On October 23, 2007, the Federal Trade Commission (FTC) announced the release of its final rulemaking on affiliate marketing. The Rule implements section 214 of the Fair and Accurate Credit Transactions Act of 2003, and becomes effective January 1, 2008. All covered entities must comply by October 1, 2008.
There has been great confusion in the industry regarding the Rule’s scope and applicability. Upon first glance, the Rule appears to have a very broad scope. In fact, the Rule states that it "applies to any person over which the FTC has jurisdiction that uses information from its affiliates for the purpose of marketing solicitations, or provides information to its affiliates for that purpose." (Similar rules applicable to entities that are not regulated by the FTC were issued separately by other regulators.) However, a further analysis of the key defined terms of the Rule narrows the scope and provides a better understanding of when a company is, in fact, covered by the Rule. Such key terms include: "affiliate," "solicitation" and, most importantly for defining the scope of the Rule, "eligibility information."
The Rule prohibits a "person" from using "eligibility information" about a consumer that it receives from an "affiliate" to make a "solicitation" for marketing purposes to the consumer, unless the consumer has been given notice and an opportunity to opt out of such sharing. The Rule generally considers "eligibility information" to be information that bears on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, which is used or expected to be used for the purpose of serving as a factor in establishing a consumer’s eligibility for consumer credit or insurance, employment or for other authorized purposes. Thus, the Rule is aimed at the sharing of this type of consumer information between affiliates, not at the sharing of any kind of consumer information.
Additionally, to be covered, the "eligibility information" must be used to effectuate one or more of the following marketing activities: (a) to identify the consumer or type of consumer to receive a solicitation; (b) to establish criteria used to select the consumer to receive a solicitation; or (c) to decide which of a company’s products or services to market to the consumer or to tailor a company’s solicitation to that consumer.
The Rule defines "solicitation" to include "the marketing of a product or service initiated by a person to a particular consumer that is: (i) based on eligibility information communicated to that person by its affiliate… ; and (ii) intended to encourage the consumer to purchase or obtain such product or service." This definition would include certain telemarketing calls, direct mail and e-mail, but would not include communications directed at the general public, such as television ads, general circulation magazines and billboard ads.
In summary, if the information that your company wishes to use does not constitute "eligibility information," then the Rule would not apply, even if you have received such information from an affiliate and are using such information to make "solicitations," as defined by the Rule. Additionally, if the entity from which your company received the eligibility information is not an "affiliate" as defined in the Rule, the Rule would not apply to your company’s proposed marketing activities. It should be noted, however, that in both cases, other applicable rules may apply to the sharing such consumer information. Finally, the Rule provides for several exceptions to its general requirements.