Do Not Call: The Gathering Storm? By Joe
Sanscrainte, Call Compliance
On July 29th, 2003, the Federal Trade Commission (FTC) released its final
rules regarding the fees to be imposed on entities accessing its Do Not Call
(DNC) registry. This is the last piece of a complex puzzle that first began
being assembled in November of 1999. Now, some three years and eight months
later, this article attempts to provide some insight into how the pieces of
the puzzle fit (or in some cases, do not fit) together.
As Confucius said, to understand where we are, we must first understand
where we've been. Accordingly, before taking a look at how the state and
federal telemarketing regulations interact, this article will first provide
a brief tour down memory lane.
Do Not Call: A Brief History
In 1991, The Federal Communications Commission (FCC) was given the right
by Congress to take a look at launching a national DNC program, via the
Telephone Consumer Protection Act (TCPA). The FCC chose not to move forward
with such a list, opting instead for the company-specific approach (wherein
every company responsible for telemarketing calls must honor individual
consumer's requests to not be called again). The rules the FCC promulgated
in 1992 governed such company-specific lists, as well as faxes and calls
made by automatic telephone dialing systems. The FTC's telemarketing
regulations (the Telemarketing Sales Rule or TSR) went into effect as of
December 31, 1995. Like the FCC, the FTC adopted a company-specific DNC
regime, along with a set of extensive regulations governing virtually every
aspect of the telemarketing process, including disclosures, prohibitions
against misrepresentations, rules regarding the process of making a
purchase, and certain rules governing specific types of telemarketing
campaigns.
In November of 1999, the FTC began a mandatory review of its TSR rules,
which culminated in the release, in January of 2002, of a Notice of Proposed
Rulemaking (or NPRM). In this NPRM, the FTC proposed to create a national
DNC list, to amend its rules regarding purchase and billing requirements, to
add in provisions regarding blocking of caller I.D. and to amend the
application of its rules to non-profit calls. The FTC also requested comment
on how best to regulate the use of predictive dialers. After an extensive
'review and comment' period (which included a public forum), the FTC
released its amended TSR in December of 2002.
As many in the telemarketing industry expected, the amended TSR created a
national DNC list (managed by the FTC). The FTC also enacted a three percent
abandonment rate for calls made by predictive dialers, required the
transmission of caller I.D. information by telemarketers, enacted more
extensive rules governing purchases and collection of billing information,
expanded coverage of the rule to include upsells (sales made after an
initial telephonic transaction is completed), and extended coverage of many
of the TSR's rules to calls made on behalf of non-profits by for-profit call
centers.
At the time of the release of the amended TSR, many questions remained
open with regard to the FTC's rules. Most important, the FTC lacked
jurisdiction over many major industries (in-cluding common carriers, banks,
credit unions, savings and loans, companies engaged in the business of
insurance, and airlines); in addition, the FTC lacked jurisdiction over
calls made completely within a state (or intrastate calls.) Many of these
questions were answered on July 3, 2003, when the FCC released its new rules
and regulations implementing the Telephone Consumer Protection Act. Once
again, as expected by many in the telemarketing industry, the FCC enacted
rules adopting the FTC's DNC list as the official FCC DNC list. In addition,
the FCC's promulgated rules mandated a three percent abandonment rate for
predictive dialer calls, and required caller I.D. transmission by
telemarketers. Finally, the FCC beefed up its existing regulations governing
the use of auto-dialers and faxes.
Taking the above developments together with the FTC's recent promulgation
of its DNC Fee rules, it would appear that we now have one cohesive set of
DNC registry requirements, predictive dialer rules and caller I.D.
provisions that govern the vast majority of all commercial telemarketing
calls made in the United States. However, as so often occurs when dealing
with governmental regulations, the devil is in the details.
FTC/FCC Interaction
Congress tasked the FCC with 'maximizing consistency' between its rules
and the FTC's amended TSR. Although the FCC accomplished this in large
measure by adopting provisions regarding Federal DNC, abandonment and caller
I.D., there is still a number of significant differences between these two
regulatory schemes.
As mentioned, there are differences between the industries and/or types
of calls over which the FTC and the FCC may assert jurisdiction. Any attempt
by a telemarketer to determine what rules must be complied with must start
with a consideration of these jurisdictional questions. In terms of
substantive requirements, perhaps the most striking difference between the
FTC's and FCC's rules has to do with calls made by or on behalf of
charities. The FTC extended its jurisdiction to cover calls made by
for-profit call centers on behalf of charities; most important, these
entities must comply with 'in-house' requests by consumers. The FCC declined
to extend coverage of its rules to non-profits, and continues to completely
exempt all non-profit calls independent of source.
Another key difference between the two regulatory schemes has to do with
abandonment rate rules ' the FTC requires record keeping on a 'per-day,
per-calling campaign' basis, while the FCC only requires record keeping on a
30-day basis. In addition, the FTC considers any call delivering a
pre-recorded message to be an 'abandoned' call, in that the consumer
contacted is not connected with a live sales representative within the
mandatory time frame; the FCC does not consider pre-recorded messages
delivered either with consent or pursuant to an established business
relationship to be 'abandoned.'
The caller I.D. and company-specific DNC provisions also provide some
significant differences that must be taken into account. The FTC's caller
I.D. transmission rule is more generic than the FCC's rule ' it merely
requires telemarketers to transmit certain caller I.D. information without
going into specifics as to transmission criteria. The FCC's rule
specifically states a preference for one transmission method of caller I.D.
information (calling party number or CPN) over another (automated number
identification or ANI), and also expressly prohibits the blocking of caller
I.D. information. The FTC rules for company-specific DNC requests state no
time limit for either how long until the request must be honored or how long
the request itself is honored; the FCC rules are 30 days and five years,
respectively.
Finally, there are a number of areas where one agency has a set of rules
that are entirely absent from the other agency's rules, including: billing
requirements (FTC only), 'upsells' (FTC only), and prohibitions against
unsolicited advertisements to facsimile machines (FCC only). (For a complete
review of the FTC and FCC rules, see side-by-side comparison in Table 1.)
FTC/FCC/States: Preemption
From the time the FTC first began to look into creating a national DNC
program, the preemption question has been front and center for all
telemarketers, as well as for state-level DNC enforcement agencies. Although
a free nationwide DNC registry posed significant challenges to the industry,
many teleservices professionals felt a 'one-stop' shop at the national level
would help alleviate at least some of the frustrations associated with
multiple state-level DNC programs. At the same time, however, the majority
of state attorneys general, although supporting the creation of a nationwide
registry in concept, made it clear that any such program should not preempt
existing state DNC systems. (Note that although the preemption question
usually is raised in association with DNC programs, this question applies
across the full range of telemarketing regulations developed at the federal
level.)
Simmering in the background of the FTC's (and, in turn, the FCC's)
efforts was the fundamental issue of the states' ability to assert
jurisdiction over interstate calls. Starting with Florida in 1989, all
states operating DNC programs had consistently asserted jurisdiction over
interstate calls via so-called 'long-arm' statutes. Although never
successfully tested in court, the ability of states to assert DNC
enforcement powers over purely interstate calling was (and is) potentially
in conflict with the federal government's exclusive jurisdiction over
interstate commerce. (Conversely, the ability of the federal government to
assert jurisdiction over purely intrastate calls can arguably be called into
question as well.) It was up to the FTC and the FCC to navigate through
these competing, and highly volatile, concerns.
The FTC, handicapped by its highly limited jurisdictional reach,
essentially sidestepped the issue of preemption. In its 'Statement of Basis
and Purpose' for the TSR amendments, the FTC indicated that its DNC registry
would not preempt the state programs, but that it would work with the states
to create a single DNC registry system with a single set of compliance
obligations.
The FCC, with its broader jurisdiction, was nonetheless facing its own
preemption hurdles. The TCPA, the FCC's enabling statute for its
telemarketing regulations, specifically provides that in most instances,
'state law [is] not preempted.' In other words, the FCC was not given the
authority to 'occupy the field' of DNC law; instead, Congress gave the FCC,
at most, the right to promulgate a set of rules that create a regulatory
'floor' of protection for consumers. The states are still entirely free to
develop their own separate rules; however, as the FCC states, 'telemarketers
must comply with the federal [DNC] rules even if the state in which they are
telemarketing has adopted an otherwise applicable exemption.' Accordingly,
across the board, whether interstate or intrastate, the FCC has determined
that any less restrictive state rules are preempted.
There still remains, however, the question of state regulations that are
more restrictive (and/or different) than the FCC's rules. Factoring in the
wording of the TCPA (which refers only to more restrictive 'intrastate'
rules developed by states), the FCC concluded: (1) any state rule governing
purely intrastate calling that is more restrictive than an FCC rule will not
be preempted; and (2) ' . . . any state regulation of interstate
telemarketing calls that differs from our rules almost certainly would
conflict with and frustrate the federal scheme and almost certainly would be
preempted.' When it comes to interstate enforcement of state rules, the FCC
will consider 'any alleged conflicts between state and federal requirements
and the need for preemption on a case-by-case basis.'
Confused? You're not alone. One thing is clear ' the FCC has indicated
that states have the ability to develop more restrictive intrastate rules,
completely unfettered by federal intervention. On the interstate side,
things are a little murkier. Although the FCC clearly states that the same
'floor' it has laid down for intrastate calls applies interstate as well,
and that more restrictive and/or different interstate rules will 'almost
certainly' be preempted, it will be up to individual, case-by-case analysis
by the FCC to determine what this actually means. The number of potential
conflicts between state and FCC telemarketing regulations is extensive,
however, and the ends desired by the FCC (one set of regulations for all
interstate calls) may require a correspondingly extensive number of rulings.
How individual states will react to this approach remains to be seen (but
see discussion, below); the FCC, however, seemingly leaves the door open for
denying states the ability to enforce their telemarketing laws across state
lines altogether. The FCC finds that states 'traditionally have had
jurisdiction only over intrastate calls . . .' and only goes so far as to
state that interstate enforcement by states via long-arm statutes 'may' be
protected by the language of the TCPA. One possible implication of the FCC's
carefully worded admonition to states to 'avoid subjecting telemarketers to
inconsistent state rules' is that attempts by states to enforce
telemarketing regulations different than the FCC's across state lines may be
met with an FCC determination that states may only enforce their rules
intrastate.
Of immediate concern for telemarketers is, what happens now to all of the
state DNC exemptions that are in addition to, and/or different than, the
FCC's rules? The answer is ' to the extent any such rule is less restrictive
than the FCC's rules, it has been eliminated. Any such exemption would take
a state DNC program below the 'floor' established by the FCC, and thus, that
exemption is now preempted. Any state exemption in addition to the FCC's
exemptions (e.g., face-to-face sales, newspapers or financial institutions)
is no longer in force; any state exemption that differs from the FCC rules
in a less restrictive manner (e.g., an established business relationship
exemption that offers a 24-month window) is similarly unenforceable. States
still have the right to enact and enforce laws more restrictive than the
FCC's rules with regard to intrastate calls, but 'almost certainly' not for
interstate calls. Last, but not least, according to the terms of the TCPA as
interpreted by the FCC, all states must include in their DNC databases the
part of the federal-level DNC list that relates to that state.
FTC/FCC/States: DNC Programs
With enforcement of the FTC/FCC federal-level DNC set for October 1,
2003, there is still much to be determined with regard to state DNC
programs. At the time this article went to print, 38 states had enacted some
form of DNC legislation; there are 25 'live' DNC programs up and running
right now and 13 that are 'pending.' In terms of the FTC's plans to work
with the states to harmonize their respective DNC programs, only one of the
'live' DNC states (New York) has indicated it will discontinue its DNC
program in favor of the federal regime. Ten of these 'live' DNC states have
indicated they will share data to some extent with the federal program (four
will share data 'two-way,' five will incorporate federal data into their
state lists and one (Oklahoma) will provide its data to the FTC).
Of the thirteen 'pending' state lists, four (Montana, New Jersey, Utah
and Mississippi) are going to create separate state DNC programs; one state
(Nevada) has given its attorney general authority to review the
federal-level list and decide whether to adopt it or create a separate
state-run list. The remaining eight states (Arizona, California, Illinois,
Michigan, New Hampshire, New Mexico, North Dakota and South Dakota) have
opted to simply make use of the federal list.
In the meantime, there appears to be the beginning of a backlash of sorts
against the FCC's preemption plans. Richard Maloney, Connecticut Department
of Consumer Protection Director of Trade Practices, has been quoted in
several sources indicating that Connecticut will keep its own registry rules
intact because the state's rules are stricter, and that both intrastate and
interstate calls must adhere to Connecticut's rules. State Senator John
Erpenbach, author of Wisconsin's No Call bill, is reportedly urging the
Wisconsin attorney general and governor to mount a legal challenge against
the FCC's new rules, stating: 'I would assume that if we have to go by the
FCC rules, Wisconsin would fight to the death on this one.' Senator
Erpenbach and the Wisconsin attorney general's office are reportedly talking
to other states that operate DNC lists to gauge their interest in joining
the fight. Nielsen Cochran, the commissioner of the Mississippi Public
Service Commission (which launched a state-run DNC list on July 1, 2003),
was quoted as saying: 'Since . . . the FCC exerted its authority to join the
FTC on [a national DNC list], we've been doing nothing but trying to figure
out what it means to existing states that are implementing our own no-calls
lists. And I still don't know.' Adding in prior pronouncements of state
attorneys general on this topic, it would appear that this will be a
recurring issue for the FCC over the coming months.
The Future: Whither Telemarketing?
Any entity that either directly engages in telemarketing or outsources
calling to third-party call centers must immediately address the question of
how to apply all of the new federal rules to its calling campaigns. Every
element of the FTC and FCC rules has a corresponding record-keeping
requirement; should an entity be investigated, it will have to produce
records of sufficient detail to establish that it is in compliance with the
rules (and, as necessary, to maneuver within safe harbor provisions).
Another immediate concern is determining the method by which the
seller/telemarketer will be accessing the federal DNC list and, more
important, how it will achieve compliance with it. Under the FTC's DNC fee
rules, 'sellers' must register and pay $25 per area code per year (the first
five are free, however.) This fee is capped at $7,375 per year. The FTC
requires separate divisions, subsidiaries or affiliates of the seller to pay
a separate annual fee when: (1) the entity is separately incorporated or,
for a non-corporate entity such as a partnership, is a similarly distinct
legal entity; and (2) the entity has or markets under a different name.
Telemarketers and/or service providers hired by sellers may access the
list information for free by making use of the unique account number of the
seller on whose behalf they are providing services (such entities may also
independently and voluntarily access the information on their own, paying
the appropriate fees). All entities accessing the list must provide
certifications regarding use of the list in conformance with the FTC's
regulations; telemarketers and/or service providers, when accessing list via
seller-client(s) account number(s), must provide these account numbers, and
also identify each seller-client, to the FTC.
Given this framework, it is now up to sellers, telemarketers and
third-party vendors to determine the policies and procedures to be used in
accessing this information, and in certifying to the FTC that these policies
and procedures are in fact in compliance with the FTC's regulations. Since
information is provided to individual sellers by area code, telemarketers
and third-party vendors will need to track the area codes purchased by their
seller clients to ensure that sellers are not inadvertently given access to
area codes not specifically purchased. The new federal DNC fee rules should
also require some changes to existing contractual language between the
various parties involved.
Of even greater importance is the question of how to assure that DNC
numbers are not being called. Across the teleservices industry, many experts
are realizing that traditional database 'scrubbing' techniques, although
sufficient for performance management and efficiency purposes, are
ill-suited to handle the harsh realities of risk-management for purposes of
DNC compliance. As the risks associated with DNC liability increase,
teleservices professionals will increasingly turn their attention to
'blocking' technologies, which offer greater centralization opportunities
and the highest level of DNC compliance technologically possible.
Although the new FTC and FCC enactments have answered a number of
questions, many in the teleservices industry feel that many more questions
have been raised. Given the FCC's stance on preemption, is the process of
integrating state and federal DNC and related regulations now underway, or
has the FCC in essence issued an invitation to states to become more
creative in promulgating ever more restrictive telemarketing regulations?
Virtually every element of telemarketing law, from DNC exemptions to
registration/bonding requirements to disclosures and billing rules, is open
for further restrictions; to the extent these rules are more restrictive
than federal rules, the FCC has indicated that (at least for intrastate
calls) these rules can be enforced by the states. An additional question was
raised by the FCC's seeming unwillingness to concede that states have the
right to enforce telemarketing regulations across state lines. Should the
FCC make this determination, uniformity of these rules will be that much
easier to attain; however, this would certainly be met with vigorous
opposition from the states.
When it comes to DNC rules and 'harmonization' of federal and state
rules, it is an open question as to the extent to which states will
participate with the federal program. Both the FTC and the FCC foresee an
18-month transition period. To be sure, the more recent the DNC legislation,
the greater the likelihood that the state in question simply opts for using
the federal-level list. However, since the time the FTC announced its
amended TSR at the end of 2002, the number of state-run DNC programs (either
implemented or planned) has actually increased from 25 to 28. For those in
the teleservices industry who saw in a federal-level list the prospect of
one-stop shopping for DNC data, this number is clearly moving in the wrong
direction.
Finally, there is the 'wildcard' presented by the challenges filed by the
American Teleservices Association (ATA) against both the FTC and the FCC
rules. Many industry experts point to a number of excellent arguments raised
by the ATA concerning overreaching by the FTC and the FCC, as well as a long
line of supportive commercial free speech cases. Still others raise the
hurdles presented by recent decisions at the federal and state levels
regarding the constitutionality of the TCPA's facsimile rules, as well as
the sheer popularity of the DNC rules. Although prediction of an outcome
here would be merely conjecture, the ATA's $2 million war chest speaks
volumes about the desire and will of the teleservices industry to protect
its interests.
Joseph Sanscrainte is director of regulatory affairs and general counsel
with Call Compliance, Inc. of Glen Cove, NY, which offers its patented
TeleBlock Do Not Call blocking service and online state/federal regulatory
guide to the teleservices industry. He is regularly sought out as a speaker
on compliance issues and serves on the American Teleservices Association
(ATA) Education Committee, the American Resort Development Association's
state legislative and technology sub-committees and the Direct Marketing
Association's (DMA) teleservices council. He is a graduate of Georgetown Law
School.
For additional information and discussions about federal telemarketing
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