I. INTRODUCTION
Effective August 1, 2005, financial institutions that send “prescreened” solicitations of credit or insurance to consumers are required to provide simple and easy-to-understand notices that explain to consumers their right to opt-out of receiving future offers. The Fair and Accurate Credit Transactions Act of 2003 (“FACT” Act) required the Federal Trade Commission (FTC), in consultation with the federal financial institution regulatory agencies, to prescribe the format, type size, and manner for these opt-out notices.
The FTC issued a consumer education brochure to assist consumers in understanding the prescreening process and what they should consider in deciding whether to opt out.
II. PRESCREENED OFFERS
Prescreened offers of credit or insurance (also referred to as “preapproved” offers) are sent to consumers on an unsolicited basis, often by mail. The FTC 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. The offers are based on information in consumer credit reports that indicate that the individuals receiving the offer meet criteria set by the financial institution that is making the offer. The Fair Credit Reporting Act (FCRA) limits the circumstances in which consumer reports may be used to make prescreened offers and all such offers must include a notice of consumers’ right to stop receiving future prescreened offers. The purpose of the FTC rule is to make these notices simple and easy to understand. “Simple and easy to understand” is defined to mean:
(1) A layered format as described in the rule;
(2) Plain language designed to be understood by ordinary consumers; and
(3) Use of clear and concise sentences, paragraphs and sections.
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.
III. SHORT AND LONG STATEMENTS
The FTC rule adopts a “layered” notice approach requiring a short, simple and easy-to- understand statement of consumers’ opt-out rights on the first page of the offer, with a longer statement that contains additional details found elsewhere in the offer.
The short statement provides information to consumers regarding the right to choose not to receive future prescreened solicitations. The short statement specifies a toll-free telephone number for consumers to use in exercise the right (1-888-5-OPTOUT). Consumers may choose to opt out for five years or permanently and may “opt back in” at any time by calling the same number.
Specifically, the short notice must be a clear and conspicuous and simple and easy to understand statement that states 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 must direct the consumer to the existence and location of the long notice and must state the heading for the long notice. The short notice can not contain any other information. The form of the short notice must be:
The longer portion of the statement provides consumers additional information about prescreening that is required by the FCRA. The long notice must also be a clear and conspicuous and simple and easy to understand statement that must state the information required by the FACT Act and must not include any other information that interferes with, detracts from, contradicts or otherwise undermines the purpose of the notice.
The long notice must:
The FTC rule is accompanied by a model short and long statement.
IV. CONSUMER EDUCATION
The FACT Act requires the FTC to educate consumers about prescreened offers of credit or insurance and their opt-out rights. In this regard, the FTC created a consumer brochure, entitled Prescreened Offers of Credit and Insurance that explains how prescreening works and the benefits and consequences of receiving such offers and of opting out.
V. CONCLUSION
Copies of the FTC rule and consumer brochure, Prescreened Offers of Credit and Insurance, are available from the FTC website at http://www.ftc.gov and from the FTC Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.