Additional information in the notices.
The proposed Rule prohibited senders of prescreened solicitations
from including information in the short portion of the notice other
than that specified by the Rule--that is, consumers' right to opt out
and how to exercise it. The proposed Rule contained no such restriction
on the content of the long portion of the notice, so long as any
additional content did not interfere with, detract from, contradict, or
otherwise undermine the purpose of the notice.
Some commenters supported the proposed Rule's prohibition on
additional information being included in the short notice, and
encouraged the Commission to prohibit additional information in the
long notice as well. These commenters argued that allowing additional
information in the notices would be contrary to the Commission's
statutory mandate, confuse consumers, and allow marketers to discourage
consumers from opting out.\45\ Other commenters, however, advocated
allowing additional information, such as the benefits of prescreened
offers and the consequences of opting out, in both the short and long
notices in order to provide consumers with sufficient information to
make an informed decision about whether to opt out.\46\ Some of these
commenters cited to an exchange between Representatives Bachus and
Kanjorski during the House of Representatives' consideration of the
bill, in which the Congressmen stated that consumers should be aware
``not only of the right to opt out of receiving prescreened
solicitations, but also of the benefits and consequences of opting
out.''\47\ Representatives Bachus and Kanjorski submitted a comment to
the Commission expressing the importance of consumer awareness of the
benefits and consequences of opting out.
---------------------------------------------------------------------------

\45\ See, e.g., Comment, Connors OL-100014; Comment,
National Consumers League, et al. OL-100011; Comment,
Privacy Rights Clearinghouse OL100015.
\46\ See, e.g., Comment, CDIA OL-100026; Comment,
Direct Marketing Association OL-100035; Comment, Wilmer
Cutler Pickering Hale and Dorr LLP OL-100046.
\47\ Congressional Record, November 21, 2003, page H12219. See
also infra note 51.
---------------------------------------------------------------------------

The Commission recognizes that prescreened offers may confer many
benefits on consumers. As discussed in several of the comments, such
offers may be an easy and efficient means for consumers to learn of
competing credit or insurance offers and to identify those that best
suit their needs. The Commission also acknowledges, as stated in
certain of the comments, that the growth in prescreened offers has
coincided with a general trend towards lower initial interest rates and
certain other more favorable terms, and that a substantial percentage
of credit card enrollments result from prescreened offers. Moreover,
the Commission recognizes that if prescreened offers

[[Page 5027]]

became less viable, marketers may switch to direct mail solicitations,
which may be more costly and carry less favorable terms.\48\ At the
same time, the Commission notes the concerns raised by certain
commenters about the alleged costs of prescreening, such as the privacy
implications for those consumers who do not wish to have their personal
financial information shared or used to make unsolicited credit and
insurance offers.\49\
---------------------------------------------------------------------------

\48\ See also FRB Prescreen Report at 28-36 (discussing the
benefits of receiving prescreened offers).
\49\ See also FRB Prescreen Report at 37-46 (discussing the
costs of receiving prescreened offers).
---------------------------------------------------------------------------

Regardless of the costs and benefits of prescreening, the FCRA
provides that consumers may opt out of prescreened offers, and simply
directs the Commission to determine how best to inform consumers of
this right and how to exercise it. Moreover, the FCRA does not require
that marketers notify consumers of the consequences of opting out, nor
does it direct the Commission to require such a disclosure. The final
Rule, therefore, requires only the statutorily-mandated messages, but
permits additional information where appropriate.
The Commission has concluded that permitting additional information
in the short notice could significantly diminish the communication of
the statutorily-mandated message.\50\ The final Rule, like the proposed
Rule, does allow additional information, including information about
the benefits of prescreening, in the long notice, if that information
does not interfere with, detract from, contradict, or undermine the
purpose of the prescreen notices. The Commission believes this approach
allows marketers to provide consumers with information that may be
useful to them in making their decisions, while at the same time not
interfering with the statutory mandate to make the notices simple and
easy to understand. The Commission also notes that marketers are free
to include information about prescreening elsewhere in their
solicitations. Finally, section 213(d) of the FACT Act requires the
Commission to undertake a public awareness campaign to alert consumers
to the availability of the opt-out right. The Commission intends to use
this campaign to educate consumers about the benefits and consequences
of opting out.\51\
---------------------------------------------------------------------------

\50\ See, e.g., Funkhouser, An Empirical Study of Consumers'
Sensitivity to the Wording of Affirmative Disclosure Messages, 3 J.
Pub. Pol. & Mktg. at 31, 33 (finding that ``information must be
presented simply and straightforwardly,'' and ``affirmative
disclosures should say exactly what they are intended to mean.'')
(Emphasis in the original).
\51\ The colloquy between Representatives Bachus and Kanjorski
cited by some commenters refers to this public awareness campaign as
a vehicle for informing consumers of the benefits and consequences
of opting out. See 149 Cong. Rec. H12,218-19 (daily ed. Nov. 21,
2003) (``Mr. KANJORSKI. Mr. Speaker, does the gentleman share with
me the understanding that the FTC's public awareness campaign is to
be designed to increase public awareness, not only of the right to
opt out of receiving prescreened solicitations, but also of the
benefits and consequences of opting out? Mr. BACHUS. Mr. Speaker,
yes, I share that understanding.'').
---------------------------------------------------------------------------

4. Type Size of the Notice
The proposed Rule required the short portion of the notice to be in
a type size that is larger than the principal text on the same page,
but in no event smaller than 12-point type, and the long portion of the
notice to be in a type size that is no smaller than the type size of
the principal text on the same page, but in no event smaller than 8-
point type.
Some commenters asserted that the type size prescribed for the
short notice was adequate, but that the type size for the long notice
was too small.\52\ Others found the type size required for the long
notice to be appropriate, but opined that the type size for the short
notice was too large.\53\ Still others proposed that the Commission
adopt the approach used in the commentary to the Truth in Lending Act's
implementing Regulation Z, which deems disclosures in 12-point type to
be readily noticeable, but permits smaller type size to be used.\54\ A
few commenters suggested that the Commission not impose a type-size
requirement at all,\55\ or that the requirement only be relative to
surrounding text rather than specifying an absolute size.\56\
---------------------------------------------------------------------------

\52\ See, e.g., Comment, National Consumers League, et al.
OL-100011. See also Comment, Privacy Rights Clearinghouse
OL-100015 (commenting that the long notice type size
requirement was too small).
\53\ See, e.g., Comment, Boeing Employees' Credit Union
000020; Comment, Michigan Credit Union League OL-
100030; Comment, Mortgage Bankers Association OL-100036;
Comment, National Independent Automobile Dealers Association
OL-100021; Comment, Union Federal Bank OL-100044.
\54\ See, e.g., Comment, Credit Union National Association
000003; Comment, Navy Federal Credit Union 000006.
\55\ See, e.g., Comment, Coalition to Implement the FACT Act
OL-100042; Comment, Consumer Bankers Association
OL-100028; Comment, TransUnion LLC 000022.
\56\ See, e.g., Comment, Countrywide 000010.
---------------------------------------------------------------------------

The Commission has considered these comments, but has determined
not to change the type-size requirements for written prescreened
solicitations. The FACT Act directs the Commission to prescribe a rule
that establishes, among other things, a type size that is sufficient to
render the notice simple and easy to understand. It is important that
the notices be large enough to be noticed and readable by ordinary
consumers. At the same time, the Commission understands that space is
at a premium in prescreened solicitations. Requiring the short portion
of the notice to be in a type size that is larger than the principal
text on the same page, combined with a minimum 12-point type-size
requirement, is sufficient to ensure that it is noticeable and readable
without imposing unnecessary expense on marketers.
The long notice, which contains additional information, presents a
somewhat different calculus. Consumers who see the short notice and are
interested in learning further information are directed by the short
notice to the long notice. Accordingly, the Commission believes that
the long notice should be in a type size that is sufficiently large to
be readable, but that there is less need for the long notice to be
readily noticeable. Balancing these interests, the Commission concludes
that the long notice should be no smaller than 8-point type and no
smaller than the principal text on the same page.
Some commenters also expressed concerns about complying with the
type-size requirements in electronic solicitations. Several commenters
pointed out that because the settings of the computer on which a
solicitation is viewed can alter a solicitation's format, meeting a
specific minimum point requirement would be burdensome.\57\ These
commenters suggested that the Commission instead impose a standard of
relative prominence for electronic solicitations, which would require,
for example, that the short notice be larger than the principal
text.\58\ The Commission agrees that, for electronic solicitations, a
standard of relative prominence is an appropriate means by which to
accommodate the vast range of electronic devices that may be used to
view the offer. Thus, the final Rule provides that, for electronic
solicitations, marketers must take reasonable steps to ensure that the
short notice is in a type size that is larger than the principal text
on the same page. The long notice must be in a type size no smaller
than the principal text on the same page.
---------------------------------------------------------------------------

\57\ See, e.g., Comment, Credit Union National Association
000003; Comment, Countrywide 000010; Comment,
Progressive OL-100010.
\58\ See, e.g., Comment, Countrywide 000010; Comment,
National Independent Automobile Dealers Association OL-
100021; Comment, Progressive OL-100010.

---------------------------------------------------------------------------

[[Page 5028]]

5. Form of the Notice
The proposed Rule set forth certain baseline requirements for the
form of both the long and the short portions of the notice. The
proposed Rule required the short notice to be on the front side of the
first page of the principal promotional document in the solicitation,
or, if provided electronically, on the first screen; located on the
page and in a format so that it is distinct from other text; and in a
type style that is distinct from other type styles used on the same
page. The proposed Rule required the long notice to begin with a
heading identifying it as the ``OPT-OUT NOTICE''; be in a type style
that is distinct from other type styles used on the same page; and be
set apart from other text on the page. The Commission received several
comments concerning these requirements generally, as well as specific
comments regarding the required location, type style, and heading
requirements. These are addressed in turn below.
General comments.
Some commenters asserted that the requirements regarding form did
not provide companies with enough flexibility to determine the best
method for making the notices clear and conspicuous, as well as simple
and easy to understand.\59\ Conversely, other commenters were concerned
that the requirements were not specific enough to ensure that the
notices would meet the statutory standards.\60\ These commenters
suggested, for example, that the Rule require businesses to use bolded
type style, rather than allowing them the flexibility to determine how
to comply with the distinct type style requirement.
---------------------------------------------------------------------------

\59\ See, e.g., Comment, Property Casualty Insurers Association
of America 000008.
\60\ See, e.g., Comment, National Consumers League, et al.
OL-100011; Comment, Privacy Rights Clearinghouse
OL-100015.
---------------------------------------------------------------------------

The Commission has considered these comments and declines to alter
the baseline requirements in the final Rule. The requirements are not
overly restrictive and allow companies flexibility to determine how
best to use the basic formatting tools set forth in the Rule to make a
statement noticeable and understandable. At the same time, the
requirements provide sufficient specificity to ensure that the notices
are simple and easy to understand.
Location of notices in one-page solicitations.
Several commenters noted that certain prescreened solicitations may
consist of only a single page, and recommended that the final Rule not
require a layered format in that circumstance.\61\ Others requested
that the Commission clarify that the short and long portions of the
notice could both appear on the first page of the principal promotional
document.\62\ Others stated that, because prescreened offers of
insurance usually consist of a single page or a fold-out self mailer,
the final Rule should not apply to prescreened offers of insurance.\63\
---------------------------------------------------------------------------

\61\ See, e.g., Comment, Coalition to Implement the FACT Act
OL-100042.
\62\ See, e.g., Comment, National Independent Automobile Dealers
Association OL-100021.
\63\ See, e.g., Comment, American Council of Life Insurers
OL-100027.
---------------------------------------------------------------------------

Section 615(d) of the FCRA clearly covers prescreened offers of
insurance, and the Commission declines to establish an exemption for
such offers from the final Rule. The Commission also declines to
provide an exception from the layered notice requirement for one-page
solicitations. Even in a one-page solicitation, the layered format
contributes to making the notice simple and easy to understand. The
Commission agrees that both the short and long portions of the notice
may appear on the first page of the principal promotional document. As
in the proposed Rule, the final Rule allows businesses to place the
long notice in any location within the solicitation so long as that
location is referenced in the short notice.
Location of notices in electronic solicitations.
Because the settings of the device on which an electronic
solicitation is viewed can alter a solicitation's format, some
commenters objected to the requirement that the short-form notice
appear on the first screen of an electronic solicitation.\64\ Some
commenters proposed that the short portion of the notice simply be
required to appear on the first page of an electronic solicitation,\65\
or ``reasonably proximate to, or included in, the main marketing
message,'' \66\ in order to accommodate variations among viewing
devices. By contrast, other commenters supported requiring the short
notice to appear on the first screen of the offer.\67\
---------------------------------------------------------------------------

\64\ See, e.g., Comment, Credit Union National Association
000003.
\65\ See, e.g., Comment, Credit Union National Association
000003.
\66\ See, e.g., Comment, Wachovia Corporation OL-
100017.
\67\ See, e.g., Comment, Financial Services Roundtable
EREG-000004; Comment, MasterCard International Incorporated
0000012.
---------------------------------------------------------------------------

The Commission has determined that, for the reasons stated in the
comments, it is not practicable to require that the short portion of
the notice always appear on the first page or first screen of
electronic solicitations. Thus, the final Rule requires that, for
electronic solicitations, the short notice be included on the same page
and in close proximity to the principal marketing message. This
standard ensures that consumers viewing the solicitation will be
reasonably likely to see the short notice.
Distinct type style requirement.
Some commenters requested that the Commission modify the proposed
Rule to clarify that the type style of the notice must contrast only
with the principal type style used on the same page, rather than with
all type styles on the page.\68\ The Commission agrees that this
clarification should be made. Companies should not be precluded, for
example, from presenting the notices in bolded type style simply
because a small portion of the text on the page is in bold.\69\
Therefore, the final Rule specifies that both the short and long
portions of the notice must be in a type style that is distinct from
the type style of the principal text on the same page.
---------------------------------------------------------------------------

\68\ See, e.g., Comment, MasterCard International Incorporated
0000012.
\69\ For example, 12 CFR part 226, appendix G, requires that the
headings in certain Truth-in-Lending disclosures be in bolded type
style. This would not preclude companies from also placing the
prescreen disclosure in bolded type style.
---------------------------------------------------------------------------

Long notice heading.
The proposed Rule required that the long portion of the notice
include the heading ``OPT-OUT NOTICE.'' Some commenters suggested that
this heading should reflect the totality of information in the long
notice, rather than focusing on the opt-out information in the
notice.\70\ These commenters suggested a variety of new headings, such
as ``PRESCREEN DISCLOSURES.''
---------------------------------------------------------------------------

\70\ See, e.g., Comment, Consumer Bankers Association
OL-100028; Comment, Juniper Financial Corp.
000009; Comment, MasterCard International Incorporated
100012.
---------------------------------------------------------------------------

The Commission has considered these comments and agrees that the
long notice heading should be modified to reflect the totality of the
information contained in that portion of the notice. Therefore, the
final Rule requires that the long notice begin with a heading
identifying it as the ``PRESCREEN & OPT-OUT NOTICE.''

D. Section 682.4: Effective Date

The Commission initially proposed to make the Prescreen Opt-Out
Disclosure Rule effective 60 days after publication of the final Rule.
Many industry commenters requested a longer effective date in order to
allow covered entities to implement changes to their prescreened
solicitations. These commenters explained that prescreened
solicitations are generally prepared several months in advance, and

[[Page 5029]]

therefore they need more time to comply with the final Rule in order to
exhaust existing inventories of solicitations and to prepare and
disseminate new compliant solicitations.\71\ These commenters suggested
time periods ranging from 90 days to 1 year after publication of the
final Rule. After considering the comments, the Commission has extended
the effective date to August 1, 2005. The Commission believes that this
time period will provide businesses with sufficient time to implement
the new requirements, while ensuring that the benefits to consumers of
the improved opt-out notice occur as soon as reasonably practicable.
---------------------------------------------------------------------------

\71\ See, e.g., Comment, American Council of Life Insurers
OL-100027; Comment, Boeing Employees' Federal Credit Union
000020; Comment, Wachovia Corporation OL-100017;
Comment, Wells Fargo & Company 000007.
---------------------------------------------------------------------------

E. Appendix A to Part 698: Model Prescreen Opt-Out Notices

In the proposed Rule, the Commission set forth model notices,
including both a short and long portion, in both English and Spanish.
These notices included model language and also illustrated proper
placement and display of the language.
Several commenters suggested changes to the language in the model
notices, including specifying more ``neutral'' language for the short
notice, adding information to the long notice, providing model language
for collateral requirements, and clarifying that the telephone number
is for the consumer reporting agencies, not the prescreen marketer. The
Commission agrees that some changes to the proposed model notices are
appropriate, and is making the modifications described below.
Otherwise, the proposed notices are retained.
These model notices adopted in the final Rule may be used for
purposes of complying with the Rule.\72\
---------------------------------------------------------------------------

\72\ Some commenters suggested that the final Rule require
marketers to use notices that substantially conform with the model
notices. See, e.g., Comment, National Consumers League, et al.
OL-100011. However, the Commission believes that there are
sufficient requirements in the Rule to make the notices effective,
and therefore it is not necessary to require that marketers' notices
substantially conform with the model notices.
---------------------------------------------------------------------------

1. Model Language in the Short Notice
The proposed Rule's model short notice stated, ``To stop receiving
`prescreened' offers of [credit or insurance] from this and other
companies, call toll-free, [toll free number]. See OPT-OUT NOTICE on
other side [or other location] for details.'' According to several
commenters, this language implies that prescreened offers are
undesirable and encourages consumers to opt-out.\73\ These commenters
requested that the Commission revise the model short notice to use less
negative language.
---------------------------------------------------------------------------

\73\ See, e.g., Comment, Direct Marketing Association
OL-100035; Comment, Discover Bank OL-100016;
Comment, Juniper Financial Corp. 000009; Comment,
MasterCard International Incorporated 000012; Comment, Visa
U.S.A. Inc. 000005; Comment, Wells Fargo & Company
000007.
---------------------------------------------------------------------------

The Commission has determined to revise the short notice language
to remove any possible negative characterization of prescreened
solicitations. The first sentence of the short notice in the final Rule
states, ``You can choose to stop receiving `prescreened' offers of
[credit or insurance] from this and other companies by calling toll-
free [toll-free number].'' The Commission believes that this language
does not imply a recommendation of any course of action, but rather
simply informs consumers of their statutory right.
In addition, for the same reasons that commenters suggested that
the long notice heading should be modified, the Commission has
determined that the model short notice's reference to the long notice
should be modified to reflect to totality of the information in the
long notice. Therefore, the second sentence of the model short notice
in the final Rule states, ``See PRESCREEN & OPT-OUT NOTICE on other
side [or other location] for more information about prescreened
offers.''
2. Additional Information in Long Notices
Several commenters suggested that the model long notice should
contain additional information, including information about the
benefits and drawbacks of prescreening,\74\ that opting out will not
stop all offers of credit and insurance, or that consumers may be asked
to provide their Social Security numbers when exercising the opt-out
right.\75\ The Commission believes that each of these messages can be
useful to consumers, and notes that it tested the communication of each
of these messages as part of its consumer survey.\76\
---------------------------------------------------------------------------

\74\ See supra text accompanying notes 48 and 49 discussing the
benefits and drawbacks of prescreening that were raised by the
commenters.
\75\ See, e.g., Comment, Coalition to Implement the FACT Act
OL-100042; Comment, Consumer Bankers Association
OL-100028; Comment, Wachovia Corporation OL-
100017. The potential benefits of prescreening were described above
in Section III.C.3. In addition, as discussed in the NPRM, not all
credit card or insurance offers consumers receive are prescreened
offers. For example, some such offers are mass-mailed to consumers
and do not derive from prescreened lists. Therefore, opting out of
precreened offers will not end all mail solicitations. Finally, as
explained in the NPRM, the opt-out system operated by the nationwide
consumer reporting agencies requires a Social Security number for
verification; including the need to provide a Social Security number
in the notice might alleviate consumers' concerns about revealing
this sensitive information.
\76\ The survey found that the tested language used to convey
these ancillary messages did not communicate well to consumers; at
the same time, it does not appear that the tested language, at least
under the conditions of the study, detracted from the primary
message that consumers could choose to opt out. See 69 FR 58861,
58864.
---------------------------------------------------------------------------

The Commission has considered these comments, but has determined
not to include information beyond that required by the statute in the
model notice. The model notice contains plain language statements of
the statutorily-required information. Rather than single out other
particular messages for inclusion in the model, and thereby imply that
certain information is required or that other information is
prohibited, the final Rule allows companies flexibility to determine
what, if any, additional information should be included (so long as the
additional information does not interfere with, detract from,
contradict, or undermine the purpose of the opt-out notices).\77\
---------------------------------------------------------------------------

\77\ The Commission also notes that appropriate additional
information might be a website address where consumers can obtain
additional information about prescreening and the opt-out right.
---------------------------------------------------------------------------

3. Collateral Requirement
The proposed Rule's model long notice contained a plain-language
summary of the information required by section 615(d) of the FCRA to be
included in prescreened offers. At least one commenter noted that,
among other things, it must be disclosed when a prescreened offer is
contingent upon the consumer providing adequate collateral. This
commenter stated that the model notice did not specifically include
this information, and requested that the Commission revise the model
notices to include it.\78\
---------------------------------------------------------------------------

\78\ See, e.g., Comment, Mortgage Bankers Association
OL-100036.
---------------------------------------------------------------------------

The Commission has considered this argument and agrees that the
model long notice should contain additional language regarding the
collateral requirement for use by creditors and insurers in appropriate
circumstances. Therefore, the final Rule modifies the second sentence
of the model long notice to state, ``This offer is not guaranteed if
you do not meet our criteria [including providing acceptable property
as collateral].''
4. Telephone Number
Some commenters recommended that the Commission make clear in the

[[Page 5030]]

model notice that consumers would be calling the consumer reporting
agencies that operate the toll-free number for opting out, and not the
creditor or insurer, when exercising their opt-out right.\79\
---------------------------------------------------------------------------

\79\ See, e.g., Comment, Bank of America Corporation
OL-100032; Comment, Mortgage Bankers Association
OL-100036.
---------------------------------------------------------------------------

The Commission has considered these comments and agrees that
language should be added to the model long notice to clarify that the
telephone number is that of the consumer reporting agencies, not the
creditor or insurer. Therefore, the final Rule modifies the third
sentence of the model long notice to state, ``If you do not want to
receive prescreened offers of [credit or insurance] from this and other
companies, call the consumer reporting agencies [or name of consumer
reporting agency] toll free, [toll free number]; or write: [consumer
reporting agency name and address].''

IV. Paperwork Reduction Act

In accordance with the Paperwork Reduction Act, as amended, 44
U.S.C. 3501, et seq., the Commission submitted the proposed Rule to the
Office of Management and Budget (``OMB'') for review. The OMB approved
the Rule's information collection requirements through November 30,
2007, and assigned OMB control number 3084-0132. In response to
comments received, the Commission has revised its estimate of the
burden for companies that issue many different prescreened
solicitations and therefore will be required to revise multiple
solicitations in order to comply with the Rule. On December 8, 2004,
the OMB approved the new burden estimate.
As set forth in the NPRM, the Rule imposes certain disclosure
requirements on makers of prescreened credit solicitations, as required
by the FACT Act. Specifically, such solicitations must include a
statement containing a short-form and a long-form notice, which
provides consumers with information concerning prescreened
solicitations and how to opt out of receiving such solicitations in the
future. In addition, the Rule contains a model disclosure that
companies may use to comply with the Rule's requirements.
The NPRM estimated the time to revise and re-format an existing
solicitation to be about 8 hours per firm. At the same time, the NPRM
estimated that between 500 and 750 entities would be affected, so that
the total annual burden to the industry would be between 4000 and 6000
hours and the estimated total annual cost would be between $110,000 and
$167,000.\80\ Numerous commenters stated that the NPRM underestimated
the costs of revising solicitations by failing to calculate the
additional costs to be borne by larger companies that issue multiple
solicitations.\81\
---------------------------------------------------------------------------

\80\ This estimate was based on Bureau of Labor Statistics data
(as of July, 2002), as follows: 2 hours of managerial/professional
time at $31.55 per hour; plus 6 hours of skilled technical labor at
$26.44 per hour; multiplied by 500 and 750 companies, for a total of
$110,870 and $166,305, respectively.
\81\ See, e.g., Comment, Bank of America Corporation
OL-100032; Comment, JPMorgan Chase Bank OL-100019;
Comment, MasterCard International Incorporated 000012;
Comment, Wachovia Corporation OL-100017; Comment, Wells
Fargo & Company 000007; Comment, Wilmer Cutler Pickering
Hale and Dorr LLP OL-100046.
---------------------------------------------------------------------------

At the outset, the Commission notes that any new disclosure format,
as required by the FACT Act's mandate to improve the existing opt-out
disclosure, requires affected firms to revise their prescreened
solicitations. Moreover, the Commission does not believe that the
layered notice format of the final Rule appreciably increases the
burdens on affected entities. Nevertheless, the Commission recognizes
that companies that offer multiple solicitations will incur added costs
to revise these notices. Thus, the Commission now estimates that the
total annual burden to the industry will be between 43,600 and 45,600
hours. This figure reflects the Commission's estimate that
approximately 100 entities will need additional time to revise multiple
notices as follows: for each of these 100 entities, an additional four
hours each for an estimated 99 solicitations not accounted for in the
NPRM. Based on the time needed to bring these additional solicitations
into compliance, the Commission now estimates that the total cost to
the industry will be between $1,157,894 and $1,213,329. This figure
reflects the 39,600 additional hours of skilled technical labor (at
$26.44 per hour) that the Commission estimates will be required to
revise the multiple solicitations.\82\
---------------------------------------------------------------------------

\82\ As in the NPRM, the hourly rate is based on Bureau of Labor
Statistics data, as of July, 2002.
---------------------------------------------------------------------------

Although some commenters also estimated that more time would be
needed to format and develop a disclosure than the eight hours
estimated by the NPRM,\83\ or that the labor costs to revise each
notice would be higher than estimated,\84\ the Commission has concluded
that it is feasible to design a solicitation according to its original
estimates. Nevertheless, in order to permit companies to implement such
changes in a more cost-effective manner, the Commission has extended
the time to comply with the rule to August 1, 2005.
---------------------------------------------------------------------------

\83\ See, e.g., Comment, Countrywide 000010; Comment,
JPMorgan Chase Bank OL-100019; Wachovia Corporation
OL-100017.
\84\ See, e.g., Comment, American Bankers Association
OL-100040; Comment, Capitol One Financial Corporation
OL-100033.
---------------------------------------------------------------------------

V. Final Regulatory Flexibility Analysis

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612,
requires that the Commission provide an Initial Regulatory Flexibility
Analysis (``IRFA'') with a proposed Rule and a Final Regulatory
Flexibility Analysis (``FRFA''), with the final Rule, unless the
Commission certifies that the Rule will not have a significant economic
impact on a substantial number of small business entities.
The Commission hereby certifies that the final Rule will not have a
significant economic impact on a substantial number of small business
entities. The FCRA previously mandated the prescreen disclosure. The
FACT Act requires the Commission to adopt a rule to make the required
disclosure simple and easy to understand. The proposed Rule applies to
any entity that makes prescreened offers of credit or insurance. The
Commission has been unable to determine the number of small entities
that purchase prescreened lists from consumer reporting agencies.
However, the Commission believes that only a small number of small
entities make prescreened offers. The Commission did not receive any
comments to the IRFA that would allow it to determine the precise
number of small entities that will be affected. Although there may be
some small entities among the entities making prescreened offers, the
economic impact of the final Rule is not likely to be significant on a
particular entity, nor is the final Rule likely to have a significant
economic impact on a substantial number of small entities. The minimal
impact on creditors and insurers would likely consist of revising
disclosures that they already give in order to make the disclosures
simple and easy to understand.
The Commission requested comment on the IRFA and the proposed
Rule's impact on small businesses. The Commission received a few
comments in response. These comments, which are discussed in more
detail below, requested more time to comply with the Rule \85\ and
suggested that the layered

[[Page 5031]]

notice requirement may be difficult for some small businesses.\86\
---------------------------------------------------------------------------

\85\ See, e.g., Comment, Credit Union National Association
000003; Comment, National Independent Automobile Dealers
Association OL-100021.
\86\ See, e.g., Comment, ChoicePoint Precision Marketing, Inc.
OL-100025; Comment, Wilmer Cutler Pickering Hale and Dorr
LLP OL-100046.
---------------------------------------------------------------------------

The Commission continues to believe that a precise estimate of the
number of small entities that fall under the Rule is not currently
feasible. However, based on the comments received and the Commission's
own experience and knowledge of industry practices, the Commission also
continues to believe that the cost and burden to small business
entities of complying with the Rule is minimal and that the final Rule
will not have a significant impact on a substantial number of small
entities. Accordingly, this document serves as notice to the Small
Business Administration of the agency's certification of no effect.
Nonetheless, the Commission has decided to publish a Final Regulatory
Flexibility Analysis with this final Rule. Therefore, the Commission
has prepared the following analysis:

A. Need for and Objectives of the Rule

Section 213 of the FACT Act directs the FTC to adopt a rule to
improve the required notice to consumers regarding their right to opt
out of prescreened solicitations for credit or insurance. In this
action, the FTC promulgates a final Rule that would implement this
requirement of the FACT Act. The Rule is authorized by and based upon
section 213 of the FACT Act.

B. Significant Issues Received by Public Comment

The Commission received a few comments in response to its IRFA.
Some commenters, in particular, trade associations representing small
businesses, were primarily concerned about the time allowed for
compliance with the Rule. These commenters asserted that small
businesses, which have more limited resources than larger marketers,
needed more than the proposed 60 days to comply with the Rule. The
commenters suggested an effective date ranging from 120 days to 6
months from the date the final Rule is issued.\87\ The final Rule
changes the effective date to August 1, 2005. Therefore, small
businesses, as well as other entities, should have sufficient time to
comply.
---------------------------------------------------------------------------

\87\ See, e.g., Comment, Credit Union National Association
000003; Comment, National Independent Automobile Dealers
Association OL-100021.
---------------------------------------------------------------------------

Other commenters suggested that the layered notice requirement may
be difficult for some small entities.\88\ Some of these comments noted
that small entities often have one-page solicitations, and that the
layered notice would likely require them to increase the length of
their marketing materials, at great expense. As an alternative, these
commenters suggested that a one-part notice, rather than the layered
notice, should be permitted. The Commission has considered these
comments, but does not believe that the layered notice requirement is
overly burdensome for small businesses. The Commission has clarified in
the statement of basis and purpose that accompanies the final Rule that
both parts of the layered notice may appear in a single page
solicitation, obviating the need for an additional page or document.
Even on a single page solicitation, the layered format contributes to a
notice that is simple and easy to understand. The Rule also allows
companies flexibility as to the precise formatting and language of the
notices. The Commission considers this flexibility sufficient to allow
all entities, including small entities, to determine an appropriate
means of complying with the Rule within the framework of their own
solicitations.
---------------------------------------------------------------------------

\88\ See, e.g., Comment, ChoicePoint Precision Marketing, Inc.
OL-100025; Comment, Wilmer Cutler Pickering Hale and Dorr
LLP OL-100046.
---------------------------------------------------------------------------

C. Small Entities To Which the Rule Will Apply

As described above, the Rule applies to any entity, including small
entities, that makes prescreened offers of credit or insurance. The
Commission has been unable to ascertain a precise estimate of the
number of small entities that are creditors or insurers, and received
no specific comments to the IRFA that allow it to determine the precise
number of small entities that will be affected. Entities potentially
covered by the Rule include any entity that extends credit or
insurance, including insurance companies, retailers, department stores,
and banking institutions, if they are engaging in prescreened offers of
credit. For these kinds of entities, the Small Business Administration
defines small business to include, in general, a business whose annual
receipts do not exceed $6 million in total receipts for insurance
companies and retailers, and $23 million in total receipts for
department stores. For banking institutions, the Small Business
Administration defines small business to include entities whose total
assets do not exceed $150 million.\89\
---------------------------------------------------------------------------

\89\ These numbers represent size standards for most entities in
the industries mentioned above. A list of the SBA's size standards
for all industries can be found at http://www.sba.gov/size/indextableofsize.html.
---------------------------------------------------------------------------

However, not all businesses that extend credit or insurance are
required to comply with the Rule. Rather, only such entities that make
prescreened solicitations will be subject to the Rule's requirements.
Although the number of small businesses that offer credit or insurance
is large, the Commission believes that only a small number of those
businesses engage in prescreened solicitations. The Commission believes
that many small businesses find it more cost effective to engage in
other forms of solicitation, including point-of-sale solicitations and/
or solicitations of existing customers.

D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements

Under the final Rule, any entity making a prescreened offer of
credit or insurance will be required to provide recipients of the offer
with a disclosure regarding their right to opt out of such offers.
(There are no filing or recordkeeping requirements in the Rule.) These
disclosures are to be in a form that is simple and easy to understand.
As noted in the Paperwork Reduction Act analysis above, the estimated
time to revise the notice and re-format solicitations is approximately
8 hours (one business day), and the total cost for all entities to
comply with this Rule is between $1,157,894 and $1,213,329.

E. Steps Taken To Minimize Significant Economic Impact of the Rule on
Small Entities

The Commission considered whether any significant alternatives,
consistent with the purposes of the FACT Act, could further minimize
the Rule's impact on small entities. The FTC asked for comment on this
issue. Some commenters suggested that the layered notice requirement
may be difficult for small businesses, and that a single notice would
be more appropriate.\90\ However, as discussed above, the Commission
has determined that the layered format is the best way to ensure that
the disclosures are simple and easy to understand and does not find
that the layered notice approach poses a particular burden to small
entities. The Rule allows small entities flexibility in determining how
best to present the layered notice within the framework of their
solicitations, and therefore does not impose a substantial burden.
---------------------------------------------------------------------------

\90\ See, e.g., Comment, ChoicePoint Precision Marketing, Inc.
OL-100025; Comment, Wilmer Cutler Pickering Hale and Dorr
LLP OL-100046.
---------------------------------------------------------------------------

The Commission also requested comment on the need to adopt a
delayed

[[Page 5032]]

effective date for small entities in order to provide them with
additional time to come into compliance. The Commission received some
comments on this issue;\91\ the Commission has decided to extend the
effective date for all entities subject to the Rule to August 1, 2005.
This additional time will allow small entities to assess their
compliance obligations and make cost-sensitive decisions concerning how
best to comply with the Rule.
---------------------------------------------------------------------------

\91\ See, e.g., Comment, Credit Union National Association
000003; Comment, National Independent Automobile Dealers
Association OL-100021.
---------------------------------------------------------------------------

VI. Final Rule

List of Subjects

16 CFR Part 642

Consumer reporting agencies, Consumer reports, Credit, Fair Credit
Reporting Act, Trade practices.

16 CFR Part 698

Consumer reporting agencies, Consumer reports, Credit, Fair Credit
Reporting Act, Trade practices.

0
The Federal Trade Commission amends chapter I, title 16, Code of
Federal Regulations, as follows:

0
1. Add new part 642 to read as follows:

PART 642--PRESCREEN OPT-OUT NOTICE

Sec.
642.1 Purpose and scope.
642.2 Definitions.
642.3 Prescreen opt-out notice.
642.4 Effective date.

Authority: Pub. L. 108-159, sec. 213(a); 15 U.S.C. 1681m(d).

Sec. 642.1 Purpose and scope.

(a) Purpose. This part implements section 213(a) of the Fair and
Accurate Credit Transactions Act of 2003, which requires the Federal
Trade Commission to establish the format, type size, and manner of the
notices to consumers, required by section 615(d) of the Fair Credit
Reporting Act (``FCRA''), regarding the right to prohibit (``opt out''
of) the use of information in a consumer report to send them
solicitations of credit or insurance.
(b) Scope. This part applies to any person who uses a consumer
report on any consumer in connection with any credit or insurance
transaction that is not initiated by the consumer, and that is provided
to that person under section 604(c)(1)(B) of the FCRA (15 U.S.C.
1681b(c)(1)(B)).

Sec. 642.2 Definitions.

As used in this part:
(a) Simple and easy to understand means:
(1) A layered format as described in Sec. 642.3 of this part;
(2) Plain language designed to be understood by ordinary consumers;
and
(3) Use of clear and concise sentences, paragraphs, and sections.
(i) Examples. For purposes of this part, examples of factors to be
considered in determining whether a statement is in plain language and
uses clear and concise sentences, paragraphs, and sections include:
(A) Use of short explanatory sentences;
(B) Use of definite, concrete, everyday words;
(C) Use of active voice;
(D) Avoidance of multiple negatives;
(E) Avoidance of legal and technical business terminology;
(F) Avoidance of explanations that are imprecise and reasonably
subject to different interpretations; and
(G) Use of language that is not misleading.
(ii) [Reserved]
(b) Principal promotional document means the document designed to
be seen first by the consumer, such as the cover letter.

Sec. 642.3 Prescreen opt-out notice.

Any person who uses a consumer report on any consumer in connection
with any credit or insurance transaction that is not initiated by the
consumer, and that is provided to that person under section
604(c)(1)(B) of the FCRA (15 U.S.C. 1681b(c)(1)(B)), shall, with each
written solicitation made to the consumer about the transaction,
provide the consumer with the following statement, consisting of a
short portion and a long portion, which shall be in the same language
as the offer of credit or insurance:
(a) Short notice. The short notice shall be a clear and
conspicuous, and simple and easy to understand statement as follows:
(1) Content. The short notice shall state that the consumer has the
right to opt out of receiving prescreened solicitations, and shall
provide the toll-free number the consumer can call to exercise that
right. The short notice also shall direct the consumer to the existence
and location of the long notice, and shall state the heading for the
long notice. The short notice shall not contain any other information.
(2) Form. The short notice shall be:
(i) In a type size that is larger than the type size of the
principal text on the same page, but in no event smaller than 12-point
type, or if provided by electronic means, then reasonable steps shall
be taken to ensure that the type size is larger than the type size of
the principal text on the same page;
(ii) On the front side of the first page of the principal
promotional document in the solicitation, or, if provided
electronically, on the same page and in close proximity to the
principal marketing message;
(iii) Located on the page and in a format so that the statement is
distinct from other text, such as inside a border; and
(iv) In a type style that is distinct from the principal type style
used on the same page, such as bolded, italicized, underlined, and/or
in a color that contrasts with the color of the principal text on the
page, if the solicitation is in more than one color.
(b) Long notice. The long notice shall be a clear and conspicuous,
and simple and easy to understand statement as follows:
(1) Content. The long notice shall state the information required
by section 615(d) of the Fair Credit Reporting Act (15 U.S.C.
1681m(d)). The long notice shall not include any other information that
interferes with, detracts from, contradicts, or otherwise undermines
the purpose of the notice.
(2) Form. The long notice shall:
(i) Appear in the solicitation;
(ii) Be in a type size that is no smaller than the type size of the
principal text on the same page, and, for solicitations provided other
than by electronic means, the type size shall in no event be smaller
than 8-point type;
(iii) Begin with a heading in capital letters and underlined, and
identifying the long notice as the ``PRESCREEN & OPT-OUT NOTICE'';
(iv) Be in a type style that is distinct from the principal type
style used on the same page, such as bolded, italicized, underlined,
and/or in a color that contrasts with the color of the principal text
on the page, if the solicitation is in more than one color; and
(v) Be set apart from other text on the page, such as by including
a blank line above and below the statement, and by indenting both the
left and right margins from other text on the page.

Sec. 642.4 Effective date.

This part is effective on August 1, 2005.

PART 698--[AMENDED]

0
2. Amend Sec. 698.1 by revising paragraph (b) to read as follows:

Sec. 698.1 Authority and purpose.

* * * * *

[[Page 5033]]

(b) Purpose. The purpose of this part is to comply with sections
607(d), 609(c), 609(d), 612(a), and 615(d) of the Fair Credit Reporting
Act, as amended by the Fair and Accurate Credit Transactions Act of
2003, and Section 211 of the Fair and Accurate Credit Transactions Act
of 2003.

0
3. Add Appendix A to Part 698 as follows:

Appendix A to Part 698--Model Prescreen Opt-Out Notices

In order to comply with part 642 of this title, the following
model notices may be used:
BILLING CODE 6750-01-P

[[Page 5034]]

(a) English language model notice. (1) Short notice.
[GRAPHIC] [TIFF OMITTED] TR31JA05.028

[[Page 5035]]

(2) Long notice.
[GRAPHIC] [TIFF OMITTED] TR31JA05.029

[[Page 5036]]

(b) Spanish language model notice. (1) Short notice.
[GRAPHIC] [TIFF OMITTED] TR31JA05.030

[[Page 5037]]

(2) Long notice.
[GRAPHIC] [TIFF OMITTED] TR31JA05.031

By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 05-1678 Filed 1-28-05; 8:45 am]
BILLING CODE 6750-01-C