October 1998
Prior Restraint And Regulation
Of Outbound Telemarketing
BY ERROL COPILEVITZ AND WILLIAM E. RANEY, ESQS.
The telemarketing industry has too often been on the legal defensive when it comes to
how states and the federal government regulate. Legitimate telemarketing service agencies
providing a service face an ever increasing burden of regulation as more and more
government entities pass new laws. The industry has faced this burden since the telephone
was first used to generate sales.
Obviously, the burden has not been so heavy as to destroy the industry; the opposite is
true. In fact, the industry has grown at an impressive rate of speed for many years. This
growth has been the result of many factors, technology, decreasing cost of the medium,
etc., which have outweighed the increasing cost of regulatory compliance, as well as the
fact that more and more people enjoy the convenience of doing business at home. However,
it is undeniable that more and more states are imposing a broader range of burdens, and
Congress continues to consider and pass more laws regulating the industry.
States often adopt the examples of their sister states and the federal laws, so when
one state passes a particular type of law, that requirement will often be adopted by
others. At times this is a good way for states to protect their citizens, however, in
other situations, the benefit is unclear because the requirement either duplicates an
already applicable law (e.g., when a state passes a law exactly the same as an already
applicable federal law) or furthers an unclear or improper purpose.
One example of a type of telemarketing law which has spread from state to state is bans
on blocking of caller ID systems. Utah first passed this prohibition in 1996, and at last
count, Indiana, New Hampshire and Tennessee have passed similar legislation, and similar
bills were before the General Assembly in New York and the legislature in Missouri. The
other states have passed the law even though the benefits behind the prohibition are
uncertain - our clients' phone rooms, and those of most of the industry, use predictive
dialing technology which does not have an inbound number to be shown on a caller ID
display. The states' requirements are not being deliberately ignored, but are impossible
to satisfy, leaving an uncertain regulatory climate and little consumer benefit. Yet the
laws will continue to be passed by other states, and the industry remains on the
defensive.
Restrictive curfews, dizzying bonds and longer script disclosures are other examples of
requirements being adopted each year by more and more states.
It has been increasingly common for the industry to try to make its case before the
legislatures, and this is sometimes successful. Members of the industry have pointed to
the huge employment of telemarketing and its effects on the economies of every state when
arguing for compromise, rather than knee-jerk legislation. But knee-jerk legislation
sometimes makes good headlines, and that means "political hay" for legislators
running for office, and legislators continue to pass laws adding to the regulation burden,
despite industry lobbying efforts to the contrary.
Furthermore, lobbying could be of decreasing effectiveness to counter a given law as
more and more states adopt it. Nor is lobbying as effective to counteract a statute
already enacted, though industry trade groups have won some of these types of battles,
notably the American Telemarketing Association's efforts to revise the Pennsylvania call
monitoring requirement to allow service agencies to monitor their employees' phone calls
for quality control purposes without explicitly asking each consumer's permission to
monitor. Approximately ten state statutes remain, which arguably require dual party
consent to monitoring.
However, when lobbying fails or cannot be effectively mobilized on every front in the
face of many states' concurrent efforts, another avenue exists, one which allows the
industry, in certain circumstances, to take the offensive. The tactic sometimes available
is a constitutional challenge brought in federal court against statutes that go so far as
to violate the speech rights of the service agency's clients.
One possible example is the "immediate disconnect" requirements recently
adopted by several states. Basically, these statutes require that a telephone sales
representative immediately end a sales presentation if the consumer gives a negative
response at any time during the presentation. Some of the statutes require that the
solicitor ask the consumer during the beginning of the call whether he or she is
interested in hearing a sales presentation, while others merely prohibit the delivery of
additional information after the first "no." The chart below
details the extent of each statute.
The scope of this type of restriction is far reaching, and troubling. In the area of
outbound sales, just how important is it to have the opportunity to explain to a consumer
why the product is a good one, or to assuage the consumer's doubts?
What other types of sales persons are prevented from convincing a person who is
doubtful at first blush or from pursuing an equivocative sale?
Suffice it to say that these requirements do not apply to car dealers, who from
experience are prepared to rebut any consumer doubt regarding a possible purchase, clerks
at malls, door-to-door sales persons or anyone but telemarketers. Telemarketers, alone,
are prohibited by these statutes from explaining the value of their product after initial
hesitance. It is undeniable that the ability to convince a consumer of the quality of
one's product is invaluable to any type of sales; denying this ability to telemarketers
alone will hurt the industry, perhaps greatly.
To date, the State of Kansas has aggressively enforced its statute. In 1996 and 1997,
the state entered into assurances of voluntary discontinuance with major long-distance
providers involving penalties of more than $100,000 each, for solicitations for
long-distance services. The state also obtained several smaller settlements from service
agencies and other businesses. After the settlements, the Kansas legislature amended its
statute to eliminate the initial inquiry but still requires that solicitors
"immediately discontinue the solicitation if the person being solicited gives a
negative response at any time during the consumer telephone call." One company faced
an argument from an assistant attorney general approximately along this line: since it
made 10,000 calls in Kansas the previous year, and only 10 percent of them resulted in
sales, and since the script contained a "rebuttal" after the first negative
response, the company faced 9,000 separate violations of the statute. At the possibility
of a $1,000 fine for each violation, the company had a great incentive to settle rather
than litigate any defense.
All sizes of call centers and businesses, then, face the choice between handicapping
their sales force or the possibility of legal action and substantial fines.
It is unquestioned that states have the duty to protect their consumers from fraud, but
the method these statutes use to nominally protect consumers, however, is improper from a
constitutional standpoint. The First Amendment to the Constitution protects peoples' right
to otherwise lawful speech, and it is the First Amendment that these statutes violate.
At the core of the protections provided by the First Amendment is the idea that
government may not silence a speaker in advance of what he or she says simply on the mere
speculation that the speech might be illegal; such silencing in known as a prior
restraint. The Supreme Court has repeatedly ruled that prior restraints are
"abhorrent" to the First Amendment1. Fraud is illegal, and government is allowed
to punish its perpetrators, but government cannot silence someone for what they might say;
speech is just too important to our system of values to allow for the chance that the
government might be wrong, thus silencing someone whose speech would have been legal and
constitutionally protected.
All speakers enjoy these protections, including telephone solicitors. Believe it or
not, you have the right to offer to sell consumers goods or services by telephone. When
one of these statutes requires you to disconnect after the consumer's first objection,
even though you might have had the perfect response to overcome that objection, the state
is imposing a prior restraint on your speech, and is violating your First Amendment
rights.
The sale of goods or services is a form of commercial speech. This discourse is
protected by the First Amendment subject to certain limitations. Government interference
in otherwise lawful speech carries with it a rebuttable presumption that the law is
unconstitutional.
The consumer, not the government, is the proper party to decide when a solicitation
should end: the means to do so are literally at the consumer's fingertips. The consumer is
the proper person to decide when "no" means no and when "no" means
that more information is desired before a decision will be made. Government may punish
frauds and does so, every state has the legal ability to punish consumer fraud, but
government may not infringe upon free speech, commercial or otherwise, by silencing it
before utterance.
These statutes are vulnerable to constitutional challenge on First Amendment grounds.
The industry as a whole, furthermore, would be much more able to support this effort than
one company faced with defending an Attorney General's lawsuit and the potential of huge
fines. Finally, given their increasing popularity in state legislatures and their large
negative effect on sales, these statutes are likely to spread to other states until such a
challenge is brought.
The industry needs to consider asserting its rights to engage in lawful commercial
speech when it is appropriate to do so. Sometimes action is better than reaction.
1This is one of the most established rules of constitutional law. Near v. Minnesota,
283 U.S. 697 (1931). An important Supreme Court case for a potential challenge to these
laws is Freedman v. State of Maryland, 380 U.S. 51 (1965).
Errol Copilevitz is the senior partner of the law firm Copilevitz and Canter, P.C.
with offices in Kansas City, Missouri, and Washington, D.C. William E. Raney is an
associate in the Kansas City office of the firm. Copilevitz and Canter, P.C., provides
specialized legal services to businesses regarding compliance with telemarketing statutes,
litigation and contract issues. The firm has successfully litigated facial challenges to
state statutes for First Amendment grounds in more than 20 states in the last fifteen
years. The authors can be reached at 800-998-3977.
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