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Federal and state telemarketing developments
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Development of National Do Not Call Registry by the Federal Trade Commission (FTC). As of June 18, 2004, consumers had registered 62 million telephone numbers and had reported 428,000 possible violations.
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June 27, 2004 marked the one-year anniversary of the opening of the National Do Not Call Registry by the Federal Trade Commission (FTC). As of June 18, 2004, consumers had registered 62 million telephone numbers and had reported 428,000 possible violations. (1) About two hundred companies had more than one hundred consumer complaints filed against them. (2) The five states whose residents made the greatest number of complaints include: California with 66,060
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In 2004, there were a number of federal and state law developments regarding the requirements that apply to businesses that solicit consumers for products and services through telemarketing. This Article summarizes some of the key developments in this area. (4) This Article also provides an update regarding the significant developments in telemarketing discussed in prior survey articles. (5)
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TELEMARKETERS TRANSMIT CALLER ID INFORMATION
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Beginning January 29, 2004, telemarketers were required to begin transmitting caller identification (“Caller ID”) information in order to comply with the FTC’s amended Telemarketing Sales Rule (TSR) under the Telemarketing and Consumer Fraud and Abuse Prevention Act and the Federal Communication Commission’s (FCC’s) telemarketing regulations under the Telephone Consumer Protection Act. (6)
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To comply with this requirement, a telemarketer is permitted to (i) transmit its own number and, when made available by its carrier, its own name to any Caller ID service in use by a recipient of a telemarketing call
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FTC AMENDS THE TELEMARKETING SALES RULE
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On February 10, 2004, the FTC announced a proposal to amend the do-not-call provision of its TSR to require that telemarketers and sellers subject to the rule access the National Do Not Call Registry and purge numbers on the registry from their call lists every thirty days, rather than on a quarterly basis as the TSR originally required. (10) The proposed amendment was mandated by the Consolidated Appropriations Act of 2004 (the “Act”), which directed that, not later than sixty days after the enactment of the Act, the FTC amend the TSR to require telemarketers to purge once a month the list of telephone numbers on the FTC Do Not Call Registry. (11) The FTC requested comment on (i) proposed use of the term “thirty (30) days” rather than the term “once a month,” which is used in the Act
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On March 29, 2004, the FTC issued its Statement of Basis and Purpose and final amended TSR. (14) The final amended do-not-call provision requires sellers and telemarketers to use a version of the National Do Not Call Registry obtained from the FTC and to purge registered numbers from their call lists no more than thirty-one days prior to making a telemarketing call. (15) The amended section became effective on January 1, 2005, allowing businesses more than nine months to ready their systems and procedures. (16)
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On April 30, 2004, the FTC issued a Notice of Proposed Rulemaking to amend the TSR to revise the fees charged to entities accessing the National Do Not Call Registry. (17) In the original fee rule, the FTC estimated that 10,000 entities would be required to pay for access to the registry based on the “best information available to the agency at that time.” (18) As a result, the FTC anticipated that these fees would “need to be reexamined periodically and adjusted, in future rulemaking proceedings, to reflect [its] actual experience with operating the registry.” (19)
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In its Notice of Proposed Rulemaking, the FTC proposed to revise the fees in order to raise eighteen million dollars to offset costs the agency anticipated incurring in Fiscal Year 2004 for purposes related to implementing and enforcing the do-not-call provision of the amended TSR, based on the assumption that approximately the same number of entities would access similar amounts of data from the registry during the next annual period. (20) Based on that assumption, and continued allowance for free access to “exempt” organizations and for the first five area codes of data, the FTC proposed a revised fee of forty-five dollars per area code with $12,375 being the maximum amount that would be charged to any single entity accessing 280 area codes of data or more, and a revised fee of twenty-five dollars to be charged to entities requesting access to additional area codes of data during the second six months of their annual period. (21) Comments were due by June 1, 2004. (22)
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On July 30, 2004, the FTC published its final fee rule that became effective on September 1, 2004. (23) Between the time the fee rule was proposed in early March through June 1, 2004,
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a significant number of entities accessed the national registry
for the first time. As of June 1, 2004, over 65,000 entities had
accessed the national registry. More than 57,000 of those
entities had accessed five or fewer area codes of data at no
charge, and 1,100 “exempt” entities also accessed the registry at
no charge. Thus, more than 7,100 entities have paid for access to
the registry, with over 1,200 entities paying for access to the
entire registry. (24)
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Based on these figures, the FTC revised the fee to be charged for each area code of data to forty dollars per year, with continued free access to “exempt” organizations and for the first five area codes of data. (25) The maximum amount to be charged to any entity accessing 280 area codes of data or more is $11,000. (26) The fee to be charged to entities requesting access to additional area codes of data during the second six months of their annual period is twenty dollars. (27)
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CONSTITUTIONAL CHALLENGES TO THE TSR
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MARYLAND DISTRICT COURT UPHOLDS AMENDMENTS TO THE TSR
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On February 24, 2004, the U.S. District Court for the District of Maryland upheld the FTC’s amended TSR, which had been challenged on the grounds that it was beyond the FTC’s statutory authority and unconstitutional under the First and Fifth Amendments of the U.S. Constitution. (28) Two charities that use professional telemarketers to solicit charitable contributions had challenged the TSR’s: (i) company-specific do-not-call provision
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The district court held that the amended TSR was not beyond the FTC’s statutory authority because the FTC may regulate professional fundraisers hired by charities even if the charities are exempt from FTC jurisdiction. (29) The court indicated that the FTC has the authority to regulate abandoned calls made by predictive dialers, even though the FCC has authority to regulate the dialers themselves. (30) In response to constitutional challenges, the court applied intermediate scrutiny and held that the amended TSR does not violate the First Amendment, because the reasons for enacting the TSR (i.e., preventing fraud and protecting privacy in the home) are substantial interests that the government is entitled to protect, and the restrictions in the TSR are narrowly tailored to further these interests without unnecessarily interfering with freedom of speech. (31) The court also held that the amended TSR is not impermissibly overbroad and is not an unconstitutional prior restraint. (32) The court’s reasoning for upholding the TSR against equal protection challenges under the Fifth Amendment was similar to the court’s reasoning for upholding the TSR under the First Amendment, even using the strict scrutiny standard applied by the court in its analysis under the Fifth Amendment. (33)
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U.S. SUPREME COURT DECLINES REVIEW OF TENTH CIRCUIT CASE
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On October 4, 2004, the U.S. Supreme Court denied the telemarketers’ petition for writ of certiorari, thus declining to review the decision of the U.S. Court of Appeals for the Tenth Circuit in Mainstream Marketing Services, Inc. v. FTC. (34) In Mainstream Marketing Services, the Tenth Circuit found challenges by telemarketers to the FTC’s National Do Not Call Registry in four consolidated cases to be without merit and upheld the registry in its entirety. (35) The court noted that the National Do Not Call Registry generally allows individuals to register their telephone numbers on a national list and prohibits most commercial telemarketers from calling numbers on the list. (36) According to the court, the registry does not violate telemarketers’ commercial free speech rights under the First Amendment because (i) protecting privacy in the home and protecting consumers against the risk of fraudulent and abusive solicitation are substantial interests served by the registry
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FEDERAL ENFORCEMENT ACTIONS
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All amendments to the TSR and the FCC’s telemarketing regulations had taken effect by January 29, 2004. (39) Since then, the FTC has filed a number of enforcement actions charging violations of the National Do Not Call Registry. (40)
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In addition, on July 8, 2004, the FCC entered into a Consent Decree with AT&T Corporation to resolve issues regarding the company-specific do-not-call requirements and related matters. (41) AT&T agreed to make a voluntary payment of $490,000 to the U.S. Treasury. (42) In addition, AT&T agreed to take additional specific steps to ensure future compliance with the FCC’s do-not-call requirements, including: (i) quality control monitoring of the compliance of its telemarketing representatives and vendors with the obligation to accept do-not-call requests and appropriately transmit them for implementation on its do-not-call list
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The FTC has indicated that the federal do-not-call provisions are not intended to preempt state do-not-call laws at this time. (44) Rather, the FTC’s intent is (i) to work with those states that have enacted do-not-call laws and with the FCC to create one do-not-call registry system and a single set of compliance obligations, and (ii) to reserve further action on the issue of preemption until the FTC can assess the success of this unified approach. (45) The FCC has indicated that any state regulation of interstate telemarketing laws that is inconsistent with the national rules frustrates the federal do-not-call scheme and would almost certainly be preempted. (46)
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Legislatures in Hawaii, Idaho, Utah, and Nevada enacted statutes in 2004 that provide that the National Do Not Call Registry will be used as the state no-telemarketing call list. (47) Other state laws enacted or amended in 2004 that impact the business of telemarketing include the following features:
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* requiring a single do-not-call list that combines the federal registry with the state do-not-call list
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* prohibiting any telephone call that violates the FTC’s do-not-call rule or the FCC’s do-not-call rule
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* providing that it is an unfair or deceptive act or practice if a person engages in telephone solicitation of customers whose telephone number have been registered with the National Do Not Call Registry
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* providing that it is an unfair or deceptive act or practice to engage in telephone solicitations of customers who have previously communicated a desire not to receive telephone solicitations
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* expanding the “established business relationship” exception to include a voluntary, two-way communication between a seller or telephone solicitor and a residential subscriber on the basis of an application made within the immediately preceding eighteen months
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* expanding the exemption relating to charitable organizations to include any religious entity
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* prohibiting telemarketers from making telemarketing sales calls to consumers’ wireless telephones
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* removing the exception for calls to a person with whom the telephone solicitor has an existing business relationship or personal relationship when the person to be called has previously stated a desire not to receive telephone solicitation calls from the solicitor or on the solicitor’s behalf
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* requiring the transmission of the name and telephone number of telephone solicitors
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* regulating abandoned telephone calls
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* prohibiting the deceptive use of a financial institution’s name by a third party in a notification or solicitation. (58)
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(1.) FTC, National Do Not Call Registry Celebrates One-Year Anniversary (June 24, 2004), available at http://www.ftc.gov/lpa/2004/06/dncanny.htm.
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(3.) FTC, DNC Registry Complaint Details (June 22, 2004), available at http://www.ftc.gov/lpa/2004/ 06/dncanny.pdf.
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(4.) Requirements and/or instructions regulating other aspects of telemarketing (e.g., prohibitions against monitoring and recovery of telephone calls) or electronic communications (e.g., restrictions against unsolicited email for transmissions or text messages) are beyond the scope of this Article. For a discussion of state laws concerning unsolicited commercial electronic mail, see generally Vanessa A. Nelson, Use of UCE: State Laws Regarding Unsolicited Commercial Electronic Mail Advertisements, 59 BUS. LAW. 1203 (2004).
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(5.) See, e.g., Charles V. Gall & Margaret M. Stolar, Federal and State Telemarketing Developments, 59 BUS. LAW. 1241 (2004).
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(6.) Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. [subsection] 6101-6108 (2000)
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(7.) 16 C.F.R. [section] 310.4(a)(7)
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(9.) Telemarketing Sales Rule, 68 Fed. Reg. at 4626
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(10.) FTC, FTC Seeks Public Comment on Proposed Amendment of Telemarketing Sales Rule (Feb. 10, 2004), available at http://www.ftc.gov/opa/2004/02/040210tsrnpr.htm.
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(14.) Telemarketing Sales Rule, 69 Fed. Reg. 16,368 (Mar. 29, 2004) (to be codified at 16 C.F.R. pt. 310.4(b)(3)(iv)).
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(17.) Telemarketing Sales Rule Fees, 69 Fed. Reg. 23,701 (proposed Apr. 30, 2004) (to be codified at 16 C.F.R. pt. 310).
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(18.) Id. at 23,702 (internal citation omitted).
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(19.) Id. (internal citation omitted).
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(23.) Telemarketing Sales Rule Fees, 69 Fed. Reg. 45,580 (July 30, 2004) (to be codified at 16 C.F.R. pt. 310).
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(28.) Nat’l Fed’n of the Blind v. FTC, 303 F. Supp. 2d 707, 710 (D. Md. 2004).
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(34.) Mainstream Mktg. Servs., Inc. v. FTC, 125 S. Ct. 47 (2004).
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(35.) Mainstream Mktg. Servs., Inc. v. FTC, 358 F.3d 1228, 1236 (10th Cir. 2004).
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(37.) Id. at 1237-38, 1242.
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(39.) Telemarketing Sales Rule, 68 Fed. Reg. 4580 (Jan. 29, 2003) (to be codified at 16 C.F.R. pt. 310)
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(40.) See FTC, FTC Targets Major Do Not Call Registry Violator Peddling Bogus Debt Management Services (July 29, 2004), available at http://www.ftc.gov/opa/2004/07/dmfs.htm
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(41.) AT&T Corp., Order of Consent Decree, 19 FCC Rcd. 13,572 (2004).
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(42.) AT&T Corp., Consent Decree, 19 FCC Rcd. 13,574, 13,576 (2004).
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(44.) Telemarketing Sales Rule, 68 Fed. Reg. at 4638.
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(46.) Rules and Regulations Implementing the Telephone Consumer Protection Act (TCPA) of 1991, 68 Fed. Reg. at 44,155.
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(47.) HAW. REV. STAT. [section] 481P-2(a)(11) (Supp. 2004) (amended by S.B. 2902, 22d Leg., Reg. Sess. (Haw. 2004))
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(48.) See LA. REV. STAT. ANN. [section] 45:844.13(A) (West Supp. 2005) (amended by H.B. 1030, 2004 Leg. Reg. Sess. (La. 2004)).
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(49.) See 16 C.F.R. [section] 310.4(b)(1)(iii) (2004)
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(50.) See ALASKA STAT. [subsection] 45.50.471(b)(41), 45.50.475(a) (2004) (amended by H.B. 15, 23d Leg. (Alaska 2004)).
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(51.) Id. [section] 45.50.475(a)(3).
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(52.) See H.B. 535, 57th Leg., 2d Reg. Sess. (Idaho 2004).
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(53.) See UTAH CODE ANN. [subsection] 13-25a-111(1), 13-22-2 (Supp. 2004).
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(54.) See VA. CODE ANN. [section] 59.1-510 (Supp. 2004) (amended by S.B. 344, 2004 Leg. Sess. (Va. 2004) and H.B. 689, 2004 Leg. Sess. (Va. 2004)).
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(55.) VA. CODE ANN. [section] 59.1-514(D).
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(56.) S.B. 344, [section] 59.1-513(A), 2004 Leg. Sess. (Va. 2004)
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(57.) VA. CODE ANN. [section] 59.1-510 (amended by S.B. 344, [section] 59.1-513.1, 2004 Leg. Sess. (Va. 2004) and H.B. 689, [section] 59.1-513.1, 2004 Leg. Sess. (Va. 2004)).
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(58.) MO. REV. STAT. [section] 427.225 (2005), available at http:www.moga.state.mo.us/statutes/c400-499/ 4270000225.htm.
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* Carolyn S. Melvin is Assistant General Counsel at Chase Home Finance LLC in Columbus, Ohio. She is a member of the American Bar Association. This Article does not constitute legal advice, and the receipt of it does not create an attorney-client relationship.
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