Catalog Legislation: Greetings from Washington!

May 01, 2003 9:30 PM  By

Taxes, e-mail, privacy, postal issues, and telemarketing (inbound as well as outbound) — there’s a lot of new and pending legislation on all of these topics that could dramatically alter the way you conduct business. So in this inaugural column, I’ll give an overview of the issues rather than concentrate on any specific one.

Taxes: beware the camel’s nose

Taxes are one of the two things my father told me I could not avoid. Historically, the discussion for direct marketers has centered on use taxes, or mandatory collection of sales taxes for remote sales. At the moment, if a company has no nexus (physical presence, such as a store or a sales office) in a state, it is not required to collect the tax on sales to consumers located in that state. The consumer, however, does owe the tax to the state.

But the landscape has been changing dramatically. Many marketers are moving into multiple channels — catalog, Web, and retail. Some catalogers now want all remote sellers to collect sales taxes on all sales, since their new business models give them nexus in multiple states. And the states, with their huge budget deficits, are pushing hard for congressional approval to force remote sellers to become tax collectors for states where they have no physical presence — and no political power.

This issue will be on the front burner this year, since the Internet Access Tax Moratorium expires in November. That moratorium applies only to taxing the costs of Internet access (such as your AOL or MSN bill), but the states are pushing to broaden the legislation to include mandatory collection of sales taxes. States have even begun a sales tax simplification project. Sadly, that simplification has not even resulted in uniform definitions.

It is my opinion that mandatory collection of sales taxes could have some hidden consequences. Once a cataloger from New York begins collecting taxes for Texas, all of Texas’s 1,300 taxing jurisdictions have the name and address of a company selling within their borders — opening the door for each remote seller to become subject to business licenses for each locality, employee registration, bonding, and what-have-you. In a need for funds, states and localities can be very creative. Mandatory collection could be the camel’s nose under the tent.

And look out: Connecticut just passed a sales tax on advertising and data processing services. Any work done preparing catalogs within Connecticut will be taxed. When will others follow? Beware of states looking to balance budgets.

E-mail overload

There is so much e-mail that even confirmations of orders and e-gift certificates are being deleted by consumers. Since adding an e-mail address to a marketing list is basically cost free, unlike printing and mailing another catalog, virtually anybody with a modem can spam hundreds of thousands of people, hurting legitimate businesses.

If there were an economic consequence to e-mail messaging, there would be an immediate reduction in the volume of e-mails. Many associations are working in Washington to try to achieve such a goal. It will require federal legislation, technology, and coordination of government and business, including efforts by businesses to help government prosecute the “bad guys.”

States are taking a different approach. Many like labeling, and others are looking at creating state-run do-not-e-mail registries similar to state no-call systems. But unlike postal addresses and telephone area codes, there is no geographical indicator in an e-mail address. How could any marketer know which state requirements apply to jcerasale@the-dma.org, for example?

The bottom line here: This is going to be an area of intense political activity for the rest of the year, both in Washington and in the states.

Privacy: you can’t hide

Congress’ approach on privacy can be viewed on three fronts: identity theft, online and offline notification, and the Fair Credit Reporting Act (FCRA).

Identity-theft actions concerning catalogers deal with the use of social security numbers. One of the main goals of the DMA and other marketing associations is to maintain the use of social security numbers by business to match records — avoiding misidentification — to help prevent identity theft. Marketers would not be allowed to show the numbers on a computer screen or through a window envelope.

Regarding notification, I expect to see bills that will require marketers to notify consumers of their information-use practices as well as to provide an opt-out mechanism for online, telephone, and mail. We should expect attempts to prescribe what the notice should say and where it should be located.

Last but not least, the FCRA is the basis for easy access to credit in this country. Among its provisions is one allowing credit information to be used to prescreen consumers for credit-card offers. That specific provision preempts states from enacting laws in this area. FCRA’s state preemption provision expires in January, however.

There are major attempts to extend the preemption so that there is a uniform national standard. What does this mean for catalogers? It all has to do with lists. If preemption is lost, differing and potentially very restrictive state laws will reduce information available to help marketers target. This has additional implications for catalogers who offer credit cards.

Postal: the retirement overspending

Every U.S. citizen and business using the U.S. Postal Service since 1971 has been overcharged for postal retiree obligations. A recent review by the Office of Personnel Management of USPS payments found that the statutory formula for retiree payments has resulted in overpayment of about $30 billion and, if unchanged, will lead to a $71 billion overpayment.

The overpayment can be corrected only by changing the legal formula, which will take an act of Congress. All of us in the mailing community thought that the correction would be made quickly. But we forgot that we were in Washington, where nothing is simple.

Fortunately, the House and Senate committees with jurisdiction over the USPS unanimously sent bills (H.R. 735 and S. 380) to correct the payment schedule to the House and Senate floors. We are hopeful that the correction will become law.

If the correction legislation becomes law, Postmaster General Jack Potter has said, current postage rates would remain until at least calendar year 2006 — three more holiday mailing seasons. I hope that by the time you’re reading this the “if” clause in the preceding sentence has been rendered superfluous.

Stable rates through 2006, however, will not solve the long-term financial problems of the USPS. President Bush has appointed a commission on the Postal Service to recommend changes to the Postal Reorganization Act of 1970 that would make the agency more financially viable in the 21st century. The DMA, postal unions, and other mailer associations already have testified before the commission — some seeking flexibility for the USPS, others not seeking any flexibility. The commission is supposed to make its recommendations by July 31.

In order to be implemented, whatever the commission recommends must eventually be drafted into legislation. That places us back on Capitol Hill, where postal reform has been stalled for the last eight years.

In essence, we all have to be prepared to put in significant effort on postal reform after the recommendations are announced. Our efforts should be toward creating as united a front as we can reach with those in the mailing community. If we do not unite, I do not see a different outcome from that of the past. Fortunately, the commission’s recommendations may create a basis from which the mailing industry can move forward united.

Telephone: 33 DNC lists and counting

The speed with which my hairline is receding has picked up pace this year as I worked on teleservices issues. The first thing you should realize is that the government “attack” on telemarketing was and is not limited to cold calls to prospects. Calls to customers are covered if it has been at least 18 months since a financial transaction or a delivery of product to that customer has occurred. Likewise, if you contact individuals who sought information from your company more than three months ago, you must use the do-not-call (DNC) registry.

The issue is also not limited to the Federal Trade Commission (FTC). Of course, there is the FTC’s national DNC registry, which barring a successful court challenge will be effective around September. But the Federal Communications Commission (FCC) may well establish its own DNC before this summer. Congress, with H.R. 395, has asked the FTC and the FCC to report on any differences between their regulations involving any DNC registry.

In addition, four more states (Mississippi, Utah, New Jersey, and South Dakota) have passed state DNC registries, bringing the total to 32. As you might expect, the FTC did not preempt those laws. Therefore, if the FTC’s system is implemented, a national marketer must use the 32 state lists and the FTC list — what a mess!

By contrast, the FCC can preempt the state laws, and the DMA has asked it to do just that. At a minimum, we hope that the state lists apply only to those calls made from within the state to consumers within the state.

Now let’s look at other provisions in the Telemarketing Sales Rule (TSR) amendments. They cover the use of predictive dialers, but the reach is even further. As of March 31, any call that a consumer answers that is not shifted to a live operator within two seconds after the consumer’s greeting is an abandoned call and a violation of the TSR. Absurdly, this outlaws a practice allowed by the FCC. This is one reason the DMA is in court against the FTC, which rushed in without tying up all the loose ends. We hope that the FCC will straighten this out by the summer.

The TSR also deals with payments from inbound and outbound customers. If you accept payment from a customer who provides you with his credit- or debit-card account over the phone, there is no change in how you conduct business. Any other type of phone payment (such as debiting a checking account) requires “express verifiable consent” by the consumer — meaning a recording or a document signed by the consumer.

If you have any marketing agreements with other marketers or you upsell products of third parties in any of your calls, pay attention: If your customer purchased an item and then your representative or a third party’s representative sells an item from a third party charging the same credit card, the customer must fully understand what account will be charged. If the second sale includes a free trial and then a conversion to pay unless the consumer opts out, you must record the entire sale conversation (the offer, the sale, and the payment), and the consumer must state the last four digits of the account being charged.

The senior vice president for government affairs at the Direct Marketing Association, Jerry Cerasale is also Catalog Age’s newest columnist. He will be writing periodically — without any DC spin — about federal and state legislation that could affect your business.