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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.


State

Statutory Language & Citation

Exemptions

Arkansas

"…If the person receiving the telephone call indicates that he or she does not want to hear about the charity, goods, or services, the caller shall not attempt to provide additional information during that conversation about the charity, goods, or services." Arkansas Legislation 1157 (1997) None.

Illinois

"A live operator soliciting the sale of goods shall: …Inquire at the beginning of the call whether the person called consents to the solicitation." 815 I.L.C.S. 413/15 (b)(2)
  1. Calls from persons registered under Illinois Securities Law at 1953
  2. Calls from licensed insurance agents

Kansas

"Any telephone solicitor who makes an unsolicited consumer telephone call to a residential telephone number shall: …Immediately discontinue the solicitation if the person being solicited gives a negative response at any time during the consumer telephone call…" K.S.A. 50-670 (b)(4)
  1. Calls made in response to a consumer’s request
  2. Calls made in connection with existing debt or contract
  3. Calls to persons with whom the solicitor has an existing business relationship
  4. Calls from newspaper publishers or their agents

Kentucky

"A caller making a telephone solicitation shall: …Within the first thirty seconds of the call…Inquire whether the consumer is interested in listening to a sales presentation and …immediately discontinue the solicitation if the consumer responds in the negative." K.R.S. Chapter 367 � 2 Standard commercial telemarketing exemptions including calls from publicly traded companies, magazine publishers, utility companies, supervised financial institutions, etc.

Mississippi

"Any telephone solicitor who makes an unsolicited telephonic sales call to a residential telephone number shall: …Discontinue the call immediately if at any time during the conversation the person being solicited expresses disinterest in continuing the call or sales presentation." Mississippi Statute � 77-3-603 (c)
  1. Calls made in response to a consumer’s request
  2. Calls made in connection with existing debt or contract
  3. Calls to persons with whom the solicitor has an existing business relationship

Oregon

"A person who solicits potential customers by telephone…as a seller is in violation…unless the person within thirty seconds after beginning the conversation…[i]nquires whether the person being solicited is interested in listening to a sales presentation and immediately discontinues the solicitation if the person being solicited gives a negative response…" O.R.S. � 646.611 None.

South Carolina

"Any telephone solicitor who makes an unsolicited consumer telephone call shall: …Within thirty seconds after beginning the conversation state the purpose of the call, allow the person called the opportunity to respond, and if the response is negative discontinue the call…" South Carolina Statute � 16-17-445 (B)(2) Same as Mississippi exemptions.

South Dakota

"Any telemarketer who makes an unsolicited consumer telephone call to a residential telephone number shall: …Within thirty seconds after beginning the conversation, inquire whether the person being solicited is interested in listening to a sales presentation and immediately discontinue the solicitation if the person solicited gives a negative response…" South Dakota Statute � 37-30A-2 (2) Same as Kansas exemptions.

Washington

"Within the first minute of the telephone call, a commercial telephone solicitor or salesperson shall: …Identify himself or herself, the company on whose behalf the solicitation is being made, the property, goods, or services being sold; and…Terminate the telephone call within ten seconds if the purchaser indicates he or she does not wish to continue the conversation." R.C.W. 19.158.110 (1)(b) See Kentucky exemptions.

Utah

"Any telephone solicitor who makes an unsolicited telephone call to a telephone number shall…Identify the purpose of the call promptly upon making contact by telephone with the person who is the object of the telephone solicitation…Discontinue the solicitation if the person being solicited gives a negative response at any time during the telephone call; and…Hang up the phone..." Utah Statute � 13-25a-103 Same as Mississippi exemptions.

 







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