October 2006 - Legal File

IVR: New Opportunities, New Pitfalls

By Jeffrey D. Knowles and Ronald M. Jacobs

More and more, inbound telephone orders are being handled by interactive voice response (IVR) systems. What was once simply a method of navigating to the right live person is now used to take orders and offer upsells. IVR offers a number of benefits to marketers and consumers, but it also presents an unfortunate opportunity for unscrupulous sellers to confuse consumers. Let’s examine how the existing rules governing telephone sales apply to this new medium and how to avoid potential pitfalls with IVR.

It is important to note that there are no specific rules governing IVR calls, only the Telemarketing Sales Rule (TSR), Section 5 of the Federal Trade Commission Act (prohibiting unfair and deceptive conduct) and state consumer protection laws. It is, therefore, easy to say, “just do the same thing you do on live calls,” when trying to script an IVR system. However, that ignores the fact that IVR is different and requires careful consideration of how these existing rules apply. On the one hand, you know every call will be identical-no operators going “off script” or making judgment calls as to whether a person consented. On the other hand, there may be confused customers, customers who want more information but cannot get it, or customers who end the call before all of the sales are closed.

There are four areas that need to be examined when planning an IVR system. First, are all of the offers clearly scripted and is the customer presented with a clear “yes” or “no” decision to order? Second, how are dropped calls handled? Third, have you addressed compliance with other rules-such as Regulation E for debit cards with continuity, free-to-pay conversion rules and the like? Fourth, does the system preserve the necessary records to deal with consumer complaints or an inquiry from a regulator?

The key to any sale is making certain that you have a customer’s express informed consent to purchase a product or service. With a live operator, a customer can ask questions and receive clarification if he or she is not certain about the terms of the offer presented. That is not an option for most IVR systems. Thus, the offer must be clearly scripted so that the consumer knows exactly what he or she is buying. Price terms, refund limitations, billing times and any continuity issues must be given before the customer consents to the order.

Once the terms are set forth, and the system asks the customer to order, the customer must understand that his or her answer will either result in an order or not. Questions should be framed to communicate to the customer that pressing “one” or saying “yes” will result in an order and subsequent charge to that customer’s credit card. These questions should not be mere requests to continue, or ambiguous questions like “is this okay?” Appropriate questions would be: “To accept this fantastic offer for the widget-of-the month club, press ‘one,’ otherwise press ‘two’ to purchase your widget. Say ‘yes,’ otherwise, stay on the line.”

The next big issue for IVR are dropped calls. Certainly live calls are dropped all of the time, but customers often have a sense of whether they have ordered something or whether they have told the CSR to cancel the order. With an IVR, canceling and ending the call are usually not presented as an option. Thus, it is important to make clear what happens once a person orders, gives his or her credit card information and hangs up. For example, once the main offer is presented and the customer orders, what happens if he or she hangs up during an upsell? The script should convey the fact that once a person accepts the offer, he or she will have to call customer service to cancel-even if the person hangs up.

On the other hand, if the order is not complete until the customer hears the confirmation close and accepts, this too must be clear.

As the simple answer to “how do I comply for IVR” makes clear, all of the other rules for telephone orders apply. Thus, if you have a recurring payment option (either multiple payments for one product or a continuity program) you have to comply with Regulation E for debit cards. This means getting a person’s electronic signature (not just consent) to charge the debit card multiple times. Scripts for multi-pay should include a question asking if the card is a credit or debit card and, if it is a debit card, obtain the electronic signature.

Similarly, if there is a free-to-pay conversion using preacquired account information, and the portion of the call is subject to the TSR, you must record the call and obtain the last four digits of the card from the customer. Thus, the system must include a mechanism for obtaining the last four digits (either by voice or by keypad) and check the response for accuracy with the card number. Obtaining four digits from the customer, but not checking them, would not satisfy the rule.

Finally, IVR presents its own unique issues with respect to record retention. In many ways, it simplifies the process, but in some, it can raise more questions. Because your end of the call is a computer, there is no need to record each call. Simply make certain you have one copy of each version of the IVR script you use and records to demonstrate which version was used for each call. This second part could be confusing if you frequently modify the script. There should be some simple way of showing that version C.3.2.1 was used on a specific call.

The more complicated question comes with what to record on the other end. If the IVR system uses keypad responses, then you should have a system in place to record the key strokes. If it is a voice response system, then you must determine what to record. Do you keep a record of what the computer thought the person said or do you record the actual words the person said as well? For example, what if a person says “uh-huh” and the computer records this as a “yes” (versus a “no”) response? Is the computer record of “yes” sufficient? That depends.

It is not clear whether this would satisfy the FTC in a situation where you must record the call (e.g., in the case of a free-to-pay conversion using preacquired account information). It may be sufficient to resolve a consumer complaint or AG inquiry, but that really has not yet been decided. Thus, the bottom line on this is a business judgment at this time.

IVR can be a great tool for reducing costs and ensuring a uniform customer service experience. However, IVR systems must be constructed to make certain they do not confuse consumers and cause more problems than they solve. Some of the systems we have seen in use do not meet that mandate.

Hopefully, a few unscrupulous marketers will not use this new technology to dupe unsuspecting consumers and poison the well for everyone.

Jeffrey Knowles manages Venable LLP’s Government Division and heads the firm’s Advertising and Marketing Practice Group. He also is a member of Venable’s Executive Committee. Knowles is the immediate past chairman of the ERA Board. He can be reached at (202) 344-4860. Ronald M. Jacobs is an attorney with Venable. He can be reached at (202) 344-8215.


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